Paul Krugman gives the liberal view of the administration’s proposed budget:
The important thing, I think, is that [Obama] has effectively given up on the idea that the government can do anything to create jobs in a depressed economy. In effect, although without saying so explicitly, the Obama administration has accepted the Republican claim that stimulus failed, and should never be tried again.
If you think about the administration’s possible motivations for proposing a budget that reduces the deficit (even if only marginally), Krugman’s explanation makes sense.
The only other reason the administration would recommend a budget that contains spending cuts and tax hikes would be that Obama is trying to triangulate. In other words, he hasn’t given up on liberal interventionism, but is merely appeasing the increasingly anti-spending electorate with relatively small cuts to position himself as a centrist for 2012.
This explanation falls apart, though, when you consider that elevated unemployment is by the biggest political problem facing the president. If he believed that stimulus measures and fiscal expansion generally would improve the employment outlook, he would try to implement whatever such actions were politically possible — a far cry from cutting spending on heating fuel assistance or education grants for poor students. The benefits of improving the economy would far outweigh the costs of provoking the right wing.
So the fact that the administration has chosen against fiscal expansion is evidence that it doesn’t have faith in it. Maybe it thinks that the GOP could block any stimulus bills from becoming law, or that there aren’t enough short-term shovel-ready projects left to justify ramping up spending any further. Either way, Obama has demonstrated that he and his economic team are no longer sure that such aggressive interventions would be worth the trouble.