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

I’m buying the etf FAZ.
The stories of how things are not so bad, and things are picking up are the same old rubbish i’ve been hearing.
Lies.
When i see a real casualty, a complete outright bankruptcy, closure of a major institution, i’ll be convinced then, the U.S. means business.
Until then, it looks like friends, covering friends backs, with taxpayer money. Hardly the kind of confidence building necessary to instill trust in “things are turning around”.
Cut it out already!

Posted by gambino | Report as abusive
 

Where have you been in the past 8 years when we spent the lights out during the Republican run congress and the incompetent Bush administration

Posted by schroeder | Report as abusive
 

Did the thought ever occur to anyone that there might be no such thing as affordable health care, that the concept is an oxymoron, much like an affordable Rolls Royce. In the sixties, medical care was affordable – no CAT, PET, and MRI scans, chemotherapy for cancer was almost non-existant, fewer and relatively cheaper but less effective medications, no joint replacement surgery, less defensive medicine by doctors, etc. I would assume that new medical advances, and there always are new medical advances, would tend to make health even less affordable in the future.

Posted by Terrence A. Schulte | Report as abusive
 

The typical American homeowner is prepared to pay for the convenience of owning his domicile over 30 years. Why should not the taxpayer gaining a a better route to acceptible life, liberty and the pursuit of happiness from his government not be willing to amortize the initial “acquisition”cost of these benefits over 10 or even 20 years?

Posted by norman zelvin | Report as abusive
 

Dear Ms. Furchtgott-Roth,

I’m quite astonished that that a reputable news site such as Reuters would allow you to post a blog containing completely false information. Either you are incabable of reading a very simple table (and its written description) or you are spreading blatant lies to further your own agenda.

Table 1.1 on page 2 of the CBO’s report clearly shows a BUDGET SURPLUS for years 2012-2019!!! The NEGATIVE numbers for years 2008-2012 are BUDGET DEFICITS!!! A mildly intelligent child could interpret this table correctly. But if they couldn’t then all they would have to do is read the first two paragraphs where it is clearly explained. Despite you apparent lack of interpretive skills I assume you can at least read.

Below is the actual text from the CBO’s recent report: “The Budget and Economic Outlook: Fiscal Years 2009 to 2018″

The Congressional Budget Office (CBO) projects
that if current laws and policies remained unchanged, the
federal budget would show a deficit of $219 billion for
2008 (see Table 1-1). That deficit would amount to
1.5 percent of gross domestic product (GDP), slightly
larger than the shortfall of 1.2 percent of GDP ($163 billion) posted in 2007.

Beyond 2008, deficits under baseline projections continue
each year until 2012, when they yield to modest
surpluses through 2018. Under the assumptions that govern
those projections, the deficit falls from $219 billion
in 2008 (1.5 percent of GDP) to $198 billion in 2009
(1.3 percent of GDP) and $117 billion (0.7 percent of
GDP) in 2011 and then changes to small surpluses in
2012 and later years (see Figure 1-1). By 2018, the surplus reaches 1.0 percent of GDP.

I must say I am disgusted with Reuters for allowing this posting and astounded that a grown woman would allow her ideological biases against our president to so COMPLETELY cloud her judgement. You should both be ashamed.

If you don’t believe me, the link to the CBO report is below. Table 1.1 is on page 2 of the report itself, or page 20 of the PDF.

http://www.cbo.gov/ftpdocs/89xx/doc8917/ 01-23-2008_BudgetOutlook.pdf

Posted by Daniel | Report as abusive
 

Any child can read the above sentance where it says IF current laws and policies DON’T CHANGE the listed deficits and surpluses will occur. Obama is talking major changes.

Posted by john | Report as abusive
 

I think, some of us speak from our imagination.We intellectually fail to distinguish the reality and imagination. We must need to understand that the government is bankrupt, it is running two on going war, it has budget deficit, export deficit, decline to GDP, risk of deflation,toxic balance sheet, and so on. There are only few option left order to bring the economy in life. First, it requires print more dollars with a global risk. Second, it require create long lasting job with few chances.Third, it requires to tackle immediate homelessness. Fourth, it requires to prevent meltdown of financial institutes and so on. So, please, stop giving imaginary opinions.

 

The conclusion of Obama’s astrology chart, that is: the failure of his plan is unavoidable. It’s largely based on his unrealistic plan to the economy. He acts too emotional without a thoughful consideration of a balance plan.

By the year of 2010, there will be a lot of “weird” regulatory measures in the U.S. financial market, the worst year actually will be 2012, that will be the year the public finally understand we are absolutely broke and find out the bailout/stimulus plan. I advise Obama have to face the “reality” and do not try to sell himself like a celebrity in the media.

Facing the reality and act/react thoughfully are more important to Obama’s.

Posted by Dave | Report as abusive
 

“Let me assure readers that if only economists were elected to Congress, the deficit would shrink soon enough.”

You are joking, right? Economists? The very people whose primitive, 18th century theories have collapsed the global economy? The same people who can’t envision a healthy economy without the impossible concept of perpetual growth? The same people whose free trade theories, since the signing of GATT in 1947, have transformed the U.S. from the wealthiest nation on earth into a skid row bum?

Much better would be to elect accountants instead of economists, someone with the ability to do simple math and understand a balance sheet.

 

As usual, this is another critic with no answers. Just like the blind Republican party. Do nothing and no answers.

Posted by Steve | Report as abusive
 

Mr Obama is getting it all wrong. he promised his nation that he would focus on strenghtening the fundamentals of the economy, but now he will just amplify the current account deficits. he must push for more regulations and curbs on the mortgage and banking sector, and cut into america’s false capitalist pride. else, the persistiong relative poverty would just swell to a crescendo. as the days he spends in office increases, he will become more accountable for the crisis and it will cease to be an ‘inheritance’from bush.

Posted by Ryan Gerard Wilson | Report as abusive
 

I guess spending on bombs an bullets is cool but investing in our future is a no-no.

Where are all these laid off union workers, steel millers and Ford manufacturers going to go? Work at The Gap?

You folks are clueless and this nation is on a dead-end route.

Posted by RyanD. | Report as abusive
 

I agree with the author that deficit spending is not the solution to get out of this mess. The numbers don’t lie. Most of the states are having budget crises because they have to balance them out with revenues. The Federal government is able to avoid that because they have the ability to just print more money. The consequences of those actions are reflected in our current economy.

The Bush administration failed in its economic policies! Unfortunately, the Obama administration is following in the same steps on a more massive scale. This is no surprise since Bernanke is still on board and Geithner was already working with both Paulson and Bernanke as early as the first bailout of Bear Stearns. The same people in charge of the Federal Reserve and US Treasury made this recession worse by keeping rates artificially low in attempt to prop up the housing bubble.

@Daniel — the link you put in is to the old CBO reports (dated 1-20-08) that don’t reflect updated figures. The author is correct with her statements and supplied this up-to-date link (dated 3-20-09) that shows the deficits:

http://www.cbo.gov/ftpdocs/100xx/doc1001 4/03-20-PresidentBudget.pdf

“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.”

These assumptions do not include more fraud bailouts and wasteful stimulus packages that are sure to continue as the economy falls further.

On a side note, the CBO report on 1/23/08 estimated the unemployment rate for 2009 at 5.4%. Nationally, it is currently at 8% and in about 7 states it is already over 10%. This is significant in that it affects the projection of future revenues. The unemployment numbers are updated in the 3-20-09 report to 8.8%, but we are already at that number and it is only March 2009.

“March 27 (Bloomberg) — The number of U.S. states with a jobless rate exceeding 10 percent almost doubled in February as the worst employment slump in the postwar era spread.

Nevada, North Carolina and Oregon last month joined the four other states that had previously climbed above 10 percent, according to Labor Department data released today in Washington. Michigan, at 12 percent, remained the state with the highest unemployment rate, followed by South Carolina at 11 percent and Oregon at 10.8. California and Rhode Island bring the total number of states to seven.”

 

I love the way the Bush bashers blame him for big spending. Please explain how Bush created spending bills when the duty falls to the Congress. Also please explain how big spending bills occurred when Bush’s last three years in office where with a Democratic majority congress. It’s called ‘blame game for dummies’. Each side of voters blames the other, and the parties love it. Voters have let them get away with it for years. Let’s face it folks, both sides have dropped the ball on you, but you just won’t vote for independents, for fear you will ‘waste your vote’. I’ve got news for you: you’ve been wasting your votes for years.

Posted by Robert Bowers | Report as abusive
 

But you see, by investing four times our current deficit in Environmentalist Buzzwords and even more Benefits for the least productive people, more money will magically fall out of a great big hole in the sky solving all of our problems and giving us a Huge Surplus a decade or two after this Administration, along with whatever parts of the Industrial Infrastructure we still have, are long gone.

Keep Putting All Your Cards on “Hope”.

Posted by UsedToPostHere | Report as abusive
 

Daniel, I am from Illinois, the home state of President Obama. Every year for the past decade the state legislature has presented and passed into law a balanced budget. Before the fiscal year is halfway done the state is in the red ink to the tune of a billion or so dollars. Every year more debt is floated. It is clear the Illinois State Assembly revenue projections are as flawed as the character of the celebrated members of that institution.

I for one find the Congressional Budget Offices numbers just as suspect. Perhaps you would do well to look at the Office of Management and Budget, the General Accounting Office and independent revues as the Federal budget and revenue projections are public information. My father told me long ago “Figures don’t lie, but liars figure”.

Posted by Anubis | Report as abusive
 

I’ve been disappointed with all this spending and easy money for the institutions that failed us but it’s no surprise that it’s coming from another failed institution, the US government. Republicans say “Let’s fail!” while Obama’s plan is Smoke and Mirrors. He wants to make the US look not bankrupt (even though it really is) so the country can keep functioning “properly” and countries that actually saved their money, like China, can keep lending us more money. The basic issue is that the US spends tomorrow’s money today and it’s not just one or two people here it’s alot of American consumers, bankers, and government officials. The irresponsibility is at every level of society putting those who were responsible in jeopardy of losing all the things they worked for. Everyone can point fingers but big banks are getting rewarded for giving people who can’t afford homes financing which is simply encouraging the overspending culture we live in. Many people easily say what to do with toxic assets but many people are those assets. I think those who overspend should be severely punished as a warning to future generations about living beyond your means. In my opinion if we don’t see a great deflation in our economy then something is wrong because alot of the economy doesn’t really exist it’s just debt and speculation floating around. I thought that investing in infrastructure, schools, etc. would be like the New Deal in this potential coming depression but rather Obama is telling America “LET”S SPEND EVEN MORE!” and is unveiling government spending that makes Socialists impressed, Capitalists crying, and Laissez-faire people (the worst of all) in nirvana. The US needs to drop the falsehood that it is capitalist and believes in free trade. It never did. It has always been laissez-faire and supported the big, rich guy over the little one both domestically and internationally. Obama seems to me like twoface, one side he is supporting programs that we need but the other side is how badly burned we’ll get with all this spending. I fear that my country could not only suffer a cataclysmic depression but see it’s currency devaluate extremely and a chance for its government to go “officially bankrupt”. What’s even worse is that those who perpetrated the crisis are rewarded! This current system is rotten to the core! Maybe collapse can be a good thing…

Posted by Eldon Lopes | Report as abusive
 

I learned about astrology more than 10 years ago. I found cases where that what astrology books said was plain wrong. I would not take forecasts too seriously.

I am sure that if weird regulation comes, it will be forced by “friends backing friends” as parties exert a very strong pressure on policy implementation. If such weird regulations come, you bet Obama is not to blame.

If you wonder about regulation, there are plenty of countries that regulate. There is no need to reinvent the wheel.

Posted by Pablo | Report as abusive
 

Health care vouchers are an old republican idea that voters rejected when they voted for Obama. He also wasn’t voted in to cut spending on critical health care programs to save a buck. There are many countries with affordable public healthcare systems. But they do get taxed more. By they I mean everyone: businesses, consumers and the middle class. You get what you pay for.

Posted by Working Mother | Report as abusive
 

yes, lets cut the budget, the republican budget. I think more people without unemployment payments, not being able to get a government sponsored job, more people trying to figure out how to feed their family and put a roof over their head is exactly what the country needs right now. If FDR had only Stayed the Course with those same policies of Hoover, the country would have gotten better much quicker….or had a revolution simular to Germany….

Posted by Chris Thompson | Report as abusive
 

We are fast approaching the time when debt will exceed the GDP. Everyone says this is OK. There are a number of countries already at this point. Are they OK?. Ask any Economist what they think of the economies of Japan,
Italy, Greece. I do not think the outdated policies of Republicans are the answer but neither are these budgets.
Unless I see some change Obama will not have my vote in 2012. I hope there is a socially liberal fiscally conservative politician out there who will take on this challenge

Posted by BLOGGER | Report as abusive
 

No, the spending will not pay for itself. I think most of us are aware that federal debts essentially never get paid off. Probably during the Bush administration, somebody decided to compete against emerging economies like China by devaluation and inflation. He was probably getting advice from a Cocker Spaniel or a plate of cold cuts. Hard to say, but it was somebody working off gut instincts.

People always discard the influence of technology. Tata is making a car for less than $2,500. It costs me $1,000 to service the brakes on my Ranger. What sort of taxes do we expect to collect from people in the future? They will not be able to pay it. Overall tax revenues will start to decline in the future. The only way to collect more tax is for people to make more money. They can make more money if profit margins are larger. Profit margins are larger when we have fewer competitors and make capital available to new companies moving into new markets.

I remember an old Star Trek episode where an evil force living off fear wanted to keep two sides alive to fight an infinitely long battle. So here we are throwing money at competing companies like GM and Chrysler. They can’t get money from the bank so we are taking cash from the unborn.

So I’m just saying to that plate of cold cuts or Cocker Spaniel that maybe he’s not all that bright, and we shouldn’t make snap decisions after a night of drinking. That must be how all of this happened. I know the big spending wheel is flying. People in suits who should get paid to quit and escorted out of the building are getting bonuses while the average person is scared silly. I am concerned that all of this money is just rushing out the system. We don’t know what is happening to it. It looks suspicious.

Posted by Don | Report as abusive
 

We need to remember that only individuals pay taxes. Businesses pass any tax increase to consumers. State and local government also tax people through usage fees, increased fines and other special items. The individual tax system was approved because it was only to tax the top 1% of the nation. However, like all governments with the additional revenue came additional spending. Now individuals pay a significant portion of their money each month to support government at all levels. When the federal government runs out of rich folks to tax they will lower the tax threshold to catch more and more people.

Posted by Sam | Report as abusive
 

Its amazing how little conservatives know about history, (or maybe its just that they reject any history that doesn’t jibe with their philosophical ideas ) given that the fight against change seems to absorb so much of their political lives. Virtually any historian will tell you that while its not totally clear that the New Deal may or may not have brought the US out of the Depression, the massive government spending off WWII did. The country managed to absorb that. Hoover tried to fight the Depression buy cutting expenses etc – didn’t work.

 

TIMES UP OBAMA! NATIONALISE THE BANKS!!! ITS MUCH TOUGHER TO STEAL MORE MONEY FROM TAXPAYERS VIA CONGRESS, ESPECIALLY AFTER AIG BONUS SAGA… OBAMA KNOWS IT. HENCEFORTH, THE CHANGE OF HEART FOR GM.

LAST week raised the likelihood of a play on the major indices because of probable quarter-ending window-dressing.

This much is relatively easy to figure out. It’s beyond the next week that things get a bit more hazy. There seems to be a feeling in some circles that the bottom has been reached and it’s probably sunny skies ahead – Fed officials on Friday for example, spoke of the economic data picking up possibly by mid-year, while some analysts have been quoted as referring to ‘inflection points’ implying that markets have turned. Our take on all this is the same as it’s been for months now – if you print enough money and pump enough cash into zombie banks, car companies, insurance giants and a hugely leveraged consumer-driven economy, even the worst of blood-sucking undeads should twitch into some semblance of life.

But it will not result in a lasting, durable recovery; in fact, it is possible that the subsequent fallout will be worse than before because of the disappointment that will ensue.

This is what is happening now in the US – thanks to an estimated US$3 trillion that the Federal Reserve and Treasury are injecting into America’s economy (without accountability, a topic we’ll leave for another column), people are starting to think that the worst is over and Wall Street, whose run over the past fortnight was also probably aided by window-dressing, has tried the get the bullish bandwagon running again.

The truth of the matter is that although the bandwagon might trundle along for a while yet – possibly even a few more months – it cannot sustain because of the flimsiness of the underlying economic recovery that is being engineered, especially when the engineers are ex-Wall Street types.

Rather than rely on Fed officialdom and investment bankers, both who have a vested interest in claiming a recovery is imminent, our preference is for independent observers who operate beyond the sphere of Wall Street and politics.

One outspoken critic of the latest US bank bailout plan is Princeton academic Paul Krugman, 2008′s Nobel Prize winner for economics, who has openly said that the plan will not work and when it fails, Congress will probably not approve any more money for the Obama administration.

In his Friday New York Times commentary titled ‘The market mystique’, Prof Krugman correctly points out that the government is in effect bribing the private sector to buy toxic assets with its proposed public-private partnership and also correctly criticises the ‘quick-fix’ mentality behind the entire rescue effort that is trying to get banks back to where they were a few years ago.

‘As you can guess, I don’t share that vision. I don’t think this is just a financial panic; I believe that it represents the failure of a whole model of banking, of an overgrown financial sector that did more harm than good,’ said Prof Krugman.

Interestingly, Citigroup’s FX Technicals said basically the same thing in its Friday market commentary: ‘We honestly still think that people do not get the seriousness of this ‘economic deleveraging’ taking place . . . this is not a deleverage of the past five-six years, but of 25-30 years worth of excess,’ it said.

The unit goes on to say that the US and entire global economy has been operating like a massive hedge fund for the past three decades, supplementing stagnant real incomes with cheap credit and asset market appreciation to maintain a lifestyle and illusory wealth creation that would otherwise not have been possible.

The worry is this – that model of the world is clearly unsustainable going forward yet everyone (led by Wall Street-backed US officialdom) is doing their best to engineer a quick return to that model as possible. It will probably result in a short-term uptick in the numbers and the market will respond, but when – not if – the next collapse comes, it’s difficult to see how an even bigger rescue can be mounted.

Posted by Bulleye | Report as abusive
 

Huge future tax burdens can be avoided in the U.S. by reducing retirement benefits, making elderly people work longer, decreasing funding for acute hospital care, making low-income sick Americans wrestle with private insurance companies to get health care funding, keeping highways in their current poor condition, reducing spending on clean water and environmental protection, and maybe even returning power profits to some new Enron. Sounds great.

Posted by sea scapes | Report as abusive
 

Ho, hum. Another right wing mother-in-law complaining about the head of the house. Cheer Republicans the last eight years while they brought the economy spiraling down, diss Democrats after 2 months in office.
“In the name of investment, President Obama’s budget would increase the deficit by $4.8 trillion over the next decade.”
Looks exactly like Bush’s budgets except at a slightly lower rate doesn’t it?

Posted by Ray | Report as abusive
 

Cut the size of our bloated government by 50%. Thats 50% fewer weak-kneed politicians, grossly overpaid bureaucrats, lawyers, lobbyists, fat-cat union employees, insider contract awarding, and financial institution bail-outs. That takes care of the deficit. Now give everyone $10,000. Call it a tax rebate for all the years we peasants have been pillaged, and the economy will improve immediately. Any stimulus plan will be a financial disaster until we get the size of government under control, and halt their insatiable appetite for more of the money we have earned.

Posted by JJ Cutter | Report as abusive
 

What an eye opening article. Run for office and I’ll get lots of folks to vote for you!

 

The solution to the problem is not in finger pointing. We are a country with bigger problems than a runaway budget. We have been fixing the worlds problems, having the military running all over the world, and with all of that we still have the highest prison population per capita in the world. We think that we can fix the problem by electing new representatives, but the problem is bigger than that. We have taught our children that their worth is in what they earn, rather than who they are. Now the teachers are part of the greed generation and we are busy teaching another generation how to do it wrong. I do not know how to fix it. We are going to have to go back to our roots and replant, because the tree is rotten and dying.

Posted by Fred B | Report as abusive
 

What’s the difference in irrational spending by the Obama administration versus the Bush administration? Zilch. If you won’t loan your teenager money because they misspent or mislead you on the last loan, do you really think you’ll be treated better by the federal government? You believe irresponsibility to be bound by by age, role, income, or particularly- political party? The sooner we acknowlege common human foibles, the sooner we hopefully craft government as more of a co-op up the middle than a candy store for the edges.

 

We have never experienced this exact situation, even in the Great Depression. Much more worrisome than the deficit is the danger right now of spiraling deflation (you want to see a DEFICIT, let THAT happen). Any economist who doesn’t honestly address this concern is, quite simply, a dishonest economist. Not only does this woman espouse hogwash, but–along with all the other “re-thug” talking points–it is downright treasonous under the circumstances.

Posted by Joe Mazzilli | Report as abusive
 

The Hudson Institute is just another think tank that doesn’t promote thinking, but rather a specific point of view, for which they pay big bucks. The conservative mantra of reduced taxes and lower government spending is complete nonsense in this economic environment. Note that all the cuts are social service oriented, nothing about the cost of two wars, agricultural subsidies and increased income taxes on hedge fund proceeds. Fortunately conservatives and the Wall Street wizards have in our country been thoroughly discredited, at least for now. Kit Horton

Posted by kit horton | Report as abusive
 

It is obvious that most of us agree that the current blue print for the economy is not coming together to well. From experience a plan that government predicts will cost a few billion dollars such as the Iraq and Afghan wars in hind sight costs the country over a trillion. My big concern is that the predictions of $600 to $800 billion deficits a year over the next nine years will increase to $1.5 to $2 trillion a year deficits.
I think we get caught up in political party loyalty. We allow our own party to do stupid things that we wouldn’t think of allowing the other party to get away with. I think more of us need to turn our loyalty to America and judge our political parties on how they affect the country as a whole. Let’s admit that if the Republicans harmed the country by increasing the national debt by $3.6 trillion over 12 years. Then the Democrats will harm the country more when they increased the national debt by $12 Trillion over 12 years. ($3 trillion from 2006 through 2009, (3 years) and another Trillion or more a year for the next nine years).
Don’t get fooled at some point we either need to get back to solid principles or we will pay a dear price for our blindness and greed. Many of us thought we were wealthy when our 401K’s were showing 18+% gains each year. But do we feel the same now? Many of us thought we were wealthy when our houses were rapidly going up in value and we were able to pay our credit cards by refinancing our mortgages. But do we feel wealthy now that our mortgages are far more that the value of our homes?
Will we feel wealthy in a few years when we have a million dollars in the bank and it only buys a loaf of bread?
It is time to make our representatives in Washington toe the line back to solid financial principles or find someone to replace them that will.

Posted by Craig Coal | Report as abusive
 

It is all well and good to critize a plan…but returning to the old conservative not working ideas when the economy is teatering on the brink…!Not helpful. Cutting spending issomething that can be done when the economy does not need an injection to begin money moving.
Tax breaks to the very wealthy have not worked –we save it and do not get it into circulation, where as , the middle class must as a consequence of need spend it! The people are not as concerned with the National debt as they are with making ends meet TODAY!

In FDR’s day the ND was up to 120% OF GDP, we came out of it and we will again unless we employ the ‘SHOCK DOCTRINE” and turn into the economies of the South American countries who tried Friedmans theroy to diasterous results!

Posted by bink | Report as abusive
 

You make some good points. I think some “right wing” belt tightening may be in order to get our financial house in order. However, this should be accompanied by raising income taxes on the top 1% of income earners to the pre-1980 levels. Switching the tax rate from 40% to the 70% level would bring in some much needed revenue. Bringing in new legislation to stop off-shore tax shelters would end a corrosive corporate habit, and taxing 1-2% of the trillions of dollars in wall street speculation is also necessary. Finally, cleaning up the waste and fraud at the pentagon should help save some money.

I know that think tanks such as Cato, Heritage, and Hudson are going to say that my proposals are undesirable and irrational, but if we’re going to take non-partisan approaches to control spending, we need to implement both Hudson and Brookings deficit cutting procedures before it’s too late. Everyone has to pitch in. However, I fear that both Hudson and Brookings and their proxy corporations in the democrats and republicans will disagree on my Perot-esque modest proposal. (This is why people are turned off to think tanks!)

I’m fully aware that President Obama and his party may not be interested in your remedies and your side will not favor mine. But don’t we need both remedies to really have a non-partisan approach to deficit reduction?

The ball is in your court.

Posted by Robert | Report as abusive
 

“In FDR’s day the ND was up to 120% OF GDP, we came out of it and we will again unless we employ the ‘SHOCK DOCTRINE” and turn into the economies of the South American countries who tried Friedmans theroy to diasterous results!”

Sorry, bink, but the only thing that “saved” our economy under FDR was WW2! I’d hate to think that you and other libs want to see another WW that would kill millions.

Tried and true ideas and functions get that label because they are as stated…tried & true. Pie in the sky economics, which is what the Executive Office is trying out, have been proven false since FDR, LBJ, and Carter all tried it. Notice those are all Democrats who believe in the Government running all aspects of our lives and businesses.

We are not some wimpy little European country, folks. This country was founded by those same Europeans (and others) who realized they couldn’t get anywhere in their homelands. They emigrated to this country so that they could make better lives for themselves and their children.

When did we lose this pioneer spirit? Was it during the Bush years? Nope, the decline began under FDR with his approach of cradle-to-grave security. LBJ expanded on it with Welfare and Obama is going to finish us off with his Universal Everything for Everyone plans. This is what has led to the downfall of the great experiment called The United States of America.

Posted by Catherine | Report as abusive
 

It looks more and more as if the Administration is trying to inflate its way from the mess we’re in. It is a legitimate though not exactly moral way. The easiest way to deal with snowballing debt is restructuring it, one way or the other. After all, the suggestions to allow homeowners to renegotiate their underwater mortgages to lower principal, or interest, or both, are abound. The auto makers are even encouraged by the Administration to renegotiate their obligations at cents on the dollar. Paying back with cheaper dollars is essentially restructuring force-fed to debt holders. There’s even no need to officially devalue dollar. Just keep printing, and the market will do the devaluation all on its own.
Inflation will fix lots of problems. Housing prices will go up in absolute numbers, even though they may still go down in – let’s take that as an arbitrary baseline – January 20, 2009 dollars. But mortgages will no longer be underwater. Dow Jones will be back over 14k – though it would be more like 4k in baseline dollars. Wages and corporate profits will be way up in absolute numbers – even though they would be lower in baseline dollars. And the foreign debt, whatever it will be, will be lower than it was on January 20, 2009, simply because it will be paid back in current, not baseline dollars.
My only problem with that is that the Administration is in no rush to acknowledge that inflation is a part of its plans.
Or maybe it’s not in the plans. Then the Administration is incompetent – it doesn’t take a finance genius to figure out that runaway deficit spending will inevitably result in inflation.
Or the Administration is not telling the truth about their plans. Maybe there are no plans to run budget deficit year after year. Since the expense part of the budget seems to be planned for years to come, the only way to balance it is with a revenue hike. And that means taxing our future, and our kids’ future. Making whole the Chinese and other US Treasury paper hoarders by saddling the taxpayers with onerous burdens for years to come is not, and should not be the Administration’s goal.
And yes, the baseline day was picked intentionally as the day of Obama inauguration.

Posted by Anonymous | Report as abusive
 

Let them fail! I am tired of hearing about bailouts. Let them go bankrupt. That is what it is for. The government needs to get out of the business of corporate welfare.

Posted by Arch | Report as abusive
 

I have written here months ago and will say it again. It is politically impossible in our modern republic to cut expenditures enough and grow the economy enough, to make a dent in the debt. That ship has sailed a decade ago. The American Ponzi scheme is being exposed. The Weimar Republic plan to print the money and inflate our financial problems away is the only viable plan left our ineffective political leaders, even though it is the A-bomb of all plans. Every statement by the government and every action by the government, directly support the inflation theory. Yet there is no official recognition despite the 400 pound gorilla being in the room, printing money like there is no tomorrow. Acknowledgment of the plan itself is self defeating. Those that see it coming will survive with proper planning. And if the nation can survive hyper inflation and go without a revolution, the USA can come out of these troubled times stronger and faster than the rest of the depressed world who will still be digesting our worthless currency. The pain will be deep and Americans will need to be tough. The bright side is that those Americans who are already debtors, will have little to lose. Those that loan money to the US will lose most of it. The US must move to inflate before the rest of the world decides to dump the dollar. In this way, we can at least lay some ground work for the economies future recovery. If the dollar collapses due to foreign pressures, the US will lose control of this dire situation and be unable to stress infrastucture or other national priorities.

Roy Morscher
Attorney and Economist

Posted by Roy Morscher, Attorney, Economist | Report as abusive
 

What is truly stunning to me is the complete inability to learn from previous failed policies. The Hoover policy of tax cuts and deregulation led to the global Great Depression. Reagan’s tax cuts and deregulation led to 2 market crashes and a deep recession and forced bailout of the S&L industry and $5 trillion of additional debt. Bush’s tax cuts and deregulation led to another major market crash, a global depression, and another $5 trillion of additional debt. And now the Republicans are pushing the exact same policies and somehow, this time for sure they’re just going to magically work. Yeah, right

Posted by Rational Thinker | Report as abusive
 

this is the first rational thing I’ve heard since Obama, a populist, has been elected president.

Somehow the Republicans have lost their way – a few corrections they need to make:

1) Republicans are not for zero regulation – they stand for rational regulation that establishes a ‘fair playing field’ for all competitors

2) Republicans are not zero government – they stand for moderate and intelligent government that enables private enterprise.

However much the Republicans have lost their way, however much they have corrupted or confused the merits of their own message, they’re approach is still better than the wrong-headed ideas currently being put forth by the Democrating party and the current president.

Some moderate deficit spending is required in times of recession. But if the deficit spending bill proposed by Obama passes, it will spell the end of the dollar and the end of the US way of life.

The Chinese are worried the US dollar will collapse.

What this deficit is doing is selling the labor of our children and children’s children to foreign rulers in Beijing.

think about that for a minute. Almost anything else is better.

Posted by Christopher | Report as abusive
 

Government spending is a giant sinkhole. Not all of the waste is in the department of defense there are huge amounts of waist in programs such as welfare. When I look at the benefits that are paid out per recipient and multiply that figure by the number of recipients I discovered that we spend three times as much to administer Welfare as the amount of benefits received by welfare clients. I find that many other government programs work out the same way.
I think if we really wanted to get the federal budget under control it can be accomplished by cutting out a large part of the overhead from the social programs that so many seem to be found of.

Posted by Marv | Report as abusive
 

Eight years of trillion dollar deficits(T pay for our illegal over sea war) and not one word of objection from the right. Now that we have Trillions of dollars in deficit for domestic spending; that isn’t killing anyone, and its “End of the world” for the right. Get real.

Posted by joehtedumber | Report as abusive
 

I thought I will add my two cents to this discussion.

I grew up being told that do not get something you can not afford. This has stuck in mind since then.

There was one president who said about us not watching the money we spend and fortunately he became president under unusual circumstances and his name was Gerald Ford. I guess that time America was asleep at the time of election and since then I have not heard from anybody about that topic.

Mr Obama is going in opposite direction and there is nobody who can stop him till november 2010 election when people can wake up and change the setup of congress and senate or some coup de tat which will make us fiscally responsible.

Remember what Rombo ( his chief of Staff ) said ” crisis is the moment which should be seized and not wasted ” this by the way was repeated by Hillary Clinton afterwards.

Posted by VJ | Report as abusive
 

Where have all the naysayers been the last 8 years?
Our country is in shambles as a result of the last 8 years of failure, lies and corruption.
Now, you, a supporter of such actions and those that have dragged our country to the brink of ruin, comdemn the man that has been tasked with undoing the damage and destruction?
You, as a supporter of those who have ruined our country, have lost ALL credibility and should/will be marginalized as you so richly deserve. You represent the WORST of all America has been and will be. You represent the greatest threat the United States faces and should be treated as such!
America has spoken out to rid our country of those like you who seek to destroy our country from within. Something terrorists could never do. Yes, you, the politicians you elected who brought this mess upon our country, and all like you are a cancer to this country.
I, a registered republican, call upon the GOOD people of our country to stand together and never allow such a failure of ideology, ethics, common sense and American spirit to threaten our country ever again. It’s time to dismantle the republican party and it’s supporters. You clearly haven’t learned from your mistakes and NEVER will. THIS is the greatest threat to America! Thank God we’ve taken the reigns back before it’s too late.

Posted by Luke Banks | Report as abusive
 

“Trillion dollar deficits are not the answer”…Unless they are created to fund reckless, illegal and disastrous wars. Then it’s just fine, right?

Can anyone take this lady seriously? Come on Reuters, you can do better than this.

Posted by Kent | Report as abusive
 

I am tired of all these people that want to tell the rest of us about “the history of the Great Depression” and then out and out LIE about the facts. President Hoover raised spending from 1929-1932 by more than 50% over spending from the rest of the 1920′s (Hoover Dam, LA Aqueduct, San Francisco Bridge – all under Hoover)! HE RAISED SPENDING! He did not cut spending, he did not cut tax cuts (he held them level – then CONGRESS raised rates above 1928 levels and the depression deepened!) Hoover did the same stupid thing(s) that President Obama is currently doing and it will have the same results – a BAD economy and deficit spending!

Next, for those that say conservatives did not care that President Bush was spending in deficit territory must not have been listening for the last six years – we were screaming at that stupid move as well! Add to this the fact that the economy was running great for the first six years of the Bush Administration (tax cuts) and then went to crap over the last two years, it should be noted that the Democrats have controlled Congress for those two years!

Last, but not least, President Obama did not inherit this mess – he asked for it when he ran for the office and more importantly, he was in office (the office that actually spends our money (CONGRESS) for the last two years), so he was apart of the problem about which he is complaining!

Please shut-up, get off my TV and do your job Mr. President! Up until now, his job has been to make sure he was reelected; I am not sure he actually knows that he is expected to do the job now – please will someone in the Democrat party inform him?!?!?!?!

Posted by Mark R | Report as abusive
 

This is an encouraging point of view. Glad to hear someone sounding off on the economy in this manner. By the way, this is not a bipartism issue. It’s one of American future.
We are approaching the historical end of almost a century of fiscal policy violations of the natural economic laws of nature. Fundamentally, you can’t create money out of thin air. And printing money out of thin air is just that, and if it’s done by someone other than the Federal Reserve it’s called counterfeit money. In either case, there’s nothing to back it other than good looks and a smile. And this has been supported by Democrats and Republicans alike.
When the Federal Reserve was created we gained the ability to create money that stated it was backed by gold when in fact there was more notes, or bills, printed then there was gold backing it. This is fundamentally the beginning of what brought us here today.
During the great depression the US government removed the right for citizens to own and use gold as a means of currency, thereby reinforcing the only legitimate currency was the Reserve Note. If you weren’t a US Citizen you could still claim your gold. The reason this was done is simple. There was not enough gold to back a US citizen run on the banks after 13 years of the Reserve and to prevent them from going under they created this rule to better conceal the truth and keep prople practicing money exchange based on pieced of paper.
1972 Europe started a whole scaled campaign to trade in their Notes for Gold. This would have bankrupt the Federal Reserve and revealed the scam of creating more money than could be supported. Nixon removed the relationship between money and commodity backing. He removed the Gold Standard. From this point on the only thing backing the US Dollar was good looks and a smile.
Inflation has been subsequently higher after each of these historical points. Inflation is reaching critical levels.
Obama isn’t addressing any of this. He’s trying to solve this through arguable socialist policies of capping pay at $500,000. With inflation this will soon cap more people than it doesn’t. And for everyone who is capped they will realize that trying hard just doesn’t pay off. He is reinforcing the Welfare State.
Bernake and Geithner are creating the last desperate moves of the Keynesian economic policies that are the fault of every president since 1972 with the possible exception of Carter. Possible exception because his solution was not to spend billions.
The solution to these problems are far more difficult than 80% of the population realizes and 99% of the Government is willing to execute. We must actually reduce the hand of government in the economy and allow it to run it’s course. Remove low income housing programs (which stimulated the housing bubble). Remove Fractional Reserve Banking so we have the money we say we have and end counterfeit practices, there are other ways to loan money through time-locking savings. Return to a commodity (Gold) standard to back the money with something credible. Return government spending to a cap on income so They have to budget to our income not where we have to budget around their tax deductions.
Failure to do all of these will leave this nation a hollow remnant of what we once were, promised to be.

Posted by allison | Report as abusive
 

“…The Weimar Republic plan to print the money and inflate our financial problems away is the only viable plan left our ineffective political leaders, even though it is the A-bomb of all plans…”
Posted by Roy Morscher, Attorney, Economist
______________________

Very well put down, but even scarier because of that. Who ever bothered to read history books, knows that after the hyperinflation (and most likely because of that) Weimar Republic was replaced in 1933 by the Third Reich. With Adolf Hitler at the helm. The following event, as we know them, are history.

Posted by Anonymous | Report as abusive
 

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