photo by Kevin Dooley

One of the main reasons the current economic problem is so hard to solve and the battle lines are so starkly drawn is that there is strong disagreement on what the problem is and likewise the solutions. The mantra from the left is that the problem is Bush’s fault, there was too much deregulation under Bush, although no one points to any particular regulation repealed under Bush that caused the crisis, and that we don’t tax enough. Those on the right have a different view.

Conservatives believe that President Obama is hell bent on changing America from a world leader to just one part, co-equal with many others in a world government. Think of the European Union with America added. In addition, we believe, that Obama wants to remake America as another socialist state on the European model instead of fertile ground for creative entrepreneurs to plant the seeds of their dreams and watch them grow. Instead he wants to redistribute the wealth by taking from those who produce to those who do not.

At first blush this may seem compassionate even fitting within the Judeo-Christian philosophy of helping the least of our brothers. However, I don’t recall learning anywhere in my Catholic upbringing those passages in the Bible or among the church scholars where we should all defer to the government and shirk our individual responsibilities. In other words if the story of the Good Samaritan was played out today, the Samaritan would see the man beaten and lying on the side of the road, dial 911, and then go about his business without soiling his hands to help the poor man himself. No worry, there must be plenty of government programs to help the poor guy and better yet, we can tax the rich to pay for it. He would not be so crazy as to put the man in his car, take him to a private hospital, leave some money for expenses and promise to pay any shortfall on his return. That would be viewed as nutty. However, when Obama’s philosophy is in place for a long enough time it changes from that of helping those truly in need, to one of entitlement. If you doubt this you need only look and listen to the recent rioting in Britain. They can rob and loot from business owners, because they say they’re the rich and they deserve to get taken down a couple of pegs. But who is paying for their handouts?

But aside from our view of the role of government what about what has worked in the past and what has not? What about the lies that pack political punch but do not stand up to scrutiny. Let’s take a look at the “we have to tax more” lie.

President Bush was not a fiscal conservative. For example, he added the prescription drug benefit to Medicare without providing funding for it. But in an article in the Wall Street Journal giving a primer on the debt situation, John Steele Gordon says this:

That decline {of debt relative to GDP] ended in 2001 following the collapse of the dot-com bubble and rising unemployment in the resulting recession. By 2003 the debt-to-GDP ratio had risen to 61.7%. Many blame the Bush tax cuts for adversely impacting federal revenues, causing the debt to spiral upwards. But that is just not true. Federal revenues declined by almost 12% in the early years of the decade, but when the tax cuts fully kicked in in 2003, the economy began to grow strongly again and federal revenues increased 44% in the next four years, while unemployment fell to 4.2% from 6.2%. Federal outlays in those four years increased by only 26.4%, and while the debt-to-GDP ratio increased to 64.8% by 2007, that was still well below what it had been in 1994.

First, the Democrats love to hark back to the Clinton years, the last time we had budget surpluses, as proof of the genius of Democratic leadership. But when Bush became president and was hit with a recession and the bursting of the dot com bubble, why was that not Clinton’s fault? Answer: President Bush had more class than to point fingers. He took the hand he was dealt and played it. Likewise, when he left office he made no comments about his successor, unlike the equally classless former Presidents Carter and Clinton who can’t bring themselves to get off the political stage.

Bush cut taxes and brought the unemployment rate down to 4.2% from 6.2%, while Obama jacked up spending and the unemployment climbed from 7.7% and is stuck at over 9%, two years after the recession officially ended.

Second, the argument from the left is that we have to repeal the Bush Tax cuts because we cannot afford them. As Mr. Gordon points out we had a revenue boom. In 2007 the Treasury took in more revenue than at anytime in history. This is plainly a spending problem and we have to unwind the reckless spending. The spending under President Bush was out of control and under President Obama he has kicked into overdrive.

The “solutions” being floated talk about it taking 10, 20, 30, 40 years to get things under control. It didn’t take that long to get into this mess, why should it take that long to get out? Granted, we are facing the Baby Boomers going from paying into Social Security and Medicare to drawing out and addressing that has to be front and center. The ponzi schemes that are Social Security and Medicare, like all ponzi schemes, have reached the point where we don’t have enough new people paying in to keep the con going. It is collapsing and we need our representatives to come up with a workable solution. We need to return to Constitutionally limited government, and let the states handle those things that are not specifically delegated to the federal government by the Constitution as is clearly spelled out in the tenth amendment.

But first we need our representatives to act like grown ups and stop trying to score political points to get themselves reelected, and face up the what the problem really is, spending, and fix it. The golden goose is dead. It’s time to live within our means.

That’s my opinion; I’d like to know yours. Please comment below.

Photo by Beverly and Pack

Round one of the great debt debate is over. Now we move onto rolling up our sleeves and actually start cutting. The bad news is that President Obama and Harry Reid wasted no time in calling for tax increases despite their agreement to a debt deal that included no tax increases. The good news that the spending cut targets are minimums, there is nothing stopping Congress from making bigger cuts and if we ignore all the hand wringing and the “terrorist” smears, it may not be as hard as we think.

It’s called the “Penny Plan (HR 1848),” the brainchild of Florida Congressman Connie Mack. It is ridiculously simple and here is how it would work.

• Cap spending at current 2011 levels minus net interest and then cut one penny out of each dollar in spending, that is, 1%.
• For each of the next six years, cut the baseline from the previous year (less 1%) by another penny, or 1%.
• After six years expenditures should be down to 18% of GDP, the budget will be balanced and we can start paying off our debt.
• Future budgets would be capped at 18% of GDP

The Cato Institute held its semi-annual Policy Perspectives meeting at New York’s Waldorf Astoria hotel. The program included speakers on a number of topics, among them, what is being taught in our law schools; “Obamacare, What a Difference a Year Makes”; “The State of the Federal Budget”; and “The Coming Good News about Market Forces and Education.”

Opening his remarks with the greeting, “Happy Government Shutdown Eve!” it was clear that Tad DeHaven was going to present a hard hitting critique on the state of the federal budget.

He began by pointing out that we have doubled federal spending in one decade and that President Obama’s plan creates a permanent plateau of higher spending. Ironically, DeHaven points out, a quotation on the White House’s Office of Management and Budget’s web site says, “Rather than fight the same tired battles that have dominated Washington for decades, it’s time to try something new. Let’s invest in our people without leaving them a mountain of debt. Let’s meet our responsibility to the citizens who sent us here. Let’s try common sense. — President Barack Obama.” The background for DeHaven’s slide showed a rather tall mountain.

He gave a brief summary of the negotiations going on with the observation, “Washington is the one place where the circus never leaves town.”

He then gave a critique of the Paul Ryan plan giving it high marks for slowing the growth in spending, getting spending below 20% of GDP, greatly shrinking annual deficits, repealing Obamacare, tackling entitlements and tax reform. His disappointment was in the words around the numbers. Congressman Ryan’s plan speaks of many of the federal government programs being core American values, where libertarians find the federal government encroaching in many areas unauthorized by the Constitution.

I later asked Mr. DeHaven his views on the Rand Paul plan that would cut $500 billion in this year alone, and he said, “What separates Rand from practically every other Republican, including Ryan, is that he is guided by a principled understanding of what limited government really means. Others talk about it, Rand is actually serious about pursuing it.”

One other serious issue is that the Obama plan has spending at 24% of GDP for as far as the eye can see. President Obama will be taking another run at his failed budget plan to once again beat the “tax the rich” drum. The problem with his spending is that it runs into Hauser’s Law. As I point out in my book Liberty’s Lifeline, W. Kurt Hauser of the Hoover Institution looked at eighty years of tax revenue data and found that tax revenues will not rise above 20% of GDP no matter how high you raise tax rates. Which means that President Obama can talk about taxing the rich all day long but we will continue to have deficits if spending remains elevated at 24% of GDP. So to paraphrase, James Carville, “It’s the spending, stupid.”

That’s my opinion; I’d like to know yours. Please comment below.

Article first published as Cato Policy Perspectives 2011; The State of the Federal Budget on Blogcritics.

President Barack Obama released his budget blueprint on the same day the White House says it expects the budget deficit for the current fiscal year ending in October to hit $1.65 trillion. His budget calls for spending cuts of $1 trillion spread out over ten years. 

To put it another way, the cuts that the president is proposing will be less than the deficit in the first year alone, projected at $1.1 trillion. So the debt leviathan will continue to grow and with it, the interest payments required to satisfy it. While the nation is staggering under this massive and growing debt, this president still wants to spend $53 billion building high speed railroads. Such a program may create jobs to build such railroads and create jobs to man the trains, stations, and track, but they are make-work jobs that will be a burden on future budgets and future generations because anyone with a room temperature IQ knows that these trains will operate at a deficit, just like Amtrak does.

While showing extraordinary focus and determination in ramming his healthcare and other socialist programs down the throat of Americans that do not want them, his knees buckle when it comes to showing leadership on cutting the vast and growing entitlement programs.

 ”It is a patronizing plan that says to the American people that their concerns are not his concerns,” Senate Minority Leader Mitch McConnell (R., Ky.) said.

Also, noticeably absent from the president’s budget was most of the recommendations of the bipartisan budget panel he created via an executive order. There’s nothing like spending tax dollars on a show panel to buff up your fiscal “cred” before an election and then ignoring the results afterwards to build on your reputation for cynicism.

 Erskine Bowles, the Democratic chairman of the fiscal commission, said the White House budget request goes “nowhere near where they will have to go to resolve our fiscal nightmare.” – Washington Post

So there you have it folks, even Democrats are saying the president’s budget doesn’t go far enough. It will be up to the newly elected Republicans and the Tea Party who will hold those Republican’s feet to the fire, to get that job done.

That’s my opinion; I’d like to know yours.  Please comment below.

We have had several bubbles before, but if the Obama administration has their way, “you ain’t seen nothin’ yet.”  Currently the budget for the federal government is $4 trillion dollars.  That’s right, your federal government will spend approximately (which means probably more) $4 trillion in one year.  Of that amount $202 billion is interest on the national debt.  In an article in the New York Times today by 2019, a mere ten years from now, the portion of the budget directed to interest payments will be over $700 billion, or three and a half times what it is today.  Many people have trouble grasping how much a trillion dollars are, and within ten years we will be paying three-quarters of a trillion dollars just to cover the interest without paying off any of the principle.

Family Budget Analogy

We all understand the dramatic effects of too much debt, as the point has been driven home every day throughout this financial crisis.  Bankruptcy filings, home foreclosures, bailouts, all resulting from more debt than we can pay the interest on, let alone pay back the principle.  You see commercials on television every day for companies that will help you renegotiate your credit card debt, your mortgage, intervene on your behalf with the IRS.  None of those programs are available to the federal government as a debtor. 

Obama’s Out of Control Spending

The Obama administration seems oblivious to the problem.  As bad as it is they just keep on spending or want to spend more:

• Stimulus package — $787 billion.  Despite evidence that it is not working and widespread opposition from the American people, the Obama administration is simply declaring that it is working and we need to do it again with a second stimulus
• Cap and Trade — this is a program that will drive energy costs through the roof for no real benefit.  After all if, as is becoming more and more apparent, global warming is not man made then it cannot be stopped by man either.  Higher costs will lead to businesses closing down, laying off people, and generating less tax revenue from both the businesses and the individuals it laid off.  Result — an increase in the deficit.
• Health Care — another $1 trillion of IOUs piled on our children’s back and if Medicare’s history is any guide, these numbers are well below what will really happen.

The Truth About Government

The truth is that government doesn’t create anything.  They don’t generate income.  Everything that government has to spend comes from you and me.  The government takes it from us (or throws us in jail for tax evasion) and then spends it.  If they can’t get enough from us, they borrow the difference.  But somewhere down the line, that money has to get paid back.  A news report today said we have the opportunity to just write a check to the Treasury if we are concerned about the deficit and want to help pay it down!  Let’s see how many of Obama’s wealthy supporters sign up for that program.

Runaway Train

Our federal government is a runaway train and if we don’t stop it very soon and pare it back to the functions enumerated in the Constitution, we will get hit with a bubble so big, that there is no Hollywood screenwriter that could even begin to conceive of how to portray it.  $700 billion folks, that’s $2,059 in INTEREST for every man, woman and child in America.  Ask yourself this, if you are a family of four are you prepared to write a check for $8,235 to the federal government for interest alone?  You don’t get anything for your money, it just keeps your government from defaulting on what they already borrowed. This will be on top of your regular tax bill. And the next year you will have to pay it again and probably more.  It’s time to stop the madness.  It’s time to stop the spending.  It’s time to stop the expansion of government and start shutting down departments.  It’s what you would do at home in a financial crisis, it’s what a small business would do in a crisis.  This is a crisis that we can still get under control, but if the debt continues to grow to the point where we can no longer afford to pay even the interest, America will be a footnote in history.

Do I have your attention now?

Early this morning I was listening to a news broadcast where they said that this fiscal year’s federal budget deficit (October 2008-September 2009) will top $1 trillion which is more that triple the largest budget deficit in history.  That sounded pretty bad even considering the financial bailout that the government was undertaking to keep the money flowing.

Reading later in the day in the Wall Street Journal, Obama is quoted as saying, “We’re already looking at a $1 trillion budget deficit or close to a $1 trillion budget deficit, and potentially we’ve got $1 trillion deficits for years to come,” {emphasis added}.  Years to Come?  This is hope? This is change? I’ll give you a moment to try to wrap your mind around that statement before I continue.

If we see trillion dollar deficits for years to come, That’s All Folks!, our economy is gone, G-O-N-E.

Now I understand he may have just been saying that for the shock effect because he follows that statement with the another about the necessity of budget reform.  Budget reform? People, budget reform is not going to close a trillion dollar shortfall, and the very fact that the president-elect even utters the words is like shouting FIRE in a crowded theater.  Does he think that is leadership?  Here is where Obama’s lack of executive experience is on full display, and the man is yet to take office.

In an excellent piece on Cafe Hayek, Russ Roberts explains that if you cut taxes but you do not cut spending by an equal or larger amount, you are not really cutting taxes.  All you are doing is moving them around.  To put it another way, if you cut taxes today and spend the same or more, you are just deferring the taxes to later.  The debt will eventually have to be paid and it is paid through taxes.  So with trillion dollar budget deficits on the horizon, there will be a tax bill coming due that will crush the economy for us or for our children.

Someone needs to take Obama aside and tell him never to make such a public statement again, lest someone throw a net over him and carry him off to an asylum.  Second, he needs to get with his advisors and start hacking away at the size of the government and I recommend starting with the Department of Education.  Although it took 28 years for that department to spend a trillion dollars, it’s a start.  But this is not going to be fixed by tinkering or eliminating earmarks.  Our government has gotten too big and is meddling in too many things, causing many of the problems it is now trying to fix.  Government needs to be cut down to size.