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Administration Hints At Tax Increases, Spending Cuts - Just Like FDR Did In 1937, Making Unemployment Worse

I can draw only one of two conclusions: Either the Obama administration's economic advisers and their Congressional enablers are as dumb as a box of

I can draw only one of two conclusions: Either the Obama administration's economic advisers and their Congressional enablers are as dumb as a box of hammers and completely oblivious to the history of the first Great Depression, or they do know and are gambling with the nation's economy anyway - because they're afraid the Republicans might draw blood in the next election cycle:

WASHINGTON — Faced with anxiety in financial markets about the huge federal deficit and the potential for it to become an electoral liability for Democrats, the White House and Congressional leaders are weighing options for narrowing the gap, including a bipartisan commission that could force tax increases and spending cuts.

But even the idea of a panel to bridge the partisan divide has run into partisan objections. Many Democrats, including in the White House, are loath to cede such far-reaching decisions to a commission and doubt Republicans’ willingness to compromise. And most Republicans remain adamantly opposed to tax increases, leaving the prospects for any bipartisan approach limited at best.

The proponents, however, are pressing for a Senate vote this month. “If we have the same process and the same people, we are going to get the same results,” said Senator Evan Bayh, Democrat of Indiana, who recently met with Mr. Obama to discuss the idea. “The Democratic Party wants to spend more than we can afford, the Republican Party tends to want to cut taxes more than we can afford. So we are stuck.”

And of course, the grandstanding Mr. Bayh is the man who loves to agree with the Republicans.

Concerns about the deficit are building even as the White House and Congress continue to add to it with tax cuts and spending to stimulate a still-fragile economy. Yet those one-time costs do not trouble most economists and market analysts.

The main driver of long-term deficits is the chasm between the benefit programs Medicare and Medicaid, which are growing faster than the economy, and federal tax collections, which are at one of their lowest levels in many decades relative to the size of the economy.

Mr. Obama’s budget director, Peter R. Orszag, now at work on the president’s next budget, due in February for the 2011 fiscal year, declined to comment about a bipartisan commission and instead promised that the coming budget would propose additional ways to reduce the deficit beyond next year, when the economy is fully recovered.

Paul Krugman referred us to this just the other day:

Matt Yglesias makes a good point:

A lot of politicians and political operatives in DC are very impressed by polling that shows people concerned about the budget deficit. I think it would be really politically insane for people to take that too literally. If congress makes the deficit even bigger in a way that helps spur recovery, then come election day people will notice the recovery and be happy. If, by contrast, the labor market is still a disaster then people will be pissed off. It’s true that they might say they’re pissed off at the deficit, but the underlying source of anger is the objective bad conditions.

But the political argument against focusing on the deficit is even stronger than he realizes — because there are very good odds that even if Obama exhibited iron fiscal discipline, voters wouldn’t notice. There’s a remarkable, depressing paper by Achen and Bartels that includes an analysis of voter views of the deficit in 1996 — by which time the huge deficit that Bill Clinton inherited had been drastically reduced.

Here’s what voters thought they knew... Yep: after one of the biggest moves toward budget balance in history, a majority of Republicans, and a plurality of all voters, believed that deficits had increased.

Not to put too fine a point on it: if Obama succeeded in reducing the deficit, would Fox News or the Washington Times report it?

The truth is that the truth about budgets plays almost no role in real politics. Right now, Meg Whitman is campaigning for Governor of California on the claim that state spending has exploded over the last decade — when the fact is that it has fallen drastically in real per capita terms. Will she pay a price for this? Probably not.

So if I were a politician, I’d focus on providing real improvements in peoples’ lives, rather than seeking deficit reductions the public won’t even hear about.

Not to mention that in 1937, when FDR, under pressure from the Blue Dogs of his time, cut taxes and spending, it deepened and prolonged the Depression by driving unemployment back into double digits - and led to a major defeat in the 1938 mid-terms for the Democrats.

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