Who would Obama put first?

October 9, 2008

While Obama is promising now to not cut essential programs, his advisers are reviewing ways to do exactly that.

BY NOW, it's pretty much acknowledged that the next president will inherit an economic crisis that will put a strain on his administration's plans. Assuming, as it appears more likely by the day, that the next president will be Barack Obama, what impact will that have?

Obama told the Associated Press that "the next president will have to scale back his agenda and some of his proposals." But he has not spelled out what that means. In the first debate with John McCain, moderator Jim Lehrer gave both candidates an opportunity to explain what they would cut from their programs to be able to address the crisis. While this question allowed McCain to blather on about "earmark reform," Obama spent most of his answer explaining which of his priorities wouldn't be cut.

His advisers picked up where Obama left off. "I think it will be challenging to deal with the urgencies of the financial crisis and the winding down of the Iraq war, while also moving forward with major long-term agenda items like health care and climate change," Gene Sperling, an Obama adviser who was a top economic policymaker in the Clinton administration, told the Associated Press.

"I think that the cost of doing nothing on health care and climate change is so high that there is no case for putting off long-term action because you're in a short-term financial crisis," Sperling said.

It would be nice to assume that health care reform, an energy and infrastructure jobs program, and aid to education wouldn't be casualties of the ill-conceived $700 billion bailout plan (which both Obama and McCain voted for) or future similar efforts that are sure to come.

Unfortunately, that isn't the way Washington works. You can be sure that while Obama is promising now to make greedy Wall Streeters pay and not cut essential programs, his advisers are reviewing ways to do exactly that. The challenge for them will be not only identifying places in the budget to cut, but finding ways to sell the cuts to a fed-up electorate that will be expecting relief.

Given that Obama is likely to have a Democratic Congress with strong majorities in both houses, he should be able to get a program passed that isn't too much different from what he proposes. So if that program ends up making unpopular cuts to sustain Wall Street bailouts or the Pentagon budget, he shouldn't be allowed to use the excuse that he had to tilt right to win bipartisan support.

ANY AUSTERITY-driven program that he and his Democratic colleagues pass will reflect the fact that they want to step up to the role of American capital's preferred team after an election that looks set to leave the Republicans in shambles. Wall Street quite obviously leaned on the Democrats to win the unpopular bailout plan passed earlier this month. Meanwhile, business viewed the Republicans as "irresponsible" for having provided more "no" votes than the Democrats did.

One way for the Democrats to continue to rake in millions from big business is to continue spending billions to subsidize business--while providing the political cover for cutting back on spending that would benefit ordinary people.

Then there are priorities that aren't even up for debate. One of those is Obama's expansive foreign and military policy. Obama has already endorsed the foreign policy establishment's goal of adding up to 80,000 service members to the armed forces. While he has called for a winding down of the Iraq war, he wants to expand the war in Afghanistan. The Democratic Party platform calls for increasing the military budget, and Obama has even endorsed the multibillion-dollar boondoggle of national missile defense.

The Pentagon already accounts for 54 percent of discretionary federal budget spending annually. Obama's plans are likely to increase even that exorbitant level. But no one in the Washington establishment has called for cutting the massively wasteful Pentagon budget.

This blind spot was reaffirmed in the week that Congress passed the Paulson bailout plan. While the vote on the bailout was an occasion of high controversy, Congress passed a military budget of more than $600 billion without batting an eye.

Finally, there are ideological pressures on Obama, too. The liberal writer Robert Kuttner, in his book Obama's Challenge, acknowledges that Obama will face what he calls an "undertow" from the free-market ideology that still grips most of official Washington, which would hinder bold plans needed to rescue the economy. This undertow insists that tax cuts must be the main instruments of government policy, that the market is the most efficient means of allocating resources, and that public spending on anything from health care to infrastructure leads to inefficiency and corruption.

Kuttner acknowledges that Obama accepts this undertow. For instance, he notes that Obama has been very timid in advocating for his health care reform plan, in part, because he needs "to reassure business elites that he is not a Bolshevik."

In Obama's Challenge, Kuttner himself proposes a Keynesian program that Obama could adopt. It would include a total of $600 billion of spending on infrastructure, unemployment insurance and jobs programs, intergovernmental aid, universal pre-kindergarten and housing subsidies. Crucially, Kuttner's dream program also includes spending cuts worth $100 billion--and doesn't include a national health plan.

In comparison with the bailout bill, Kuttner's program seems like it would provide much more help to "Main Street"--and at a bargain price, compared to the Wall Street rescue.

But does something like it have the slightest chance of passing the next Congress? As noted above, there are powerful political, policy and ideological reasons that argue against it.

On the other hand, if the crisis is deep enough, the new administration may have to throw out its playbook and come up with something different. Kuttner places his emphasis on the role of a "transformative presidency" to change the direction of government policy: "It will take exceptional presidential leadership and the use of the presidency as teacher to explain to the public what markets do well and where they fail. Obama clearly has the skills to do that. We shall soon see whether he has the nerve."

More important than Obama's "nerve" will be whether ordinary people organize to demand that the next administration reflect their priorities, rather than Wall Street's.

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