Obama, the "fiscal cliff" and Herbert Hoover economics

I'll be posting quite a bit about the Grand Bargain to cut benefits on Social Security, Medicare and Medicaid that Obama is seeking.

But there is also an immediate, dramatic problem in Obama's embrace of Herbert Hoover economics at the end of his first term in office.

Bob Kuttner lays out the madness of seeking a contractionary fiscal policy at this point in the current depression in Obama and the Economy Huffington Post 10/28/2012. Apart from the specifics of cuts to benefits on Social Security, Medicare and Medicaid, this drastically conservative fiscal policy is a hugely bad idea. Kuttner:

In the parlance of economists, the economy is stuck in what the economist Irving Fisher called a debt-deflation, where the continuing damage from a financial collapse acts as a lead weight on the recovery. The only entity that can blast the economy out of a debt deflation is more public spending -- which of course cycles right back into the private economy.

So what is our president doing to shore up his support by reassuring voters that things will pick up in the next four years? More public investment, more jobs, more overhaul of the financial system, more relief for the mortgage mess, right?

Well, not exactly. While he gives lip service to these goals, Obama is preparing to do a major deal for deficit reduction, which will only add to the drag on the recovery. His administration has bought into the argument that the business elite and the money markets expect deficit reduction, and that it will also play well with the voters. ...

Say what? Four trillion dollars of deficit-reduction, otherwise known as economic contraction. Really? If Obama strikes such a deal, it guarantees that a sluggish economy will continue.

Kuttner was writing on Sunday of last week. But he's right about the political battle now on the center stage of domestic policy as of yesterday:

But on Wednesday morning, a struggle begins within the Democratic Party to save [Obama] (and us) from himself -- to keep him from agreeing to a budget deal that will only slow growth, needlessly sacrifice Social Security and Medicare, and make the next four years much like the last four years.

What a waste, what a pity. Progressive Democrats should be resisting the economic lunacy and political sway of an extremist Republican Party. Instead, they will be working to keep their own president from capitulating to fiscal folly.

It is a waste and a pity. But supporters of Social Security, Medicare and Medicaid have no choice but to fight Obama and the Republicans on this. Every Democrat in the Congress, every single one, who endorses benefits cuts to Social Security, Medicare or Medicaid should face a serious primary challenge for 2014, and the sooner the challenge starts, the better.

Tags: austerity economics, grand bargain, medicaid, medicare, social security