If I didn't like Bush running up a $5 TR in deficits why would I like Obama doing the same thing?
Understand I do believe we need to spend a lot of money at least this year and next year to get us out of this huge hole. As a matter of fact, I think Obama was much too cautious and needed to error on the side of LARGE! I agree with Paul Krugman
"Behind the Curve"
"...Mr. Obama’s promise that his plan will create or save 3.5 million jobs by the end of 2010 looks underwhelming, to say the least..."
The whole $700 or $800 Billion should be spent this year possibly through a payroll tax holiday for lower and middle income Americans (People who would spend most of the money). As a consequence the $1.8 trillion dollar deficit projection for 2009 and $1.4 trillion for 2010 does not scare me. Increasing both to $2.3 and $1.9 trillion would be ok if it helped getting the economy back to normal.
The problem is there is no provision to get back to a balanced budget. If you look at the GDP, Unemployment and Job Growth Charts at the bottom of this post, Bush had average but acceptable GDP growth through 2007 (approx. 2.5%) and pitiful job growth (approx. 6.2 million jobs through 2007...
Note the Bush apologist keep talking about a "record" 52 weeks of job growth Big Media Distorts Bush Economic Record it’s like if you create a RECORD 74k of jobs per month for 52 straight months that is a big deal!)
... yet his administration created an extra $5 Trillion dollars of debt. This is a clear sign where there was either not enough revenue or expenses were too high during the Bush administration. I call this a structural, never ending deficit.
Obama’s budget does not address this structural deficit. He is following the example of Reagan and Bush by using questionable budget assumptions.
It all started with Reagan...
In 1980 when he came to office Reagan through his OMB Director David Stockman proposed a Budget which raised Defense spending and lowered taxes. Unfortunately, the Budget did not include lowering other spending so they had to contrive numbers to make the Budget appear to be balanced. As a matter of fact there was an ‘*’ line item in the budget for "unidentified savings". (Laurence Barrett Gambling with History: Ronald Reagan in the White House). http://www.dailykos.com/...
At least Clinton started using a combination of OMB and CBO assumptions.
I don’t think I have to comment on how Bush distorted the Budget process...
It’s not like the new CBO estimate is wildly pessimistic. The GDP growth estimates are both 3.5% from 2010 (3.8%) to 2016/2019 (3.9%) ‘CBO’s Economic Projections for Calendar Years 2009 to 2019’ page 20
Obama is estimating .5% from 2010 (4.3%) to 2016/2019 (4.4%) ‘Comparison of CBO, Administration and Blue Chip Economic Projections...’ page 34
Why is Obama using a "rosy scenario" instead of at least agreeing on the numbers? Now we have to argue about numbers instead of trying to solve this fiscal problem.
CBO estimates that we will still have a Trillion dollar deficit in 2019. This is horrible and not sustainable.
In my opinion, part of the problem is the ignorance of the American people. They think they can get tax cuts, cut government waste AND get all their government programs. Over 56% of the 2007 budget was National Defense, Social Security and Medicare. If you add Interest on the National Debt the total is 64 %.
Reagan and the Republicans contributed to the problem. See
Reagan and the Republicans contributed to the problem. See Reagan Myth: Economics & the Deficit ) Reagan set the stage that it is ok to run huge budget deficits.
Remember Cheney... "...You know, Paul, Reagan proved that Deficits don't matter. We won the mid-term elections, this is our due...."
Remember Grover Norquist... "My goal is to cut government in half in twenty-five years, to get it down to the size where we can drown it in the Bathtub."
This anti-tax, anti-government message is pervasive. Obama realizes he will be pounded on all sides if he recommends tax increases large enough to cover these structural deficits.
One the left, we have noted economist talking about deficit spending with abandon. See ‘No Return to Normal’ James K. Galbraith
What should be done?
First of all I am a liberal. I believe all Americans are entitled to basic food, clothing, shelter and healthcare. I believe that all American children should have an opportunity of a better life. I believe in green energy. I believe in much of the Obama budget spending including the Healthcare initiative.
However; I also believe if an expense is worthwhile then we should be willing to pay for it.
How to pay?
- Eliminate Farm Subsidies. Most of the subsidies go to large agribusiness and large farmers. Free market capitalists should like eliminating government interference in the market.
- Eliminate other business subsidies. Free market capitalists should like eliminating government interference in the market.
- Freeze the Mortgage deduction. We should not be subsidizing high income people’s housing.
- Higher income Medicare members should pay more for their Health Insurance. This should be part of Healthcare Reform.
- The Healthcare deduction should be eliminated. It is not fair for Individual to not be able to deduct their Insurance payments from their taxes.
- Lower Defense spending. The US currently spends more than 50% of the world’s defense spending. We need other countries to provide more defense support.
- Install a value added tax.
- As part of Healthcare Reform, Obama needs to figure out how to pay for Medicare.
- Obama needs to reform Social Security by measures like raising the eligibility age, lowing the yearly increase in Social Security to 95 % of CPI (many economist believe the CPI is overstating the inflation rate), increasing the maximum income limit to 90% of workers (this has been the traditional limit.), have the upper 1% of taxpayers pay more to support Social Security (maybe a 1% increase).
I do have hope Obama will address the Budget issues in a couple of years after getting through this crisis.
CHARTS
GDP
("10101 Ann" worksheet entitled "Table 1.1.1. Percent Change From Preceding Period in Real Gross Domestic Product " http://www.bea.gov/...
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989
'-0.20%' 2.50% '-1.90'% 4.50% 7.20% 4.10% 3.50% 3.40% 4.10% 3.50%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
1.90% ’-0.20%’ 3.30% 2.70% 4.00% 2.50% 3.70% 4.50% 4.20% 4.50%
2000 2001 2002 2003 2004 2005 2006 2007 2008
3.70% 0.80% 1.60% 2.50% 3.60% 2.90% 2.80% 2.00% 1.10%
Unemployment
as of December of each year: (Bureau of Labor Statistics http://www.bls.gov/... )
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989
7.10% 7.60% 9.70'% 9.60% 7.50% 7.20% 7.00% 6.20% 5.50% 5.30%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
5.60% 6.80% 7.50% 6.90% 6.10% 5.60% 5.40% 4.90% 4.50% 4.20%
2000 2001 2002 2003 2004 2005 2006 2007 2008
4.00% 4.70% 5.80% 6.00% 5.50% 5.10% 4.60% 4.60% 5.80%
(Estimated Unemployment rate for 02/2009 is 8.1 %)
Non Farm Income Jobs added by Reagan, Clinton and Bush
To compare jobs added for contemporary 8 year Presidents, I used Non Farm Labor from the first through seventh year AND fourth through the seventh year (this gives Bush a break) (http://data.bls.gov/cgi-bin/surveymost?ce ):
(in millions) Year in Office
President 1st – 7th 4th – 7th
Reagan 12.6 11.3
Clinton 21.1 12.3
Bush 6.2 8.4
(From 2001 – 2004 Bush barely broke even with employment growth)
Note how poor the job growth was for Bush as compared to Reagan (his hero) and Clinton. This is even when you take into account there was such a higher level of workers due to more population.
Something different was happening during Bush’s term as far as jobs added to the economy. Unemployment wasn’t that bad during the Bush years (excluding the disaster of 2008) – somewhere around 5.5%. GDP growth was alright – somewhere around 2.5%.
I suspect many people just dropped out of the labor force. You can see part of this phenomena when you look at the "Employment – Population" Level Table.
2000 (Clinton) 64.4
2007 (Bush) 62.2
All the taxes cuts skewed to the wealthy and increase spending ($5 trillion dollars) did not created jobs. Such a waste of money...