DISSENT: Obama, Hoover, Maynard Keynes?

President Barack Obama often induces comparison to Abraham Lincoln. However, his recent announcement of a budget schedule that slices the deficit by one-half aligns him with a less celebrated commander-in-chief: Herbert Hoover.

Hoover, the man whose infamous attempt to balance the budget in the face of skyrocketing unemployment and a deepening recession pushed the American economy over the edge into the Great Depression, is hardly a good example for our new president. Obama’s plans will not necessarily launch our economy into a depression. He is attempting to slash the deficit, not eliminate it, and there are certainly wasteful government expenditures worth cutting. However, it is important that Obama’s message to the American people is an unwavering pledge to end the economic plunge at all costs.

Instead, this announcement sends mixed signals. Obama recently signed a $787 billion stimulus package, the American Reinvestment and Recovery Act, into law. Tim Geithner just set out the skeleton for a plan to rescue the banking system that could cost up to $2.5 trillion. Obama is also holding fast to his campaign promises to reform health care and education. He has also highlighted Social Security as “the single most pressing fiscal challenge we face, by far.” Obama is an intelligent man and a gifted leader, but accomplishing all of this spending while slashing the budget deficit without sending taxes through the roof will take a rather large feat of magic, not just determination and fiscal responsibility.

Obama’s pledge points to either higher taxes down the road,or to broken promises. Higher taxes during recessions only exacerbate the pain felt by Americans and slow down recovery. The alternative, running a large deficit, is surely better than remaining in an economic downturn. In many ways, the wasteful, destructive policies of the Bush administration that turned a budget surplus into the largest deficit since World War II have limited Obama’s options. Eventually, he will have to take steps to cut the budget deficit. However, a large deficit is much more harmful to an economy at full employment than it is to an economy with a gap between potential and actual production. This compelled Obama to sign the stimulus into law. But his bark must match his bite. By mixing his messages, he casts doubt about his plans and his dedication to fixing the economy.

The details of the budget don’t take into account the possibilities of other potential measures Obama might have to take to save the economy. The current downturn was sparked by a bubble in house prices and the subprime mortgage crisis. Some economists forecast another wave of bad news over the next three years, as option ARMs and Alt-A mortgages start resetting. Other economists called for a larger stimulus package, and another might be needed in a couple of years. By highlighting the goal of halving the deficit, Obama limits his ability to react to future crises.

Obama’s economic policy, especially the stimulus package passed, shows a belief in the principles of Keynesian economics. Maynard Keynes himself once suggested that, to battle the Great Depression, we bury money underground and hire workers to dig it out. Hopefully, Obama’s policies to rejuvenate the economy are more useful than this, but his message should be closer to Keynes’s than to Hoover’s.



Malcolm-Wiley T. Floyd ’12, a Crimson editorial writer, lives in Weld Hall.