Obama proposed a spending freeze. Highlights from different articles:
President Obama will call for a three-year freeze in spending on many domestic programs, and for increases no greater than inflation after that, an initiative intended to signal his seriousness about cutting the budget deficit, administration officials said Monday. (New York Times)
and:
Under mounting pressure to rein in mammoth budget deficits, President Obama will propose in his State of the Union address a three-year freeze on federal funding that is not related to national security, a concession to public concern about government spending that could dramatically curtail Obama’s legislative ambitions. (Washington Post)
I think that a “double-dip” (to borrow, perhaps not completely accurate, terminology from the mainstream) is coming. The Federal Reserve’s massive inflation (the largest in history) is bound to have distorted capital markets, and this is more apparent in the stock market. There will probably be another loss in productivity in the near future.
If Obama does introduce this “spending freeze” (which is a misnomer, really), I have a fear that people will blame the double-dip on a drop in deficit spending. Of course, spending will not be frozen. Budget increases will be frozen, outside of “national security” (and, what does that really entail? what limitations does it impose?), and so the government will spend at a flat rate, so to speak. This is similar to what happened in 1936, 1937 and 1938, where government spending remained more or less the same (slightly less in 1937), but deficits dropped (although, in 1937 this was also due to a tax hike). The 1937 recession was blamed on the drop in deficit spending. I have a feeling that this will allow economists to make the same accusation, once again obfuscating the true reasons for the cause of the recession.
The articles linked to above are slightly misleading, mind you. For example, the New York Times writes:
The payoff in budget savings would be small relative to the deficit: The estimated $250 billion in savings over 10 years would be less than 3 percent of the roughly $9 trillion in additional deficits the government is expected to accumulate over that time.
Clearly, this is not money saved, but money not spent. The difference is that there will still be deficit spending, and so that money is not necessarily coming from a pool of revenue. It’s just a cost added to the national deficit.
Nevertheless, we have all experienced the method by which mainstream economists contort words to blame what does not deserve blame. But, I guess that they would have found something to blame a double-dip on regardless of Obama’s policies (maybe, that he didn’t spend enough?), so I am worrying over nothing.