Obama says government spending crucial to reinvigorating economy

With families and businesses cutting back on spending, the government must step in to keep the economy moving, President Obama said Tuesday in a major economic address.

In defending his stimulus program, Obama said economists from all ends of the political spectrum agree that cutting government spending during a recession is dangerous. He seemed to mock those who, he said, have accused the administration of "spending with reckless abandon, pushing a liberal social agenda while mortgaging our children's future," drawing laughs from a supportive crowd at Georgetown University. With those in the private sector reining in spending, it is the government's responsibility to step in and stimulate demand, the president said.

"The worst thing that we could do in a recession this severe is to try to cut government spending at the same time as families and businesses around the world are cutting back on their spending," Obama said. "So as serious as our deficit and debt problems are -- and they are very serious -- major efforts to deal with them have to focus on the medium- and long-term budget picture."

Obama named restoring fiscal discipline as one of his top priorities. He applauded his administration for identifying $2 trillion in deficit reductions over the next decade and devising a plan to save $40 billion through procurement reform. He also called Defense Secretary Robert Gates' recent budget announcements a "courageous" set of reforms that will deal with hundreds of billions of dollars in waste and cost overruns.

While continuing to echo his campaign promise to go through the federal budget line by line to eliminate unnecessary programs, Obama admitted that only major budget reforms will yield significant results.

"Let's not kid ourselves and suggest that we can do it by trimming a few earmarks, or cutting the budget for the National Endowment for the Arts," Obama said.

He noted that along with defense and interest on the national debt, the biggest costs in the budget by far are entitlement programs like Medicare, Medicaid and Social Security, which are getting more expensive every year. "If we want to get serious about fiscal discipline -- and I do -- then we are going to not only have to trim waste out of our discretionary budget, a process we have already begun, but we will also have to get serious about entitlement reform."

Obama likened the government's choices to those families across the country are making. While tackling the deficit issue will be a priority, the government can't afford to scrimp on investments such as renewable energy, health care and education, which will generate long-term prosperity, the president said.

"Just as a cash-strapped family may cut back on luxuries but will insist on spending money to get their children through college, so we as a country have to make current choices with an eye on the future," he said. "If we don't lay this new foundation, it won't be long before we are right back where we are today."