Trillion-dollar deficits are not the answer

A very interesting article from Reuters.  the article was written by a former chief economist at the Labor Dept.

– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. —

On Tuesday, President Obama suggested that his new proposed spending, if adopted by Congress, would be an investment that will pay for itself.

Mr. Obama declared: “We invest in reform that will bring down the cost of health care for families, businesses, and our government.” Such investments, he argued, will in the long run make the economy operate more efficiently.

Mr. Obama was optimistic about how his policy recommendations, if enacted, would play out.  But the nonpartisan Congressional Budget Office estimated that government spending and the deficit would grow steadily from 2012 through 2019, not only in dollars, but also as a percent of GDP.

After “bottoming out” at $658 billion in 2012—a level more than 40 percent above the highest deficit under the presidency of George W. Bush— CBO projects the deficit to reach $1.2 trillion in 2019, or 6 percent of GDP.  By 2019 government spending would take up nearly a quarter of GDP, far higher than at the peak of Iraq war spending, and the highest, except 2009 and 2010, since World War II.

Mr. Obama’s stimulus plan and budget are not one-time investments followed by years of reduced spending.  Instead, they form a platform for spending growth that continues into the indefinite future.  The vast majority of this spending is not what a well-run business or the Internal Revenue Service would count as investment—plant, equipment, and other tangible assets. Rather, most of the Obama spending would be for services.

Although Mr. Obama wants to spend and borrow more, a failed UK government’s bond auction earlier this week showed that investors are not always ready to finance the debt. And there are limits to how high taxes can rise before slowing an already fragile economy.

Alternatively, is it possible for Mr. Obama to cut spending?  Menus of changes in spending and taxes provided by CBO since 1978 suggest the answer is yes.  The latest complete volume of Budget Options was issued in February 2007, and another is due out soon.  A volume of health care options to both increase and decrease spending was published in December 2008.

CBO lists billions in savings in 10-year increments.  If only politicians had the willpower to choose among them, the budget might well be balanced. Let me assure readers that if only economists were elected to Congress, the deficit would shrink soon enough.  Of course, the economists might not be reelected.  But politicians try to woo different interest groups by spending money, with the ultimate cost falling on generations of taxpayers.

Here are a few examples of savings calculated by CBO, all over 10-year periods.

  • Social security benefits are now indexed for inflation using a formula based on wage levels rather than price levels.  Changing to a price index would result in a 10-year savings of $141 billion.  Gradually raising the standard retirement age, which will reach 67 in 2026, to allow for increased life expectancies would save another $86 billion.
  • Changing Medicaid payments for acute care services into block grants to states, and indexing these payments for price increases and changes in population, would save $556 billion.
  • CBO estimated that giving a voucher to purchase health insurance to every uninsured family within 200% of the poverty line—that’s below an income of $44,000 for a family of four—would cost $65 billion, a savings of $569 billion over the Obama plan, which calls for a down payment on a universal health insurance fund of $634 billion.  Double the generosity of the CBO voucher, and that’s still $500 billion less in spending than the president proposed.
  • Although Mr. Obama last year proposed creating a public health plan for uninsured Americans that looked like the Federal Employees Health Benefits Program, CBO calculated that replacing the FEHB with a voucher programwould save $70 billion.

Other savings proposed by CBO range from $105 billion over ten years from reducing Federal aid to highways, to $13 billion from selling some Tennessee Valley Authority Electric Power assets, to $11 billion to eliminate Federal grants for wastewater and drinking water infrastructure, to savings from defense and agriculture.  All agencies are included.

In the name of investment, President Obama’s budget would increase the deficit by $4.8 trillion over the next decade.

He could serve us taxpayers better by carefully examining each line of spending and cutting the waste, as he promised us he would do during the campaign.

I loved the last line—” as he promised us he would do during the campaign.”  He pretended to be something he is not in the campaign—a moderate. He is, no doubt, a socailist. A big spending one at that. I have read projections that by the end of his term,  we will be 20 TRILLION DOLLARS  in debt!  We are truly becoming the “welfare state”.  I remember a time when Americans were full of ideas, ingenuity, and admired hard work.  The saying was about working hard and the sky’s the limit. We were the nation that started a military hardware industry overnight and in 4 years, virtually conquered the world!  We were the ones who in 1960 started a space program and, 9 years later, we were walking on the moon. It took hard work and a “can do” spirit.  Now, we whine, look for hand outs and elect sociailists.  I fear we maybe, the late great USA.

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One Response to “Trillion-dollar deficits are not the answer”

  1. matt Says:

    This blog’s great!! Thanks :).

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