The Obama White House just announced details of a two-year federal wage freeze as a means to reduce federal spending and deficits. [David Dayen has more.] The move is obviously political and only symbolic, because the dollars involved are trivial in relation to the total deficit. But more important, the White House rationale confirms for the umpteenth time that the Obama White House’s economic thinking and priorities are deeply flawed.

From today’s White House Fact Sheet: [my bold]

Because of the irresponsibility of the past decade, the President inherited a $1.3 trillion projected deficit upon taking office and an economic crisis that threatened to put the nation into a second Great Depression. He moved quickly to get the economy moving again. Now, the economy is growing, and we have gained private sector jobs for the past 10 months. But families and businesses are still hurting, and our top priority is making sure that we are doing everything we can to help boost economic growth and spur job creation.

Now, we need to turn our attention to addressing the massive deficits we inherited and the unsustainable fiscal course that we are on. Doing so will take some very tough choices. Just as families and businesses around the nation have tightened their belts so must their government. That must be done in a targeted way that focuses our investments in what works and in what will lay the foundation for job creation and economic growth for years to come while cutting back elsewhere in our budget.

For the umpteenth time, the Obama White House has made the foolish mistake of confusing efforts to “boost economic growth and spur job creation” with the need for near-term deficit reduction. Even his economic team tried to keep the two different time frames — short run vs long-run — separate. And for the umpteenth time, this President has repeated discredited Republican gibberish that when households are having to cut back spending during a recession, government should do the same thing.

That’s just wrong. Foolishly wrong. Depressingly (literally), tragically wrong.

The economy is suffering from, among other things, the collapse of the housing market and it’s relationship to a massively fraudulent, rapacious financial system. When housing prices collapsed — and they’re not done yet — households lost over $6 trillion in wealth and families lost trillions in retirement savings. With 15 million unemployed and millions more living in job and health insecurity, typical non-wealthy households have no choice but to cut back. So private spending cannot pull the economy out of the ditch as it has in the past. But that is not true of the federal government.

Government spending can pull the economy up from the bottom. And only government has the resources and the power to fill in the gap in aggregate demand to bring the economy and jobs back.

A government with its own currency is not a household. It has different abilities, different ways of affecting the economy and paying for things. It controls the money supply. And it has different responsibilities, including the obligation to pull the economy out of a deep recession, to help create jobs and foster job creation in the private sector. To do this under today’s conditions requires enhanced spending/investments by government, not less. And there has never been a better time for government to act, nor has the cost of acting ever been lower.

It’s counterproductive and stupid for the President of the United States to keep telling Americans the false argument that government needs to tighten its belt when households are tightening theirs. And it’s even worse to falsely claim that by focusing on deficit reduction, the government is “doing everything we can to help boost economic growth and spur job creation.”

It’s clear from watching Ireland, Portugal and Spain that government-imposed austerity does not solve the problem of depressed demand. It makes it worse, deepening the recession, worsening unemployment and imposing pain on the populace while crippling government’s ability to act. We’re watching these countries test all of the Republican and neo-liberal doctrines, and they’re all failing, yet we pretend not to notice and follow the same path. Republicans would even force the US to act as though it’s Spain, even though Spain is trapped into austerity by the Euro. That’s mindless.

As DeLong often explains, those who have the ability to borrow (or create money) — e.g., the federal government — must do so when the private sector can’t or won’t. As Krugman recently wrote in discussing austerity in Ireland, “punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake.”

This is not the first time this President has issued such, uh, unhelpful statements on the economy and deficit. Maybe he’s just badly served by economic or political advisers, or just doesn’t know any better. Either way, get some decent help, Mr. President, including someone who can tell you “NO!” the next time your instincts or advisers tell you to keep making the same mistakes, over and over.

John Chandley