On budget issues, President has been dismal

The Budget Talks -- Advantage: Republicans 

Robert Kuttner, HuffPost, Posted: 01/13/2013 10:41 pm

Unless President Obama drastically changes his goals and his tactics, the current round of budget negotiations can only lead to deeper spending cuts. Here's why.

The Two Roads to Fiscal Balance. Before we explore why the politics of budget cutting now favor the Republicans, let's keep in mind the economics: There are two possible roads to improved fiscal balance. Let's call them Road A and Road B. (By fiscal balance, I mean getting down a deficit that keeps the debt ratio stable, let's say 2 percent of GDP.)

Road A requires stringent cutting of the budget, which slows economic growth and gets us to fiscal balance at a relatively lower level of economic output. This, after all, was the widely touted danger of the original fiscal cliff -- too much deficit cutting too fast, pushing the economy back into recession.

Road B targets higher deficits for a few more years, uses public investment to stimulate a stronger recovery -- and the improved growth rate reduces the deficit ratio over the next decade. We get to fiscal balance a higher level of economic output. That's what happened during and after World War II, when the debt ratio was 120 percent of GDP in 1945 (compared to 72 percent today) and declined to under 30 percent by the late 1970s thanks to the postwar boom.

(More here.)