January 9, 2009

Nervous Ain't the Word

Maybe it will turn out to have been a shrewd political move for Obama to announce before he is even inaugurated that America will be operating at a fiscal budget deficit around triple the worst year ever, probably for several years, and that we better just get used to the idea. Set the bar low and all. Has he suggested whether or not we ever have to worry about deficit spending again?

Politicians have never met a problem they didn't want to spend the people's tax money on, but they used to at least concern themselves with whether there were any tax revenues there to be spent. I'm not saying a government stimulus package isn't necessary...lots of people way smarter than I am say it is. But the idea of spending unprecedented trillions that we don't have, and throwing legislation together in a few weeks in a brand new administration would seem to be crazy even if government had an impeccable track record of spending money wisely and efficiently. Read all of Jen Rubin at Contentions asking "Are You Nervous Yet?". Here's a slice...

This sweeping, enormous legislative onslaught suffers from at least two problems. First, this sort of thing really hasn’t ever pulled us out of a recession. Second, it presupposes that an exquisitely balanced plan – with just the right sort of spending and just the right amount of taxes – can be divined and then slide through Congress unsullied and unaffected by base political concerns.

This is hubris squared. The problem with government-directed economies is that no economic guru is smart enough to duplicate or improve upon markets (yes, even ones subject to economic bubbles and excesses). And all the shovel-ready projects, health care “savings” and the like will all be subject to reams of government regulations, spools of red tape and heaping doses of irrationality, because it is, after all, the government. How this is going to help us grow the economy, which is what we’re trying to do here, remains a mystery. And then Congress will get its mitts on whatever plan (however clever it may be) comes out of the Obama team. And the bill will get worse — more arcane, convoluted, and expensive.

But I think something significant happened this week as people got down to talking about real (well, as “real” as a trillion can seem) numbers. The politicians, and maybe the voters, got a bit spooked. The cure could indeed be worse than the current predicament — especially if the “cure” is an iffy enterprise at best. We’re going to spend more than a trillion, very likely not get out of the ditch and still have to pay it off?

Perhaps everyone should stop racing around and think long and hard about this.

On a more positive budget note, Obama has talked about the need to begin the process of budget reform. One hopes he means entitlements, because we're in such deep water already with Social Security and Medicare that...well, if these numbers from Dan Calabrese don't freak you, (and especially your kids) nothing will...

The U.S. national debt now stands at $10.8 trillion, and President-elect Obama vows to toss another $775 billion on top of that almost as soon as he takes office – to "stimulate" the economy.

The dollar amount of the debt matters less than what it represents as a percentage of the nation´s gross domestic product, but when the economy stagnates and the federal government tries to stimulate it with spending, that percentage only becomes more troubling. In 2007, for example, the amount added to the national debt was about $460 billion – about 3.4 percent of GDP, the lowest figure in nearly a decade. But in 2008, we added more than $1.1 trillion to the debt. We increased the nation´s entire debt by 10 percent in one year – representing a whopping 7.4 percent of GDP.

Obama´s promised stimulus package virtually guarantees that we will do the same thing again in 2009.

At present, the U.S. government is spending $412 billion a year just paying the interest on the debt. We are not paying down any of the principal.

And it gets worse – much worse. The $10.8 trillion national debt is chump change compared to the $58 trillion in committed, but unfunded, Social Security and Medicare liabilities. There is no money sitting in any trust fund to pay these benefits. That´s why we call them unfunded. We don´t have the money, any money, to pay them.

Combine the debt and entitlements, and you´re looking at $70 trillion.

If the federal government started running a $500 billion surplus this year, and ran such a surplus every year from now on, and plowed every penny of it into debt retirement (don´t forget interest) and entitlements, it would likely take more than 200 years to pay off these obligations. Isn´t this something we might want to get started trying to do?

That was $70 trillion...with a 't'.

President Bush tried but failed to do it, and got nothing but derision from Democrats for his efforts. In 2005, they insisted in near unison that the entitlement system wasn't broken, when in reality the only principle at stake was that if Bush was for it, they were against it. It will be instructive if not a lot of fun to revisit the positions of Obama and other Democrats now that they are governing and the entitlement freight train continues to rush toward the edge of the cliff.

Posted by dan at January 9, 2009 10:50 PM