This might have been my least favorite sentence from the entire State of the Union speech:
Families across the country are tightening their belts and making tough decisions. The federal government should do the same.
It doesn't make a lot of sense to juxtapose family belt-tightening and federal belt-tightening. It makes even less sense for Obama to suggest that one justifies the other.
The rationale behind Keynesian stimulus is that weak consumer demand can kick off a vicious cycle. Families buy fewer goods; companies make less money; companies fire more workers; those workers make less money and buy fewer goods, and down we go. When families tighten their belts, the government is supposed to loosen its belt.
Indeed, loosening the belt is exactly what this government did when it passed a $787 billion stimulus plan just as the Federal Reserve bought trillions of dollars worth of assets. And before Obama got going with the belt-tightening parallelisms last night, he credited the recovery to ... the government's loose belts!
The plan that has made all of this [economic recovery] possible, from the tax cuts to the jobs, is the Recovery Act. That's right -- the Recovery Act, also known as the stimulus bill. Economists on the left and the right say this bill has helped save jobs and avert disaster.
If you're a Keynesian, Obama's belt metaphor should make you weep softly. But even if you're an anti-Keynesian, Obama's belt metaphor make you laugh derisively. Here's why: The CBO projected that 2010 federal outlays would increase by $5 billion to $3.52 trillion. Freezing non-security discretionary spending (that's the belt-tightening we're talking about) might shave off about $15 billion. That brings net belt-tightening in 2010 to $10 billion -- or 0.3 percent of the total budget. One third of one percent.
