Why Obama's Spending Freeze is Bad Policy

by M G · 2010-01-28 08:29:00 UTC
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One of the most newsworthy elements of President Obama's State of the Union speech last night was his call for a three-year freeze in the government's discretionary spending starting in 2011. It sounds like wise fiscal policy to do some housecleaning, to cut some of the bureaucracy that eats dollars in every federal agency and determine what's really necessary. But, as with so many government actions, the devil is in the details.

Budgets for the Departments of Defense, State, Homeland Security and Veterans Affairs would be exempt from the freeze. That means, of course, that the social programs poor Americans rely on would likely take an even bigger hit to make up the difference. And since spending would not keep up with inflation, what's called a freeze would have the effect of major cuts.

Programs like Medicare, Medicaid, food stamps and Social Security would not be cut under Obama's plan because the government is required to fully fund them. That leaves plenty of necessary programs on the chopping block, including public housing, rent assistance, job training efforts and education programs.

The imbalance in Obama's proposal is striking. For one thing, as military writer Fred Kaplan argues, there is plenty of fat to be trimmed in the Defense Department without crippling the military efforts in Afghanistan and Iraq. And although Veterans Affairs provides many crucial services for its beneficiaries, why are those inherently more valuable than public housing programs?

The biggest problem with Obama's proposed freeze, however, is that it threatens to decrease demand and cause stagnation in whatever job growth the stimulus bill brought, posing a major threat to people hit hard by the recession. Eminent economists like Robert Reich and Paul Krugman have argued that a freeze is simply bad economics. The actual savings (about $250 million over three years) represents a tiny fraction of the $9 trillion the U.S. is expected to add to the deficit during that time, but it's an amount that, if lost, will cause serious pain for struggling families at risk of losing their rent assistance.

Photo credit: Shay Haas

M G was most recently a staff reporter for The Washington Post, covering philanthropy and nonprofits, education and the war in Iraq.
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