Opinion

The Great Debate

Trillion-dollar deficits are not the answer

March 26, 2009

– 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 program would 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.

Click here to read a related opinion column, “To Pay for Vital Programs, Congress Must Make Tough Choices,” by Deborah Weinstein of the Coalition on Human Needs.

Comments
67 comments so far | RSS Comments RSS

Typical right wing view: the way to cut spending is to slightly fleece those with less and tout it as a benefit to society in general. If we are to provide equality for all then those more fortunate at some point will be required to help those who are not. The upside of building the human capital base over 10 or 20 years–and the commensurate increase in production it will provide–will help to offset a long term deficit.

It’s an unfortunate fact that the cost savings talked about in this article could have been more than covered if right wing leaders of financial institutions had acted responsibly.

When the chips fall it is not the responsibility of the have nots to sacrifice even more than haves.

Posted by Gil Thomson | Report as abusive
 

The way the adminstration is “fixing” the economy will keep this country in record debt for at least 10-20 years. We should let these companies file for bankruptcy/reorganization and let the chips fall where they may. I read somewhere, I don’t remember where, of a very simply way to fix this economic problem faceing the U.S. and with some modification other countries economic problems as well. See if you agree with the following solution.
1) There are approximately 40 million people out of work.
2) Give each person out of work $1 million with just 2 mandatory conditions.
First: They must pay off all of their debits…BANKING PROBLEM SOLVED, NO MORE FORECLOSURES, REAL ESTATE PRICES WILL INCREASE, NO MORE LOST EQUITY.
Second: They must buy a new American made car…WITH 40 MILLION CARS SOLD THE AUTO INDUSTRY IS BACK ON TRACK, NO MORE HIGH UNEMPLOYMENT.

Think about it. The problem can be fixed with only $40 million dollars of our tax money not the billions now being spent.

Posted by BOO-HOO | Report as abusive
 

If Obama people can explain in plain simple terms to the people where the money to pay for these projects will come from, Dollar for Dollar, then it will be more clearer, but unfortunately they cant. So what we can do, press them to explain it to all the tax payers, when we spend a dollar here, that means we are taking it from here. If there is nothing in there, we will borrow from Aunt Rita. Now one of the biggest factor that seems no one touches yet, WHAT IF, the Chinese, Japanese, Europeans and Saudis demand even if they have to forfeit future income from their investments here, demand to cash out, what will happen then, WHAT IF, instead of growing the economy by 2.5 5 to 3.5% we end up having negative growth, where are we going to get the money to service these debts. How in the world a massive spending spree ends up and eventually classified as investments for the future.

What Obama’s budget is doing is no more different than what created these toxic assets. He is leveraging too much, instead of spending only what we have, he is borrowing a lot to finance his dream set-up. Remember, he never run a real business so he does not have any idea how real business works. I hope and pray that at least some of the plans works otherwise, well see a sequel to the current mess. We dont need to go any further, look at the history of Japan. They injected a lot of stimulus and it work for the first few years and then when it hits back, it made the original problem worst.

At least Obama will have a lot of Bridges and Highways that no one wanted to use for they will be charging Tolls and Fees, lots of graduates that cant find job and what else, Nobel Prize for Global Climate.

Posted by Jefroks | Report as abusive
 

Furchgott was dep’t. of Labor, but dont’ let this fool you–don’t confuse it w/, say, the Labor party in England. Or the labor movement. She’s a neocon, and the hudson inst. is as neocon. as the hoover, or worse. This is the same thing as Dick Cheney going around telling us we’re going to be less safe b/c of an open dialogue instead of waterboarding.

Posted by Quint | Report as abusive
 

To BOO-HOO:

I like the idea of your plan, but what about all those who do work? I want a million dollars. I do think you need to check you math though. 40 million (40,000,000) people times $1 million ($1,000,000)is really $40,000,000,000,000. that is 4000 times more than $1 trillion.

I for one am not a fan of any of the new administrations budget/tarp/stimulus plans. We can blame G.W. Bush all we want for the economic problems we have, but they have been building for at least 20 years. If it wasn’t for the financial industry’s unregulated derivative products that were started in the 80′s and lobbied for agressively throughout the 90′s the economic crisis would not be a tenth as bad as it is. Thank you Clinton for finally signing a bill during your last hours that deregulated that part of industry.

Posted by MP | Report as abusive
 

All these problems can be easily solved, just look at voting records and unlike this crazed neocon writer pay attention to your congressman’s/president’s voting records.

Easy Solution: Vote for Ron Paul in 2012, stop feeding a trash political system with 2 identical big government parties.

Posted by Michael Ham | Report as abusive
 

Stop the crying already. Not one of you out there has paid one dime yet. All of you sat on buts when Bush was spending $2,000,000,000,000.00 for a war no one wanted. Now the President who has not office for a hundred days has just taken your last dollar. The only dollars spent so far is what went to AIG. by the Bushwackers. The only way out of this is spend our way out just FDR. Tax cuts that is a joke when you are out of work how is anyone going to cut your tax when you are not paying any???????? Wake up and stop acting like a rich conservative Republican!

 

Global warming has to be slowing down as less energy is required by China and India et al.Baby mortalities are up,people don`t fly as before as they holiday closer to home. Less wastage from restaurants as people eat out less.Less energy being used .It all adds up to the nature of man bringing about ,albeit inadvertently,the radical diminution of his/her carbon footprint .

Posted by deborah | Report as abusive
 

You cant cure the evils of overspending, deficiet spending by more overspending. Bring back the judaeo-christian ethic to Washington. I bet Mohammed would agree. John

Posted by ginsengjohn | Report as abusive
 

Russell, Russell, Russell….relax a bit, take a breath, and then explain to me why you liberals get sooooo angry when anyone takes an opposing view. From the tone of your comments, it is obvious that you voted for this far-left socialist.

However, if cannot comprehend the long-term effects of Obama’s borrowing, then perhaps you should actually try listening to someone who is just trying to point out fact, rather than scream and point blame. Sure, Bush did us no favors, but you need to understand that the problems we face today are the product of decades of poor choices by greed/power motivated politicians – on both sides of ‘the aisle’.

The problem I have with liberals is that, no matter what happens, its always someone else’s fault. Are you currently unemployed, or know someone who is? Then, good Lord, man…why haven’t you called Mr Obama yet and asked him for that change he promised?

Don’t hold your breath. The only “change” you will see is in the over-growth of government, an increase in taxes to cover spending, a rise in unemployment, inflation, and an increase in government control of your life.

I have a hard time believing this is being allowed, and actually encouraged, by the likes of you. Personally, I feel you will have a better chance of getting “change you can believe in” by standing on a street corner soliciting strangers.

Posted by Nomus Johnson | Report as abusive
 

Free Market Capitalism is the unequal distribution of wealth. Socialism is the equal distribution of poverty. Take your pick. Robinhood was either a thief or a Defender of the poor and deprived.

Fairness screws the middle class in exchange for a few more services for the lives of the less fortunate or uninspired. We are beginning to trade percieved fairness for what once was well concieved guidelines for a balanced economic system. Now we have played out our sympathies by praying upon peoples emotions and chastizing who is potrayed as unsympathetic. As a whole we have been led to believe that big business is run by a bunch of crooks when in fact the government got us here.

This problem is neither Bush’s fault or Obama’s fault. This is our Governments fault. They have taken us here by dividing us. This whole economic crisis is an inside job. A trade went on here that brought the economy to its knees. I call it the War for Houses Tragedy. Why is it so difficult to understand. The world operates off of inverse relationships. It was the perfect strategy to drive the economy downward in exchange for quick amounts of unsubstantiated and unsustainable cash payouts.

The same guys who are putting together the budget are the same guys who took the money from AIG, defended Fannie Mae and Freddie Mac. Please stop blaming business. The forces who want their money demonize them so they can get public support. Look what they did to the AIG people who recieved the retention bonuses. First the government says it okay that AIG pay them and as soon as we find out they demonize them. Business people in particular industrialists are the most honest of all types. Far more honest than big government bureaucrats. That a fact!

Posted by tjohnson | Report as abusive
 

As I always say, “America gets what America wants!” America wanted change for changes sake and now they are going to choke on it.

Posted by Pal Adino | Report as abusive
 

TJ Johnson,

I agree with part of that but my biggest disagreement is pointing the finger at poor or uninspired people. The non-medical welfare budget is a fraction of the bailout budget which does nothing but help white-collared yuppies on Wall Street.

One of these days we’ll stop pointing the finger at the less fortunate who irresponsibly take enough to get by and start pointing the finger at the very fortunate robbing and printing money until we’re all deemed less fortunate.

Posted by Michael Ham | Report as abusive
 

@TJ

The irresponsible are to blame. Don’t have a job? Here is some money! Can’t pay your house loan? Here is some money!

There is a long list of benefits, assistance, etc. for those who do not contribute and they are rewarded for their irresponsibility while the rest of us have to pay.

I am all for helping someone out, but people are taking advantage of the system, and the system creates more irresponsible individuals. I pays big to do nothing in America.

 

I’m sick of you conservatives who are soooo afraid of change. Do you think we didn’t need change?! You just can’t find enough ligitimate reasons to jab at Obama.
You’re picky picky at all his ideas. Do you really think you could do a better job?
I’ve come to the conclusion you can not believe he’s as good as he is. You would
probably have a negative comment even if he helped you! Stop bitching and give him a chance!

Posted by Laura Andreson | Report as abusive
 

These are very sensible suggestions. There is nothing radical about them and they help the change in a better way. Why do liberals have to criticize anything that makes government more efficient. She is right on the money. I didn’t know what party she is from and who cares. Here ideas deserves serious consideration.

Posted by Mark | Report as abusive
 

by spending the government avoids the usa to go down even further. george bush squandered 1 trillion dollars to give it away to whom and for what? He should have laid the foundation for a top of the bill america. top infrastructure, top healthcare for everyone, affordable housing etc. In europe you pay maybe higher taxes but y have a pension, a healthcare system( for everyone and y are free to top of if y dnt like the basics), cars who run higher milage, gasoline prices high but nobody seems to drive one KM less. When the government balances it budget people know you can take but you have to give too..in holland the goverment increased the gasoline prices..they needed more money to pay for new programmes..people did not complain..they know if y want something y have to pay..btw what do you prefer a hihjer tax rate for which y get; basic healthcare, pension, good infrastructure or lower tax and y have to pay everyhting yourself? free choice but most of the time when your purse will be tightened what goes out first?
do the math of the net disposable income from the usa with a european country..you will be surprised..i did the same for hkg with 17pct tax rate versus holland..same earnings and in the end the same net disposable income.

Posted by hans olijve | Report as abusive
 

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