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Jewish World Review Feb. 16, 2011 / 12 Adar I, 5771 Obama's budget torpor By Robert Robb
http://www.JewishWorldReview.com |
The chief challenge facing the country is that we have a federal government bigger than we can afford.
In his budget, President Barack Obama indicated what he proposes to do about it: Not much.
In fact, the budget reveals that Obama's primary fiscal policy objective to convert the supposedly emergency spending to combat the recession into a new permanent baseline for federal spending in the future.
A little history makes this clear.
During Bill Clinton's administration, increases in federal spending averaged a little more than 3 percent a year. That basically doubled, to over 6 percent a year, during the first seven years of the George W. Bush administration.
Federal spending exploded with the anti-recession efforts of both Bush and Obama, increasing from $2.7 trillion in 2007 to $3.8 trillion this year.
For next year, Obama proposes to ratchet that back only slightly, to $3.7 trillion, then to resume spending increases from that much higher base at a rate of about 5 percent a year.
In the last year of Clinton's presidency, federal spending constituted about 18 percent of GDP. No one thought the federal government particularly emaciated at the time.
Bush pushed that up to 20 percent of GDP before the recession set in. It is now at 25 percent.
Obama proposes that it decline slightly to 24 percent next year and settle in at about 22.5 percent for the remainder of the 10-year budget planning horizon.
If the Clinton era spending restraint had been maintained, federal spending next year would be around $2.6 trillion, or $1.1 trillion less than Obama proposes to spend. The budget would be balanced, since that is what the administration is projecting for federal revenues for next year.
Add $200 billion for additional defense and security spending post 9/11, and there would be a deficit of basically that much. The federal government spends about that much each year on major physical plant and equipment. So there would be borrowing that is arguably fiscally prudent and certainly not a macroeconomic worry.
Instead, Obama proposes a deficit next year of $1.1 trillion. That would make for four years of deficits in excess of a trillion dollars to combat a recession that lasted 18 months.
Under Obama's proposed budget, the deficit would never get below $600 billion over the entire 10-year planning horizon. And even that is based upon some carefree assumptions about revenue increases and spending reductions.
As a result of the Bush-Obama anti-recession spending, accumulated federal debt as a percentage of GDP has ballooned to 75 percent. Since 1960, it had never gotten above 50 percent. Under Obama's proposed budget, federal debt as a percentage of GDP never goes down. In fact, it increases slightly.
Obama likes to play the "Not My Fault" card. In his view, he inherited an economy on the ropes and a federal government already headed toward deep deficits. For purposes of discussion, give him that.
Obama is, however, fully responsible for what he proposes to do from here. And what he proposes is to continue spending at the elevated anti-recession levels and continue to accumulate federal debt interminably.
Congressional Republicans are talking a tougher game. But the area in which they are proposing deeper cuts — so-called discretionary spending — constitutes less than 40 percent of the federal budget. It remains to be seen whether congressional Republicans, or Republican presidential candidates, will propose anything more than marginally more serious than Obama's budget plan.
The federal government will reach the legal limit of its borrowing capacity this spring. I used to think that playing games with increasing the debt limit would be a serious mistake. Now I'm not so sure.
It may be that trouble with the credit markets is the only thing that will shake Washington, and particularly Obama, out of the current torpor.
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JWR contributor Robert Robb is a columnist for The Arizona Republic. Comment by clicking here.
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