PrintMay 11, 2009
Does the Deficit Matter?
Barack Obama signaled to the ECNPC (the ever compliant national press corps) last week, that they should make a big deal of his proposed $17 billion in spending cuts for the 2010 fiscal year, many of which (40%) were originally proposed by George Bush a year ago and not accepted by the Democratic controlled Congress at that time.
Today comes word that the new estimate for the deficit for 2009 is about $100 billion higher than thought just a month ago (and that incremental deficit, more than 5 times the size of Obama's proposed cuts, will be run up just in the remaining five months of the fiscal year).
The 2010 deficit number has also been revised -- also likely higher by nearly $100 billion. Expect more increments to this number as the year goes on.
One thing we can count on is that every estimate from the Administration proves to be optimistic and self serving (e.g. the $7 trillion ten year accumulated deficit, that the non-partisan Congressional Budget Office estimated at $9.3 trillion, or a third higher than the Obama budget team estimate). The new estimates are for a deficit of over $1.8 trillion for fiscal 2009, and what the New York Times will likely call a "greatly reduced" deficit of just under $1.3 trillion next year.
For fiscal 2009, federal spending of about 3.5 trillion will be supported 54% by collected tax revenues, and the rest (near half) by debt. That has never happened before in this country's history -- neither the size of the deficit (the 2009 deficit is 4 times as large as 2008's prior record deficit of 450 billion, and the 2010 deficit is 3 times as large as that of 2008) nor the record share of the deficit ( near 50%) that needs to be financed by debt.
What do you call a country whose government is half supported by debt, much of it foreign? Probably one that the International Monetary Fund would consider a basket case that needed to be put on an expenditure diet. The words "banana republic" and "Argentina" come to mind.
We know that the Obama administration's answer to the puzzle about why the deficit is so large: taxes are too low. It explains why a few times each week, it seems, the Treasury Department introduces a new initiative designed to close some "loophole" for corporations or wealthy Americans, the two principal whipping boys for this Administration.
Obviously, every dollar the Administration wants to spend ($3.6 trillion next year) is believed to be essential, except for the 17 billion proposed to be cut (less than one half of one per cent of total spending). The government's financial picture at the moment, were it a family or a corporation, would be unsustainable, and laughable. But the Obama administration and the ECNPC, will tell us (or try to sell us) that we have entered a new age of responsibility where we are taking on the big problems where we need to spend more- health care, energy, education.
Paul Krugman, one of the Administration's favorite economists, is encouraging even more stimulus spending on top of the $787 billion already signed into law by President Obama.
Are Americans so foolish that they do not understand that their government cannot spend twice what it "earns"?
Will Americans at some point catch on that foreign nations may not support our reckless spending forever, and it will have to come from greatly increased taxes -- not just on the heavily demagogued high income share of the population (fewer than 3%), but mostly from the middle class?
Will people understand that to attract buyers for all this new debt, interest rates for government debt will have to go up, which in turn will raise interest rates for everyone else in the country as well, putting a real damper on future economic growth?
If the Administration were concerned with the deficit, they would delay much of the new spending on new health care initiatives and education programs, and the stimulus bill would have been directed more at economic growth and job creation, and far less at rewarding Democratic Party interest groups.
Were economic growth a real concern, the idea of pushing a multi trillion dollar cap and trade tax on American consumers and businesses would never be considered now, especially with such scant evidence of any man-made global warming actually occurring.
It is hard not to conclude that the primary purpose of economic policy in the current administration is simply to increase the size of the public sector and shrink the private sector. Chris Bowers, a left wing blogger, said it best a month back -- that "progressives" should be very pleased with the Obama administration, since in less than three months, they had already increased the government's share of the economy by more than 3%. Think about that one; the essence of progressive policy is not where government money is spent, or what it achieves, just that more and more (an ever growing share) is spent by government, not the people who support it (they will have less to spend, since it will be taken away in taxes).
For anyone who thinks we are seeing a temporary spending binge due to the recession, and that federal spending will recede over time, maybe they can provide me a list of all the mothballed federal spending programs that the Congress, in particular a Democratic controlled Congress, has ever eliminated in he past. We are entering an ear of greatly increased federal spending, higher taxes, deficits, and interest rates, and slower economic growth. For an administration supposedly concerned with future generations, they are doing their best to ensure that those future generations will have an enormous hole to dig out from.
Richard Baehr is chief political correspondent of American Thinker.
