Obama Spending Plans A Work In Progress

While Barack Obama's presidential campaign began with stern talk about the federal deficit, he has been sounding a different note about government spending lately, signaling in his public remarks a newfound willingness to take on additional debt, at least in the near future.

In a press conference Monday naming the top members of his economic team, the president-elect pledged to address reporters’ questions about the yawning federal budget deficit at a second availability Tuesday.

“Short term we’ve got to focus on boosting the economy and creating 2.5 million jobs, but part and parcel of that is a plan for a sustainable fiscal situation, long-term, and that’s going to require some reforms in Washington,” Obama said. “I’m going to be discussing that more tomorrow.”

Obama's Tuesday press conference comes at a moment when he and his advisers continue to hedge their positions on deficit spending, obscuring their actual intentions as they move toward unveiling a potentially costly economic stimulus package.

Obama’s campaign website still includes a strong endorsement of pay-as-you-go spending, declaring: “Obama and Biden believe that a critical step in restoring fiscal discipline is enforcing pay-as-you-go (PAYGO) budgeting rules which require new spending commitments or tax changes to be paid for by cuts to other programs or new revenue.”

And throughout much of the 2008 campaign, Obama talked like a budget hawk. As recently as his third debate with Sen. John McCain, Obama touted his fiscally restrained proposals as a selling point for his campaign.

“Every dollar that I’ve proposed, I’ve proposed an additional cut so that it matches,” Obama told debate viewers.

But even as he kept talking tough on spending, then-candidate Obama was already pivoting toward making the case that the country’s deepening economic crisis would require increased deficit spending. In the same debate that he claimed to offset all his proposed outlays with new spending cuts, Obama also added an escape clause in his promises: budgetary balance might not be achievable until after the credit crisis has subsided.

“Once we get through this economic crisis and some of the specific proposals to get us out of this slump,” Obama said, “we’re not going to be able to go back to our profligate ways.”

Since November 4, Democratic congressional leaders have given reason to believe the House and Senate are preparing to authorize a new round of stimulus spending that could give new meaning to the term “profligate.”

Sen. Charles Schumer, the third-ranking Senate Democrat, told ABC’s “This Week” on Sunday that the country needed “a pretty big package here.”

“In my view,” Schumer said, “it has to be between 500 and 700 billion dollars.”

House Speaker Nancy Pelosi took a similar tack on CBS’s “Face the Nation,” arguing for a combination of spending measures to address the credit crisis.

“Something of several hundred billion,” Pelosi said, “would also have to be some investment into the future, plus creating jobs immediately and a tax cut.”

Obama’s own stance on running up the federal debt remains somewhat opaque, with the president-elect calling for both spending and sacrifice in his Monday press conference.

“We have a consensus, which is pretty rare, between conservative economists and liberal economists, that we need a big stimulus package that will jolt the economy back into shape,” Obama said, just moments after arguing: “To make the investments we need, we’ll have to scour our federal budget, line by line, and make meaningful cuts and sacrifices as well.”

Taking into account his lineup of economic advisers, the picture only gets marginally clearer.

Lawrence H. Summers, he former Treasury secretary who will head up Obama’s National Economic Council, has both called for stimulus spending and warned of the longer-range consequences of debt in recent months.

“While there is a strong case for new fiscal stimulus measures which by definition increase the deficit in the short run,” Summers told Congress in September, “the long-term federal budget situation remains a matter of great concern.”

Similarly, Obama’s future Treasury secretary, Timothy Geithner, who currently serves as president of the Federal Reserve Bank of New York, was involved in crafting this fall’s bailout package despite previously endorsing PAYGO rules and issuing stern warnings about the dangers of debt.

Harvard economist N. Gregory Mankiw, who served as the chairman of President Bush’s Council of Economic Advisers, said Obama’s new economic team – including Summers, Geithner and Berkeley economist Christina Romer, who will head Obama’s CEA – seemed to signal a view that budget shortfalls were a necessary cost of recovery.

“They are mainstream economists – left of center, but not radically so,” Mankiw said. “I have not asked them, specifically, this question, but if I had to put words in their mouth I would guess they’re willing to put up with deficits in the short term in order to get the economy back on track.”

Mankiw, who served last year as an adviser to former Massachusetts Gov. Mitt Romney’s presidential campaign, agreed that this was the appropriate response to the current economic situation.

“I think in the short run the deficit’s not a problem,” he said. “I think it’s a long-term problem.”

Michael Tanner, a budget expert at the libertarian Cato Institute, suggested that the new administration’s emerging economic team could reflect Obama’s desire to reassure investors that deficit spending was a necessary, but temporary measure.

“I think to some degree he picked the people he did to calm the markets in the face of this huge deficit they’re running up,” Tanner said. “I think Obama is at least aware that this can’t be open season on spending.”

Tanner added that the likely appointment of Peter Orszag, currently the head of the Congressional Budget Office, to run the Office of Management and Budget would also be an encouraging sign to deficit hawks.

At some point Obama and his team will have to come down more unambiguously on one side or the other of the deficit question. To date, however, the president-elect has sought to give himself as much political maneuvering room as possible.

“I’m not going to discuss numbers right now,” Obama said Monday, “because I think it’s important for my economic team to come back with a recommendation.”