Obama Fails Economics 101

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Myth #2 A Revenue Problem Caused the Debt Problem

The president spoke of “deficits and the debt” caused by “the recession and the crisis.” But the decline in economic activity explains only a small part of the debt’s story. Federal revenues peaked in 2007 at nearly $2.6 trillion. The estimate for revenues in 2011 is about $2.2 trillion. Though the revenue difference isn’t paltry, the missing $400 billion doesn’t go far to explain a deficit that is about $1.5 trillion more than it was in 2007. This period, which coincided with bailouts, the sedative stimulus, and ObamaCare, witnessed a massive spending increase of about $1.1 trillion.

Myth #1 The U.S. Will Default If the Debt Ceiling Isn’t Raised

President Obama warned Monday that “it is not acceptable for us not to raise the debt ceiling and to allow the U.S. government to default.” But the latter doesn’t follow from the former. Failure to raise the debt ceiling prevents additional borrowing. It doesn’t mean that the government runs out of revenue to pay its creditors. As the Cato Institute’s Michael Tanner points out, the federal government expects tax revenue to exceed $200 billion in August—enough to fully fund Medicare, make Social Security payments, provide military salaries, and service the debt. Failure to raise the debt ceiling will undoubtedly force politicians to make some tough choices. One presumably easy decision should Congress fail to raise the debt ceiling would be that $29 billion of August’s roughly $200 billion in revenue should pay the government’s creditors to avoid default.

The delusions are not just economic but political. “And part of what the Republican caucus generally needs to recognize is that American democracy works when people listen to each other, we’re willing to give each other the benefit of the doubt, we assume the patriotism and good intentions of the other side, and we’re willing to make some sensible compromises to solve big problems,” the president lectured Monday. “And I think that there are members of that caucus who haven’t fully arrived at that realization yet.” The words “sensible compromise” coming from the president who shut the opposition party out of the Recovery Act and the Affordable Care Act doesn’t seem credible.

Barack Obama doesn’t get it. He doesn’t get it politically despite the aftermath of a mid-term drubbing the likes of which a party hadn’t experienced in his lifetime. He doesn’t get it economically despite the three-year hangover that has followed a profligate spending binge.

If you don’t understand the problem, your chances of finding a solution aren’t going to be very high. Put another way, the man attempting an ill-thought-out “solution” becomes the problem, too.

Daniel J. Flynn is the author of Blue Collar Intellectuals: When the Everyman and the Enlightened Elevated America, forthcoming this fall from ISI Books. He writes a Monday column for Human Events and blogs at www.flynnfiles.com.

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  • richard handwerk

    he could give a damn about unemployment. this was part of the plan.

    • Jim_C

      Then you must think he's a real mastermind, eh?

      • OILBAMA

        OBOMBYA has dispelled that illusion.

  • richard handwerk

    this man is diabolical. get him out next election or america will sink further into despair.

  • Samatha

    He is positioning himself as the defender of seniors against the evil Republicans who defend the rich and couldn't give a damn about the common folk. This is not about economics this is about winning the election.

  • Asher

    Obama is evil, the collapse of our economy, assault on oil, support of Islamist Dictatorships are all part of the plan…Hes been successful in destroying America, and he wants to take down Israel!

  • tagalog

    On the negotiations regarding the debt ceiling and reducing spending, how come the Democrats and the President aren't jumping on the "Never let a good crisis go to waste" bandwagon?

    • Peter Grynch

      They are. They're using the crisis they caused as an excuse to do what they want: raise taxes.

      • Jim_C

        Taxes HAVE to be raised.

        • tagalog

          I agree that taxes will have to be raised. I just don't want to see the usual replay of the litany, "we Dems will agree to lower governmental spending AFTER you Pubs agree to raise taxes." Republicans get suckered into that all the time. I want a Democratic commitment, a BINDING commitment, to lowering spending BEFORE we raise taxes, preferably by $4 trillion over the next ten years.

          • Jim_C

            tagalog understands politics.

        • EJP

          Taxes Do NOT have to be raised! We don't need more taxes, we need more TAX PAYERS! Raising taxes only feeds the spending beast. There are taxes on EVERYTHING, including THE DEAD.

          How about a simple law – It is illegal to take something that does not belong to you. It's called THEFT! Just because the government does the taking does not make it legal or moral.

          If we arrested Bernie Madoff for a $50B Ponzi Scheme why should we not arrest those responsible for the world's largest Ponzi Schemes – Social Security and Medicare!

        • Poppakap

          So I guess the 50 per cent of Americans who pay absolutely zero in taxes should step up and pay their fair share?

          • tagalog

            For my part I agree with that in principle, but isn't that raising taxes?

        • coyote3

          Bravo Sierra, that is just lie, pure and simple. They don't "have" to do anything with them. However, even if it is true, which it is not, then just raise the income taxes of 47% who have no income liability now.

        • Chris Nichols

          No, moron, spending has to be cut. The more you tax something, the less of it you get. When you take more from the "evil rich", or as they are called in the real world, employers, they have less money to invest in expanding their business and hiring. That means you have fewer taxpayers, since you probably couldn't figure that out yourself.

          • Jim_C

            Bull. They've had their cuts. We've seen the bonuses and exec compensation through the roof. But where's the jobs?

            It's called "reality;" look into it sometime.

  • aharris

    I'm afraid Dems know the economy is going into a second recession that they will own thoroughly. I'm thinking that they will shut down the government on purpose in an attempt to pin the blame for the second recession on the 'pubs so that they can try to salvage re-election. That's why they're all talking financial Armageddon if there's no debt deal.

    • Jim_C

      I don't think voters blame Obama for the economy–but they WILL blame Obama for appearing to have done nothing about it.

      But yeah it's all about elections now.

      • pagegl

        The voters should blame Obama for where the economy is. He came into office with it going slowly downhill and proceeded to kick in the afterburners.

        • trickyblain

          Slowly downhill?
          The housing crash?
          The second largest market crash in history?
          These were in 2008. By that measure, the economy has improved significantly since Bush left office.

          • Anamah

            At that time Congress, both House and Senate were in Democrat Party hands.
            The Housing crash begun during Clinton Presidency, and grow with the mega corruption in Fannie Mae and Freddie Mac, Barney Frank and Christian Dodd.
            The ridiculous credits given to people without repay possibilities. That is what one day we need to learn to understand how America fall in this tramp. Now we are in real troubles in psychopathic hands…

          • Jim_C

            OK, so you're in with Fannie and Freddie; I'll raise you Glass Steagall repeal, and lack of oversight under Bush.

          • pagegl

            Let's see, unemployment several points below where it is now (at least according to government numbers, could actually be twice as high as it was in 2008). Gasoline and diesel a dollar and a half more expensive than it was in 2008 (which kinda means that anything transported to market by car or truck or plane or boat is going to be more expensive). And a federal deficit that has tripled since 2008.

            "… the economy has improved significantly since Bush left office." Yeah, right.

          • trickyblain

            "By those measures" is what you left out. Anytime you see elipses in a quote, pretty safe bet it's lying by omission.

            Actually, they average price for gas is less in June 2011 ($3.89) vs. June 2008 ($4.23). Of course, if gas prices are a reflection on an adminstration, then you surely must condemn Bush, who came in when gas was less than $1.20 per gallon.

            Traditionally, unemployment numbers lag — they are the last to get hit at the beginning of an economic crisis, and the last to recover as the economy improves.

          • coyote3

            Another lie.

          • trickyblain

            No lie there, cowboy.

          • LibertyLover

            In 2008 the Democrats had controlled both houses of Congress for 2 years.

          • trickyblain

            And the adminitration didn't have veto power over spending?

          • LibertyLover

            I'm not defending GW Bush, I'm just not letting the Democrats off the hook for greatly amplifying the problem.

    • coyote3

      We are not heading for a second recession, we are in the Second Great Depression.

  • Rick Devereux

    If what's needed is a balance of greed and fear, I'd like to read the partisan policy proposals currently being proposed to address this. It seems to me that our economic problems have arisen from greed gong unchecked as well as fear being diminished, and I can't find anything from the right that begins to address a solution to restoring balance on both sides. So entrenched is the right that the attempts by Boehmer and Obama to address larger issues of imbalance (eg. reducing entitlements and closing loopholes) have been sabotaged by politics from both sides – why should the left give on entitlements when the right stays stuck on ideological anti-tax pledges? The balance doesn't come from a right side or a left side, but from the middle. The harder we argue for one side being 'right', the more entrenched the other side will remain. So called 'facts' from either side only aggravate the divide, as history has shown.
    Voters like me are tired of the absence of a middle. Without a president who leads toward a middle, where are we? Please name one of those besides Obama.
    Thanks.

    • Anamah

      Rick Devereux as well trickyblain, our problem are not greed or fear. The solution is known and clear, we need to be honest but your comment seems identical to what CNN ABC and in general the collaborative Media says about, they say what their partners in power wants to be said to the stupid public, but is so easy … if you really wants to understand, freedom works with fair, known, accepted rules of the market, and can be sink with Cloward and Piven put to work in great scale…Obama, Hillary, Soros are the architects of this economic disaster, also like Machiavelli they have some skills to try people to believe others (Republicans) not them cause it..

    • Poppakap

      The Right isn't going to give in on taxes because the problem is one of spending, not revenue. Since Obama took office, our government has been on a crack-induced spending binge never before seen in our country's history. That is why the solution is cuts to spending, not taxes. It was irresponsible spending (legislated and passed by Nancy and company then signed off by BHO) that got us into this mess, and it's got to be reductions in the same to get us out.

      The idea of closing loopholes to generate more revenue is a red herring argument. It's been floated by the left for 40 years as a method for funding their ever increasing addiction to government. The problem is, loopholes never have and never will be a significant means of government revenue. Once again, reducing the size of Fedzilla is the only sustainable method of fixing our national morass.

    • pagegl

      Obama is leading to the middle??? Perhaps if you're a trifle to the left of Marx, otherwise get real.

  • http://www.tartanmarine.blogspot.com Robert A. Hall

    Great column; I will link to it from my Old Jarhead blog. Obama desperately wants to fix the economy, if only to get reelected. But the deeply-held almost-religious worldview he, his advisors and his base hold means he will, given a choice, always jump towards statist intervention and tinkering in the markets, accelerating our decline towards disaster. Even if he understood, he can’t win the conservative base by doing the needed things, only lose his own base. Fiscal collapse is coming.

    Robert A. Hall
    Author: The Coming Collapse of the American Republic
    (All royalties go to a charity to help wounded veterans)

  • WilliamJamesWard

    Do we hear the Democrats and Republicans fighting to make us financially stable,
    hale and hardy. Do we hear them speaking wisdom and measuring the world with
    strong minds and hearts to our good. Maybe we hear the knives sharpening on
    the bones of our fortunes, cutting we tax payers up and that which we have
    for a feast by our Democratic and Republican friends, gluttony and avarice
    wherein we are the fare, as if one looks it is approximately every thirty
    years we have to buy America back from our political curse but I can not see
    another thirty years for the falsehood of our leaders. We must have honesty
    or can go no further down the road as one nation. The lying must stop, abandon
    politics and think independently and work to destroy our greatese enemy,
    that being false men. …………………………………………………….William

  • Amused

    Guess who:
    Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and on the value of the dollar in exchange markets. The Nation can ill afford to allow such a result. The risks, the costs, the disruptions and the incalculable damage lead me to but one conclusion: the Senate must pass this legislation before the Congress adjourns.

    • coyote3

      More Bravo Sierra. It is not physically possible, revenue keeps coming in. There will be no default. In fact, what they should be looking at is reducing the debt ceiling significantly from where it is.

      • Amused

        Actually , Ronald Reagan made that statement .

  • http://oldretiredpettyofficer.blogspot.com/ ORPO1

    The scary thing is, he knows exactly what he is doing. It is by design due to his upbringing, education and mentors. He is a devout muslim-marxist, Strange combination but it is what he is.

  • Candy

    Hasn't he committed treason enough….definition of treason: betrayal, deception, subversion, treachery…Antonym….allegiance, loyalty, fidelity, devotion, support.

    since when has Pres Obama had any allegiance to our Constitutional Republic and the Constitution………….

  • Amused

    watch it Candy , by your own definition , of the 525 or so "politicians " in Washington , well over HALF of them -fit the bill. [quite possibly more ] The SOLUTION ? TERM LIMITS ! GO google GOOOH .
    CAREER POLITICIANS MUST GO !!!

  • Wesley69

    Whether the debt ceiling is raised and on whose terms may determine whether Obama is reelected or not, but it is also about fiscal sanity. It is the time, Sir, to play attack football, not defensive football.

  • Wesley69

    Whether the debt ceiling is raised and on whose terms may determine whether Obama is reelected or not, but it is also about fiscal sanity. It is the time, Sir, to play attack football, not defensive football.

    IT'S TIME TO SCORE!!!

    The House is under the control of the Republicans. They need to PASS A BILL that states – IF THE DEBT CEILING IS NOT RAISED, THE FOLLOWING PRIORITIES WILL BE PAID:

    1) Interest on the National Debt;

    2) Military Forces & Operations both here and abroad;

    3) Social Security Checks;

    4) Veteran Benefits;

    5) Disability Checks.

    This is put the PRESSURE ON OBAMA AND THE DEMOCRATS AND PROVIDE THE PERFECT DILEMMA!!!!

    -If the Senate rejects it, the American people will know where they stand.
    -If the Senate passes it, the President can either sign it or veto it. Signing it gives you the upper hand in the negotiations that would follow. If President Obama rejects it, he, not only kills the Democrat scare tactic that Republicans want to take their money away, but it will be he & fellow Democrats that are doing this. The American people will know where the Democrats stand.

    IF OBAMA VETOES IT, IT WOULD BE POLITICAL SUICIDE. This would be going into 2012 and the election cycle.

    The Republicans could force Here's hoping WE THE PEOPLE can take our country back.

  • Amused

    " We " will never get our country back . That's because we've never had it . All you have is a machine with two parties , who sucker the dupes to play their game . All the histrionics and drama is all B.S. made ESPECIALLY for you. When people finally get the nerve to put it on the line , and get rid of these parasites , and put up for election – CITIZEN LEGISLATERS , who owe nothing to anyone , who's desire it is, to SERVE their country, instead of pillaging it , then and ONLY then will we have our country back . Until then you're all just spinning your wheels .

  • Amused

    As for any "default ' on Aug.2 ? It doesn't matter if happens or not , because sooner or later the big collapse is coming , and it wont be the fault of any Republican OR Democrat . It will happen because of the way we do buisiness , and it is unavoidable . So play your word games now , remember the expression – " it's a recession when you lose your job , it's a depression when I loose my job " well get ready , because all the arrogant big mouths here , will be on bread lines with everyone else , shouting oiut all your political epithets .

  • 3vilj3st3r

    Too much politics, not enough economics here. There's a deficit, how do you intend to reduce it? Cut government spending? Yeah right, aren't people complaining enough about budget cuts in our schools? I mean, that's such a great idea; lets slow down the economy more and increase unemployment above what it is at the moment.

    Or we can let our country default. That way, interest rate will increase, slowing down the economy and repeat. Good luck paying on your creditcards and mortgage payments; maybe the government can help give us tax breaks on those. Oh but wait, we wanted to cut government spending… so let's forget about that help. Unless you are rich, I don't see how an increase in interest rate would benefit you. Well if you are rich, time to put your money in banks and get richer, no need to invest in other things like help create jobs.

    Or we can increase tax for the rich, like those hedge fund managers earning millions a year by doing what? We can also get rid of those ridiculous private-jet tax breaks while we are at it.

    Someone would have to pay for the bill; either the rich folks or the majority poor people who live on credit. Pick one.

  • Aokatie

    Opine
    The unemployment at or about 15 % continues apace. Cloward Piven in action.
    Demise of the US Capitalistic system is the goal
    It is obvious to the most casual observor, the rhertoric is to placate, Watch and count the ACTIONS.
    The Soros led admin in DC reaps what we the US Electorate have sown for the past 60 years
    Cash is king, labor swaps abound, We THE US CITIZENRY will prevail and surivive in spite of the current admin.
    end
    Semper FI

  • Atokaite

    Review of the posters.
    RECC your read of “Masters of Deceit” Circa 1954, J Edgar Hoover, Yep the old FBI Director who knew where the bodies were buried.
    An excellent treatise on the history of the Left, methods and tactics.
    end
    Semper Fi