Liberals need to stop making excuses for Obama

The deal is done and the cuts are coming. But perhaps, to paraphrase Tony Blair, it's worse than we

Barack Obama's army of admirers has been doughtily defending his 31 July decision to do a deal on the debt with the Republicans, including $2.4trn (£1.46trn) in spending cuts over ten years and no new tax revenues. "His hands were tied" is a common refrain.

Perhaps. Or maybe the president tied his own hands. First, in December 2010, he refused to make the extension of the 2001 and 2003 Bush tax cuts for the wealthy dependent on raising the so-called debt ceiling. Then, during the protracted negotiations of recent weeks, he refused to invoke the "debt clause" of the 14th Amendment - a means of unilaterally raising the debt ceiling without congressional approval - and, in the words of his Democratic predecessor Bill Clinton, "force the courts" to stop him. And he refused throughout to use the "bully pulpit" of the presidency to go over the heads of his opponents and tell the truth about their obduracy and mendacity to the American people.

Obama has long styled himself as the Compromiser-in-Chief. The last time I checked, however, compromise involved give and take on both sides, not capitulation and surrender by one side time and again. "We got 98 per cent of what we wanted," bragged the Republican speaker of the House of Representatives, John Boehner, on 31 July. "A Tea Party triumph", read the headline of a 1 August Wall Street Journal editorial, which added: "The debt deal is a rare bipartisan victory for the forces of smaller government."

Note the word "bipartisan" - though half of the Democrats in the House of the Representatives voted against the deal, against one in three Republicans. "This deal trades people's livelihoods for the votes of a few unappeasable right-wing radicals, and I will not support it," said the left-leaning House Democrat Raúl Gri­jalva. "This deal weakens the Democratic Party as badly as it weakens the country."

No grow

As my colleague David Blanchflower argues in his column, this is bad news for the US economy. Austerity doesn't spur growth. Consider the view of even those high priests of neoliberalism at the International Monetary Fund (IMF). IMF analysts studied the effects of specific fiscal measures taken to reduce the deficit in 15 advanced economies between 1980 and 2009. They found only two cases (yes, two out of 170 examples across the 15) in which cuts in government spending turned out to be expansionary for the economy overall: in Denmark in 1983 and Ireland in 1987.

As they observe in chapter three of the IMF's 2010 World Economic Outlook report:

Fiscal consolidation typically has a contractionary effect on output. A fiscal consolidation equal to 1 per cent of GDP typically reduces GDP by about 0.5 per cent within two years and raises the unemployment rate by about 0.3 percentage point. Domestic demand - consumption and investment - falls by about 1 per cent.

The IMF's report joins a long list of empirical studies that debunk the misinformation of the austerity junkies. Take the research paper produced by the US economists Arjun Jayadev and Mike Konczal for the New York-based think tank the Roosevelt Institute in August 2010.

Of the 26 examples that they studied, the pair found only two examples of national governments successfully cutting their deficits in the middle of a slump without reducing future growth rates: Norway in 1983 and, again, Ireland in 1987.

The US budget deficit stands at a worryingly high 9.3 per cent of GDP - but, as Keynes put it: "Look after the unemployment and the budget will look after itself." The US unemployment rate stands at 9.2 per cent, which is concerning enough, but for Obama this is not a purely economic challenge. Not since Franklin D Roosevelt in the 1930s has a US president won re-election with the unemployment rate above 7.2 per cent, and it is estimated that by November 2012 it will be 7.8 per cent. Despite the absence so far of a credible Republican opponent, such figures don't bode well for Barack.

Slasher Barry

Obama's critics on the left are in a quandary. Is this the behaviour of a weak leader? Or a president who fetishises "compromise" and "consensus" over values and principles? Or is Obama, in his heart, a deficit hawk?

Despite claiming it wasn't the deal he would have "preferred", Obama said on 31 July that the cuts would result in "the lowest level of domestic spending since Dwight Eisenhower was president", more than 50 years ago. (To which Jared Bernstein, a leading economist and former adviser to the Obama White House, responded: "As if we've all been walking around thinking, 'If only we could get this budget category down to Ike levels, everything would fall into place.'")

In July, it was Obama, and not the Republicans, who first proposed making significant cuts to social security and Medicare spending as part of a wide-ranging deficit-reduction package. In April, after the president and congressional leaders reached a last-minute agreement to slash $38bn (£23bn) in federal spending and thereby avoid the first government shutdown in 15 years, it was Obama who hailed the deal as "the biggest annual spending cut in history". But was that something for US progressives to be proud of? The change they were supposed to believe in? Was the ripping up of the US ­social safety net what they'd audaciously hoped for?

It's too late on the debt. The deal is done and the cuts are coming. But perhaps, to paraphrase Tony Blair, it's worse than we think. Maybe Obama really believes in this stuff.

Mehdi Hasan's "The Debt Delusion" is published by Random House (£2.99 ebook)