Tuesday, January 26, 2010

Obama's proposed spending freeze: way too little, way too late

Is it that Obama is foolish, or is it his advisors that are stupid? You have to wonder why the White House has decided to make a big deal about freezing spending on 17% of the federal budget. This can only invite scrutiny such as this chart: spending is off the charts, and freezing a tiny portion of it is not going to make any difference. We're talking about a budget that will soon reach $4 trillion, and Obama thinks that spending $20 billion less over the next year is a big deal?


W.E. Heasley said...

Mr. Grannis:

You are exactly right.

Looking at the chart, in this particular case, the trend is not your friend.

The entitlements are the problem and should have been addressed last year in lieu of health care/insurance reform. Just imagine if the one-man-army from Massachusetts had not appeared. Add the health-care reform cost, as proposed, to the chart above and it likely would cause the red line to go vertical.

The $20 billion, as mentioned in your post, is a drop in the bucket. Moreover, state budgets are in shambles. Many of the states think the federal government is going to bail them out. The Spruce Goose of all stimulus plans of 2009 transferred plenty of money to states but many states did little serious budget cutting. Might even be said that the stimulus money transferred to states merely delayed real budget cuts/decisions. Now one third of the states have huge budget gaps with another one third close behind.

The size and scope of government is out of hand. If you raise taxes, state and/or federal, the Laffer Curve comes into play and revenue either is constant or declining. The only other avenue is to reduce size and scope of government as barrowing is out of the question as the public opinion is against any additional debt.

The Obama Administration has painted themselves into a corner.

Public Library said...

Neither the Republicans nor the Democrats can agree on how to cutback their already egregious spending.

A bipartisan commission focused on deficit reduction was just rejected.


Scott Grannis said...

A bipartisan commission is not the right approach. If it did anything, it would most likely enlist Republicans in the effort to raise taxes, and that is not a reliable solution. The only real solution is to attack entitlements. Privatize social security, reform by healthcare by introducing market forces and encouraging (thru changes to the tax code) individuals to take responsibility for their own care. And turn off the income redistribution programs!

Learning said...

Mr. Grannis

I have been reading your blog for months now and have really appreciated your use of charts to show us what is going on. I have learned much from you and hope to continue to expand my knowledge of how our economy works.

I do want to make a comment about the chart in this post. From 2000 through 2008, when the Republicans controlled the Presidency and for a time both Houses of Congress, expenditures exceed revenues by a significant amount. In fact, I believe that the Medicare Part D program was put in place during that time at huge cost and without any concern about how it was to be paid for. I think that it is reasonable to conclude from the chart that the current mess we are in is not entirely due to President Obama and the Democrats. The Republicans are at least equally complicit in our budget deficits. I think it would be helpful in this discourse if we would be fair and assign blame equally. Perhaps if both parties accepted their part in getting us where we are they might be able to work together to get us out.

Scott Grannis said...

Learning: The Republicans indeed were very quick to spend money, and their spendthrift ways were what helped Obama get elected. To be fair and objective, however, I think you need to look at federal spending as a % of GDP as the true measure of how much each party spent.

Under Bush and up until the big bailouts of late 2008, spending rose from 18% to 20% of GDP. That was actually less than the average from 1969 thru 2008. Bush signed on to the bailouts, however, which took spending to new highs. Obama then came in and signed almost $1 trillion of stimulus spending at a time when the deficit was at a post-war high. If he had succeeded in passing a healthcare bill, government spending could have broken even the records of WW II. Bush was bad enough, but Obama beat him by an order of magnitude. A pox on all their houses.

The nation's top priority should be getting spending under control and shrinking our bloated government. I would like to think both parties can get behind an agenda like that.

Learning said...

Mr. Grannis

I know why I like your blog! You always can back up things with reliable figures. Your point is well taken. I hadn't considered GDP vs spending.

It is clear that something has to happen and it is going to require lots of discipline on the part of both parties. I hope, but am not optimistic, that they can tackle things like Social Security sooner rather than later.

I check your blog several times a day and have found you to be a voice of reason with numbers and not just opinions. I will keep on doing so and I am sure keep on learning.

Thanks for the response.

RichmondG30 said...

This debate about which Party is worse is making Americans (myself included) furious. The Bush Republicans "only" increased spending from 18% to 20% of GDP. Wow. Well that does not make me confident that the R's are capable of pulling the emergency brake before the fiscal trainwreck destroys several generations' wealth in a very short time. BOTH parties are rocketing down the four-lane highway toward destruction. It's just that the Democrats are traveling in the HOV lane.

Scott Grannis said...

Paul: very good analogy!