What President Obama Really Believes
Economic View - Finding Messages in a Blueprint - NYTimes.com (Gregory Mankiw, 03/14/2009)
In the recent New York Times report, Harvard professor Gregory Mankiw notes “there is no better place to learn what President Obama really believes than the budget proposal released late last month.” Here are his four observations about the president and his economic team:
❑ THEY ARE ECONOMIC OPTIMISTS. The proposed budget forecasts an average growth rate of 4 percent for the next four years, which is considered “way to optimistic” by some other economists including Gregory Mankiw.
❑ THEY LIKE TO SPEND. With the stimulus package and all the federal bailouts, federal outlays will be 27.7 percent of GDP in 2009 and 24.1 percent in 2010. Even after “the crisis is well behind us,” for instance, in four years with the economy recovered, federal outlays would still be 22.4 percent of GDP -- “well above the average of 20.2 percent over the last 50 years.”
❑ THEY ARE SERIOUS ABOUT CLIMATE CHANGE. The new administration will auction off a limited number of carbon allowances, which may raise a high amount of “climate revenues” while encouraging conservation through higher energy prices.
❑ THEY ARE DEFICIT DOVES. “Surprisingly similar to the Bush version,” the Obama budget will keep a high level of budget deficit (for instance, 3 percent of GDP) even during normal economic times. The two administrations offer different fiscal priorities though: President Obama will have less military spending, more domestic spending (such as Social Security and Medicare), and higher marginal tax rates.
Note that Gregory Mankiw was an adviser to President George W. Bush. This makes him in a unique and interesting position to offer such comparisons.