x Abu Dhabi, UAEWednesday 26 July 2017

Obama, the extravagant Keynesian

There's a right way, a wrong way, and now it seems, the Obama way.

Mathew Ridgway was the three-star US Army general who made a success out of the disaster that Douglas MacArthur had left him during the Korean War by provoking Chinese intervention. When Ridgeway took command in Nov 1950, US forces were demoralised and on the defensive. He plunged into the quagmire, shaking up his command chain and unleashing offensive tactics that dared the enemy to attack. He was constantly on the go, visiting forward units and ordering troops out of their barracks and into the field. Ridgway's confidence galvanised his troops and he quickly earned their respect. "There is the right way, the wrong way and the Ridgway," they would say about their commander's dogged intensity. This week, the US President, Barack Obama, showed us his way. It's getting so only military metaphors can do justice to the scope of the challenges Mr Obama faces, and the brazenness with which he confronts them. But the Ridgway-Obama comparison only goes so far. While the general understood there could be no total victory in Korea and settled for stalemate, Mr Obama in his young presidency has revealed a contempt for restraint. A day before the government announced the economy had shrunk by 6.2 per cent in the final quarter of last year, well below expectations and its worst contraction in nearly three decades, the White House unveiled a raspberry blow at half-measures in the form of a US$3.6 trillion (Dh13.22tn) budget request. Having conceded to Republican tax-cut zealots in negotiating his $787bn stimulus package - and getting little to show for it in the largely party-line vote that passed it - the White House wheeled out a proposed budget that will guarantee years of deficits worth trillions of dollars, including a $1.75tn revenue gap this year alone. It calls for spending growth for nearly every major government department, from the 1 per cent hike in defence expenditures to the Environmental Protection Agency's 35 per cent rise. And that's not counting the impact of the stimulus package. The Department of Education's entire allocation for fiscal 2010, for example, is slightly less than half the $81bn dollop it will receive in the next two years under the spending bill, while the Transportation Department will receive $191 million in supplemental spending over and above its $73bn budget outlay. Mr Obama's budget is less an annual accounting rite than a manifesto for activist governance. Although he promises "smart" rather than "big" government, his plan for an enlarged federal bureaucracy buries the notion popularised by the former president Ronald Reagan a quarter of a century ago that government is not an answer to the nation's ills, but the very malady itself. His budget sets aside a $634bn healthcare fund for uninsured Americans, a $150bn energy package, and a $750bn emergency fund carved out for the country's ailing financial system. He plans to pay for all this largely by taxing corporations and the rich. Economists applaud Mr Obama for including the costs of the wars in Iraq and Afghanistan as budget items - which accounts for much of those massive deficits - rather than financing them through supplemental spending bills, as did the former president George W Bush. But not everything about his proposed balance sheet stands up to close inspection. It assumes, for example, an economic growth rate next year of 3.2 per cent, well above independent forecasts of 2 per cent, as well as over-optimistic savings estimates from the winding down of the war in Iraq. Like a field marshal pivoting deftly from one battle front to the next, Mr Obama has shifted the national focus from the Audacity of Hope to the Audacity of Debt, even as he vows to cut the federal deficit in half by the end of his first term. A week ago, he delivered a speech to a joint session of Congress that toggled effortlessly between rhetoric both sombre and soaring, respectful and defiant. He offered an olive branch to the same Republican politicians who a week earlier had mauled him over the stimulus bill, making the opposition party seem like a gathering of mostly grumpy white Rotarians from a political ghetto of southern states. Following the speech, Mr Obama's already high approval ratings surpassed the 80 per cent level. If Mr Bush was roundly and justly criticised for being reckless, Mr Obama is proving to be quite the tightrope dancer himself. Economists are not surprised by the size of his healthcare, education and environmental initiatives, which figured prominently among his campaign pledges. But they never expected to see them all trotted out at once. Mr Obama clearly believes his political momentum and prestige can sustain him through what is likely to be a bruising fight with congressional Republicans, not unlike the way Mr Bush rammed through landmark legislation after September 11. Even if the president gets what he asks for, there are no guarantees his golden ladle will do anything more than burden a contracting economy with onerous new debt. By coming out so extravagantly on the side of Keynesian largesse, Mr Obama has tossed a noose on the floor of Congress. If he gets it right, his opponents swing. If he gets it wrong, he does. Eventually, the voters will render a verdict on the Obama way, and it will be a conclusive one. sglain@thenational.ae