A New Era of Responsibility?

President's proposed 2011 budget is a fiscal sham.

“We will continue to go through the budget, line by line, page by page, to eliminate programs that we can't afford and don't work,” declared President Obama in his State of the Union address on January 27.

Five days later the president delivered his Fiscal 2011 budget to the US Congress. This he did to much fanfare, seeking to cast it as a product of fiscal prudence. In the message that accompanied the document, he stated:

"The Budget includes more than 120 programs for termination, reduction, or other savings for a total of approximately $23 billion in 2011, as well as an aggressive effort to reduce the tens of billions of dollars in improper Government payments made each year."

At first sight this may look like the work of an earnest waste cutter. It is, however, nothing of the sort. The $23 billion of “savings” is actually only about one half of one percent of the $3.84 trillion total.

A question for the president: Is one half of one percent all the waste you can find in the federal government? After all, it is an institution whose financial profligacy is legendary. Should we assume, Mr. President, that all of the remaining 99.5 percent is spent wisely and un-wastefully?

It goes without saying that most of the meagre $23 billion will never be cut. Those involved with the agencies and programs slatted for reductions will make sure of that. Claiming that their work is indispensable for the well-being of the nation, they will make a hysterical run on Capitol Hill where their cause will receive much sympathy. When all is said and done most of their budgets will not only be restored, but many will walk away with increases.

But here is the larger point. By calling the proposed $23 billion of cuts “savings,” the administration makes it sound as if the government's expenditures would go down by this amount vis-à-vis last year's levels.  This, however, is not the case. The proposed $3.84 trillion budget represents a three percent plus increase over the 2010 total. So even as ordinary Americans are forced to cut back on their consumption, the federal government's voracious appetite for spending continues to grow unabated. Needless to say, we can ill afford it. As a consequence, the government will post a deficit of $1.25 trillion, which will represent more than 8 percent of the nation's GDP. These abysmal figures, however, have done nothing to detract from the president's sense of humor. He chose to unveil his budget under the motto “a new era of responsibility.”

But all this is still apparently not enough for some of the president's friends on Capitol Hill. Shortly after he introduced his 2011 budget proposal, Rep. James Clyburn (D-S.C.), the House majority whip, opined that looking for any more savings would only make things worse. “We're not going to save our way out of this recession. We've got to spend our way out of this recession,” he said.

The insanity of this should be obvious to all. It is simply impossible to spend our way out of trouble when we are so deeply in debt already. Spending more will only make things worse. Having incurred astronomical debts, we are still able to borrow at low rates because of the dollar's status as the world's reserve currency. But this situation will sooner or later come to an end. In another sign that the day of fiscal reckoning is approach fast, Moody's Investor Services warned that at some point it may be forced to lower America's triple A credit rating. The reason for this? The unrestrained spending of the federal government. Steven Hess, senior credit officer at Moody’s, told the Financial Times that the budget outlook submitted by the Obama administration last week “did not stabilise debt levels in relation to gross domestic product.” It would be interesting to hear the spend-happy James Clyburn comment on that one.

Needless to say, losing the triple A rating would have a devastating effect on this nation's finances as it would make servicing the national debt far more expensive. The only way to avert this outcome is by slashing spending and cutting deficits. Unfortunately, those in charge lack the political will to do so. Instead of offering real solutions, the president tries to posture as a fiscal hawk while proposing laughable savings of one half of one percent. As if this was not bad enough, the third most powerful Democrat in the House of Representatives thinks that cutting further would be outright harmful.

Even as Obama and Clyburn were talking up the proposed budget, House Majority Leader Steny Hoyer worked quietly behind the scenes to line up votes to raise the debt ceiling by another $1.9 trillion. The effort to pass the record hike was triggered by the Treasury's warning that the national debt is on the track to hit $14.3 by the end of this month. If the Treasury's estimate is correct, the national debt will have grown by more than one third in less than thirteen months of Obama's term. This expansion of national indebtedness is as astounding as it is unprecedented. But if this should frighten you there is no need to worry, because we have just entered “a new era of responsibility.”