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The announcement that President Obama will freeze non-military discretionary spending for three years has the liberal caucus in a tizzy. The key fact is that non-military discretionary spending today is about 25 percent of the budget. Freezing 25 percent of spending while entitlements grow faster than inflation does not confront our deficit, but it does make the Democratic base really really mad.

Here are five quick questions about the gambit and some answers.

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Democrats and the White House reached a deal with unions over the excise -- or "Cadillac" -- tax. The unions pushed back against the original tax, having fought for years to move more compensation into plush insurance plans. So Democrats had to broker a deal to win their approval. Now they have. Here's what the deal does:

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President Obama's promise of transparency and quixotic ambitions for the 2009 stimulus has created or saved a lot more bad press than the White House anticipated.

In January the White House promised to keep a running tally of stimulus jobs. One year later, beset by controversies, mini-scandals and major disappointments, the administration is nixing the cumulative counting in favor of a monthly tally of jobs associated with stimulus projects -- even if the jobs weren't in danger of being "lost" at any point.

This does not look good.

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TNR's Noam Scheiber peeks inside the Obama administration's "schizophrenic" attitude toward creating jobs while minding the deficit. The White House wants to spend money right now to create jobs, but it also wants to demonstrate to foreign investors that it can rein in spending to keep interest rates down. I sympathize with the administration's schizophrenia.

Egregiously moderate economist Brad DeLong is filled with bewilderment:

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The president's speech today to the Brookings Institution today isn't exclusively a job creation speech. It's more like a summary of the Obama administration's domestic policy pegged to job creation plans. But still, all the new stuff is in the job creation plans, so let's get to it. How do these ideas stack up?

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Wars cost money, even if President Bush's wartime tax cuts encouraged us to believe otherwise. So House Appropriations Chairman David Obey (D-Wis.) has made a modest proposal: To fund any escalation in Afghanistan with a surtax that would hit the top five percent of tax payers only. In the abstract, I think Obey's plan represents an important point. Budgeting is the art of prioritizing, and when we agonize over non-discretionary spending while blithely passing big war budgets with a flick of congressional "Yea" votes, we shield ourselves from the costs of war, stacking the deck in favor of foreign adventures, and against necessary domestic spending.

But there's a reasonable concern with Obey's specific proposal.

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The White House is hosting a job summit today to brainstorm ways to tackle unemployment. The numbers are familiar -- 10.2 percent unemployed; another 7 percent underemployed -- but the widespread pain they represent is extraordinary. Think of it this way. The number of unemployed Americans is currently about 16 million. That's the population of Pennsylvania and Connecticut combined. If you factor in underemployed workers, you get a population larger than the state of Texas. More than eight million have lost their jobs since December 2007. That's New Jersey. Almost six million Americans have been unemployed for more than six months. That's everyone in Maryland.

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Two weeks ago I wrote a column for the Daily Beast asking why Washington seems to think that our deficit makes additional spending "impossible" unless we're talking about adding troops to Afghanistan. It turns out I was being unfair -- but only to House Appropriations Committee Chairman Dave Obey (D-WI). Obey has proposed a tax equal to the additional cost of Obama's war strategy, which the president will announce next week. Is a war tax doable?

Well, it would be very expensive, almost impossible to "measure" and widely lambasted by every Republican and most Democrats. But other than that!

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The OECD has new estimates about America's GDP and unemployment rate over the next two years. Good news: Their GDP projections grew by 150%. Bad news: They still project growth will be 50% lower than during the 1984 recovery. Free Exchange pulls out the key stats. I have some thoughts toward 2010 and 2012.

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I've been railing on the White House to pass a job stimulus if they want to protect the Democrats' advantage in Congress. But this great work form Enik Rising suggests that employment means bubkes for midterm elections. Bubkes! Here's his evidence.

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Today Paul Krugman asks: What happens to health care after health care reform? (He assumes -- and I agree -- that its passage is a matter of when, not if.) Krugman writes:

If the Massachusetts experience is any guide, health care reform will have broad public support once it's in place and the scare stories are proved false. The new health care system will be criticized; people will demand changes and improvements; but only a small minority will want reform reversed.

I think it's more complicated than that.

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Another opinion poll of the public option is out. And guess what? The public still loves it. This is surprising to nobody except, it seems, the Washington Post. Dan Balz writes:

A new Washington Post-ABC News poll shows that support for a government-run health-care plan to compete with private insurers has rebounded from its summertime lows and wins clear majority support from the public.

Those "summertime lows" were sixty-two percent support in June, 52 percent support in August, and 55 percent in September. Those would be summertime lows if they were measuring, say, Washington, DC, temperature in Fahrenheit, but as support for a "controversial" and revolutionary health insurance reform, I'd call it a lasting majority.

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As health care reform moves from historic longshot to fait accompli, Democrats can feel the next crisis percolating: It's the jobs, stupid. Unemployment is going to hit 10 percent, and it's going to stay there for a while. Nobody questions this inevitability, they can only wonder (1) how high over 10 percent it's going to get and (2) how long it will stick around double digits. With the 2010 election-cum-referendum on the Obama administration now about 380 days away, what are they doing to help the job market? Let's count possibilities:

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Here's something you don't have a chance to say every day: Nancy Pelosi and Alan Greenspan agree! They both think a value-added tax -- which is basically a tax on consumption -- is worth a good look to increase government revenues. On Monday, I considered a consumption tax to be a huge political challenge, despite Greenspan's support, but maybe a small VAT has a chance in Congress after all.

Here's the Pelosi exchange on the Charlie Rose show:

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Behold the agony of compromise! Sen. Max Baucus was the supposed gang leader of the Senate's Gang of Six, a group of three Democrats and three Republican senators charged with reaching a bipartisan compromise on health care. Today Baucus released his health care proposal, and the Gang of Six appears to have dwindled to a Wolfpack of One. Let's review the loudest gripers:

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How hard was it to pass Medicare? Harry Truman failed to pass universal health coverage multiple times into the 1950s. John F. Kennedy failed to push Medicare through as a senator, and again as president. Even Lyndon B. Johnson couldn't pass the bill without "unseemly deal-making" and "a big pay-day to hospitals and doctors," writes David Leonhardt in the New York Times. And that was only after his 23-point landslide victory in 1964 coincided with the Democrats picking up their 68th seat in the Senate. In other words, it took a super-duper-majority in Congress and a hugely popular president. Matt Yglesias takes this history as evidence that Democrats needn't cling to the "get it right the first time" mantra.

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Last week I found these graphs which mapped the fluctuations of the Dow against approval ratings for the last six US presidents. In short: The two had almost nothing to do with each other. That's a little surprising, inasmuch as Americans allegedly vote on the economy, but when you think about it, the Dow isn't the most immediate indicator of economic strength. If anything, it's a leading indicator because its value represents what investors expect in the coming months, or years. But when it comes to voting (or approval in a poll) Americans will probably turn to something more immediate and tangible, like unemployment or inflation.

Like gasoline prices!

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A group of health economists finally gave the president some good news with a letter arguing that we can bend the long-term costs of health care with Obama's proposed Independent Medicare Advisory Council (IMAC). The IMAC would be like a Supreme Court for health care, delivering binding recommendations to doctors and insurers affecting procedure and cost. Some liberal blogs are counting this a win for Obama and budget director Peter Orszag against the Congressional Budget Office, which had expressed doubts about IMAC's ability to restrain costs. But I'm not as optimistic about the council.

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Does President Obama hate businesspeople? No, according to President Obama. The second thing that I took away from that BusinessWeek interview was a sense that the president seemed a little irked by suggestions that he was anti-business.

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Americans might despise bankers and disdain our elites, but we've always been squeamish about taxing the rich. So when the House of Representatives proposed a surtax on the top 1.2 percent of the population to pay for about half of its health care reform bill, moderate Democrats immediately pounced on the measure as unsellable to their constituents. And so, Speaker Nancy Pelosi now says she's looking to squeeze only millionaire families for the precious billions needed to keep heath care deficit neutral over the next ten years. Is this realistic?

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Today unemployment stands at 9.5 percent. That's awful, and it's far worse than the Obama administration envisioned at this point, even without a nearly $800 billion stimulus package passed in January. But it's not the worst we've had in the last 30 years. In late 1982, unemployment hit 10.8 percent. Some economists suspect we could hit that mark by early next year. How high could unemployment climb in this recession? Twelve percent? Thirteen percent? Here's the argument for a 14 percent peak:

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The prevailing concern among liberals is that health care reform in 2008 will follow in the footsteps of the 1993 debacle. This is a legitimate concern, and health care reformists would be wise to draw lessons from the Clintons' failure, but we don't need to reach back the 1990s for allusions to failed entitlement reform. Beleaguered Republicans could always sink health reform the way beleaguered 2005 Democrats torpedoed Social Security privatization: Paint the other side as radical conspirators against America.

George Will's Sunday column -- entitled We Don't Need Radical Health Care Reform -- accuses the Obama adminstration of coyly presenting a public "option" that will presage a universal public "system," a single-payer health apparatus entirely run the by the government. Obama's policies are far too ambitious given the problem of uninsured Americans, Will says, which could easily be solved with tax credits. In other words, for the most part, we should practically do nothing.

Will is right, for sure, that cutting a check to millions of Americans is a lot more politically feasible than trying dramatically change the landscape of private health care. And if you reach back one presidential term, the idea that a first-year attempt at entitlement reform threatens to change America for the worse sounds quite familiar.  Here's Paul Krugman's 2004 op-ed on the Bush administration's attempts to walk Social Security toward privatization.

Privatizing Social Security - replacing the current system, in whole or in part, with personal investment accounts - won't do anything to strengthen the system's finances. If anything, it will make things worse ... But since the politics of privatization depend on convincing the public that there is a Social Security crisis, the privatizers have done their best to invent one.

[Privatizers] come to bury Social Security, not to save it. They aren't sincerely concerned about the possibility that the system will someday fail; they're disturbed by the system's historic success ... And that's why the right wants to destroy it.

The elements are all there. Krugman then (like Will now) railed against a radical plan to give an entitlement system a facelift and beat the conspiracy drum to alert readers that the government was't being honest about their plans. In both cases, opponents argued that* dramatic entitlement reform wasn't necessary, but it was a microcosm of the perverse ideology that ruled the White House and sought to change the face of America forever.

Of couse, even if history echoes it doesn't exactly repeat itself. Social Security reform in 2005 was always a battle against public opinion. But as this NYT poll demonstrates, the public is far more willing to reform health care in 2009.

*Updated: Over at the Washington Monthly, Steve Benen takes me to task for saying that health care reform is just as unnecessary today as Social Security reform was in 2005. The thing is, I never meant to say that! And when I did, I was paraphrasing George Will. I did mean to say that the arguments against today's health care reform are remarkably similar to the arguments against Social Security reform, for all the reasons I state above. That's not to say the need for reform is equivalent at all -- only that the opposing arguments are similar, with Republicans now playing the role of spoiler. Just to be clear. Thanks Steve.

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Christopher Beam at Slate makes the excellent observation that President Obama excels at selling his policy reforms as the solution to a complex web of issues extending far beyond the core policy. Health care reform, for example, is always about more than health care. It's about corporate competitiveness, a nimble job market that isn't tethered to precious employer benefits, more disposable income for families, freed up state funds for education and infrastructure, diminished deficits, diminished reliance on foreign owners of the deficit, and so on. Beam quips, "the only thing left for Obama to cite is some statistic showing most terrorist attacks are the result of high premiums."

Beam hits on most of the advantages of Obama's karmic approach to selling policy, but I wanted to highlight two distinct drawbacks. First, it forces him to promise too much from his reforms. Second, as anybody who's played Jenga knows, interconnectedness has its risks.

To be sure, promising too much from your policies is a prerogative of governing. But in Obama's case, where no stone should be left unturned by reform, I think it threatens to raise public expectations to a level where reality will prove to be a consistent disappointment. Take his cap-and-trade policies. Obama sees it creating five million jobs, reducing emissions by 80 percent by 2050, and saving Americans $130 billion on energy bills.

Now wait. The point of cap-and-trade (or carbon taxing) is to price the negative externality of carbon pollution to discourage profligate production by firms and over-use by consumers. That means creating a little bit of hitherto unfelt pain to teach both sides the true cost of carbon. How do you raise the market price of carbon nearer to its environmental "cost" and save Americans money on their energy bills in the short term? It's not possible, really. Whether you auction the carbon allowances and kick back to consumers or don't auction the allowances and foot consumers with a larger bill, the price of energy has to rise. In the long term, perhaps, "everybody wins." In the short term, everybody pays.

There are other risks that follow inevitably from the everything-is-connected school of speaking. If every reform is balancing on another policy, what happens when that Jenga piece comes loose? Beam quotes Obama tying the GM bailout to health care reform. On the one hand, he's right to do so. GM pays $65 per hour to its employees when you factor in its bloated health care costs to current and retired workers, which contributed to its money woes. But it's ominous that today the New York Times released a poll finding that the public is falling behind the Obama administration on two key issues: GM and health care reform. While the president's overall approval rating is still a healthy 63 percent, views of the president's job with the auto industry and health care hover in the mid-to-low 40s, and this before what will be a sweltering summer of negotiations in DC.

Obama's ability to explain himself through narratives rather than sound bites is, on the whole, a distinct advantage, and Beam is right to focus his piece on the positive aspects of Obama's karmic worldview, in which we are all connected in the great circle of policy reform. But, as we head into a health care process where Obama clearly has more convincing to do, I wonder whether he'll continue to sample from a buffet of interconnected benefits of reform, or pick one theme and run with it.

Jenga! Flickr image from 416style.

Via Andrew, Richard Posner isn't too worried about the country's leftward drift. In fact, he thinks that if Obama shifts America too far from the center, it will be good for conservatism, opening the door for a Republican Bill Clinton. But what would a Republican Bill Clinton even look like?

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That's a question that's bugged a lot of economists recently. He's either a socialist revolutionary or a Wall Street poodle depending on whom you read. But this excellent piece from the New Republic is the best I've read explaining why he's neither -- why we're about to embark on four years of an economic policy that is unlike any other this country has ever seen, and why he could introduce a new American paradigm: boyfriend-economics.

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I never really thought about health care costs and education trends as being fundamentally interrelated, but this point, from Peter Orszag's blog post on "The Case for Reform in Education and Health Care," just makes so much sense:

For years now, there has been a long-running trend toward declining State investments in public universities, as growing health care costs come to crowd out States' investment in higher education.

If you're more of a visual person like me, maybe you'd like to see some graphs:

The images below illustrate the crowding out effect pretty effectively. Here's a graph of "Dollars of higher education appropriations per $1000 of personal income" since 1978 from Orszag's presentation.
And here's the the ratio of public salary to private salary for assistant, associate and full professors since 1978.
What we're seeing in these graphs is pretty clear: state investments in public education have not kept up with private sector salaries or personal income. And, as Orszag notes, you'd be wise to pin the downward slope in these graphs to skyrocketing health care spending.

You can argue over the relationship of education spending to student achievement (DC's exorbitant per-student spending is always ground zero for that discussion) but I think the more important point here is that clearly rising health care costs necessitate trade offs and budget cuts that have an terribly negative impact in policies that have nothing to do with health care. Our inability to control health costs is directly feeding our inability to field, among other things, an effective public education system. If Obama can make this case - that health care spending is more than a health care issue - he might be able to build a reform coalition large enough to finally bring the issue to the forefront on Captol Hill.