Trillions and trillions

     The Democrats won the last election. But it’s the essence of our system that while the majority rules, it doesn’t rule absolutely.

     Republicans are getting blamed for perpetuating partisan divisiveness, balking at President Obama’s initiatives. He says they proposed doing nothing about our economic crisis. Actually, Republicans wanted to support a stimulus bill (and made stimulus proposals); but congressional Democrats, rather than particularly targeting the economic crisis, mainly used it as a pretext to fulfill their longtime wish-lists. And even if this legislation does help the economy in the short term, it unfortunately sets the stage for deeper problems down the road.

     Now comes Obama’s proposed budget. It is gigantic not only in size, but as a political watershed, expanding the role of government in a fundamental way. Yet we seem so traumatized by recent economic turmoil that we resemble the proverbial deer in the headlights. We are not giving this the intensity of attention and debate it demands. We’re having a revolution, and shrugging our collective shoulders.

     Government spending is being ratcheted up in ways that will be impossible to reverse when the immediate crisis ends. Every time government doles out money it creates interest groups that will fight like tigers to avoid losing their free lunches. Congress, cowed by political pressure and bought off with campaign cash, can’t say no.

     The $3.6 trillion budget envisions a $1.7 trillion deficit. That is, Obama proposes spending almost double the government’s income. He says the deficit can be halved by the end of his term. But that’s based on rosy projections of economic recovery that almost no experts consider realistic, and on assumed future spending cuts that defy political reality too. And even if the annual deficit is halved, that would still be almost a trillion dollars, far outside past norms; and it can only grow again as baby boomers age.

     Such deficits might be financed by borrowing. But that crowds out private borrowers and drives up interest rates, both choking off the economic growth we need; and paying interest on the borrowings makes deficits even bigger. Or taxes could be raised—which also stifles economic activity. Or else the government can print money—generating inflation and devaluing the dollar. Any of these effects would be blockbusters, because of the sheer size of the sums needed.

     We, as a nation, need to pause and discuss this.

2 Responses to “Trillions and trillions”

  1. Lee Says:

    There’s too much pork in the budget and the stimulus, but the bulk of the spending goes towards capital improvements, needed services, and such. Even if you think the government shouldn’t be in these businesses or that the government is less efficient than having businesses fill the gap, isn’t it the case that there is value in what we’re buying with this massive deficit spending? So, yes BHO is on course to spend us into debt even faster than GWB, but IMHO the money is being spent more wisely, and that makes a world of difference.

    A significant portion of the $5 TRILLION that GWB added to the debt went towards the goals of finding weapons of mass destruction (which are in Pakistan, India, Israel, South Africa, and a handful of European nations, but not in Iraq (or Iran)) and revenging September 11 (which was organized by factions in Saudia Arabia, Egypt, and Pakistan, with minimal support from some in Afghanistan).

    That it is now some “liberal” organizations that are receiving the pork leaves me just as disgusted as it did when it was Haliburton and friends who were on the dole. But the fact that the bigger goal is to create rather than to destroy makes me wildly optimistic about the change in course.

    FSR REPLY: I have less confidence than you in the ability of government to actually get value for the money it spends. Obama’s spending will wind up in different pockets than Bush’s did, and maybe you like these beneficiaries better. Okay. And we do need big action right now. My concern is how it plays out down the road. As an optimist, I have long believed that America and its economy are strong enough to shrug off anything government does; but this belief is going to be put to the test!

  2. charles r carlson Says:

    Mr. Robinson,
    The level of spending is scary. Given that Bush mishandled the economy (although the origin of our current crisis stretch back to the creation of politically correct mortgages in the mid 1990s), and that deficits grew under his administration, the levels of spending envisioned by Obama to get us out of recession make a recession look not all that bad. Never has a government bought prosperity by printing money. Ask any German. And, paper money is not wealth. Ask any Zimbabwean with billions and trillions in his hand, and nothing on his table to eat. Obama is taking us in the direction of Zimbabwe. Maybe he sees himself as our Mugabe? How much of “recovery” money is helping with any recovery, and how much is just a grand excuse for patriotic pork? I got my first twenty dollar gold piece in 1961. Cost: $41. The one I bought (from the government) in February cost, more or less $1275, and despite a fall in the price of gold bullion, the government was asking $1350 or so, for the same coin in March. Am I better off with paper dollars in the savings account or gold coins in the safe deposit box? The US dollar is in peril, and a trip to Europe earlier this month brought constant amazement at how it is holding its value against all other currencies. There’s not much respect for the dollar abroad, but everyone still sems to want them. Obama is much loved in Europe, mostly because he is not Bush. There is little respect for the US from the “man in the street”, and almost no willingness to participate in Afghanistan, much less in anti-piracy patrols, with vigorous rules of engagement. I am with you in having doubts that the government will recieve value for the deficits now underway, and costantly ask what is the plan to actually pay for the funds being “borrowed”. It lookls more like being printed to me, with clever swaps between the Treasury and the Federal Reserve Bank. Maybe, at least it would be more honest to just print billions (trillions?) in red seal United States Notes again. That would have the advantage of us currency collectors have something new to add to our collections. Lincoln saved the country with his millions in fiat United States Notes. Maybe Obama could do the same, and at least avoid paying interest to the Chinese for US T-bills.
    Charles R. Carlson

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