The Economist and Barak Obama

Last fall, the Economist endorsed Barak Obama for president in these words, "America should take a chance and make Barack Obama the next leader of the free world "It's time," The Economist, Print Edition, October 30, 2008.

Last week, the same periodical titled an article about the Obama budget as "Wishful, and dangerous, thinking" (The Economist, March 5, 2009). Much like Clive Crook, who wrote for The Economist at one time, they describe the budget as

...an ambitious and costly expansion of the government’s role in the lives of Americans. Its centrepiece is a big expansion of state-provided health care—for which he has budgeted $634 billion over the next decade while admitting that yet more will be needed. He will fill in the details in coming weeks (see article) while insisting the plan meets several criteria: it must extend insurance to the 15% of Americans who now lack it, it must help slow the growth in costs, and it must be paid for.

Add increased spending on education, energy and other initiatives, and federal expenditures, excluding defence, would rise to a new high of 18% of GDP in the coming decade....

Sadly, these plans are deeply flawed. First, Mr Obama’s budget forecasts that the economy will shrink 1.2% this year then grow by an average of 4% over the following four years. It might if the economy were to follow a conventional path back to full employment. But this is not a conventional recession. The unprecedented damage to household balance sheets could well result in anaemic economic growth for years, significantly undermining the president’s revenue projections. The economic outlook continues to darken and the stockmarket has already tumbled to 12-year lows. Mr Obama may either have to renege on his promise to slash the deficit to 3% of GDP in 2013 from more than 12% now, rein in his spending promises or raise taxes more.

Second, Mr Obama’s scattershot tax increases are a poor substitute for the wholesale reform America’s Byzantine tax code needs.

People who are not economists might believe that The Economist has recanted its support of the new administration. I do not believe that this interpretation is correct. Economists are a critical lot. Criticism should be viewed in relative terms. Until they write about the good old days of the Bush administration, or speak glowingly of an Obama competitor, I believe that their endorsement stands.