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BACON: AWOL: The ‘responsible’ Obama
Profligate president would send us to bankruptcy court
Question of the Day
When making the case over the weekend for his proposed fiscal 2012 budget, President Obama mentioned a letter he had received from Brenda Breece, a special-education teacher from Missouri. Her husband, David, had to take early retirement when the local Chrysler plant closed, so he’s making just half of what he was. Also, school budget cuts left Brenda paying for her students’ school supplies out of her own pocket.
Like many families, the president said, the Breeces are “sacrificing what they don’t need so they can afford what really matters.” They clip coupons, consolidate errands, trim each other’s hair and watch movies at home instead of going out. But they know that some investments are too important to sacrifice. Brenda is looking for a second job to help send their daughter, Rachel, to college.
Just as the Breeces are cutting back, so is the federal government, Mr. Obama said. He’s freezing domestic discretionary spending for five years, a move that will reduce deficits by $400 billion over the next decade. And just as the Breeces are investing in Rachel’s future, his budget claims to invest in job-creating initiatives such as roads, high-speed rail, green industry, broadband, schools, and R & R. “It’s time for Washington to act as responsibly as our families do,” he said.
It is time for Washington to act as responsibly as American families do, but it’s a bit of a stretch for Mr. Obama to suggest that the fiscal 2012 budget approaches the frugality displayed by the Breece household.
Mr. Obama imagines that by snipping total federal spending by 2.4 percent this year, the federal government is somehow emulating the fiscal discipline of the Breece family. What he doesn’t mention is that the 2.4 percent cut follows a 10.5 percent increase the year before, leaving 2012 spending significantly higher than it was in 2010. Also, he omitted the fact that after a single year’s rectitude, total spending (not just discretionary spending) will resume its upward march in fiscal 2013, increasing every year over the following eight years. As for that $400 billion in “savings,” they represent no more than a diminution of the spending increases Mr. Obama had forecast previously - not actual cuts.
One of the reasons Mr. and Mrs. Breece are cutting back, presumably, is to bring their spending in line with their income. That is not something the United States will come close to doing. Between 2012 and 2021, the United States will accumulate another $7.2 trillion in national debt, according to Mr. Obama’s forecast - the equivalent of $23,000 for every man, woman and child.
Of course, that projected addition of $7.2 trillion to our national debt depends upon a number of things going right. Mr. Obama assumes a vigorously growing economy that will more than double revenues from the personal income tax over the next 10 years. That forecast, in turn, assumes, among other things, that the United States will not experience a major economic downturn for 11 years running. That’s akin to the Breece family basing retirement plans on the assumption that Brenda and David will receive raises averaging 5 percent every year for the next 10 years.
Then there’s the matter of variable-rate interest on the federal government’s $14 trillion national debt. This year, Mr. Obama expects the federal government to pay a bit more than $200 billion in interest on the national debt. But as the debt grows and interest rates climb, the debt burden will reach $800 billion a year by the end of the decade.
That would be like the Breeces shouldering a huge adjustable-rate mortgage - and paying a 2 percent teaser rate today despite knowing it likely will reach 5.3 percent by the end of the decade. To run their household budget like the federal government, they wouldn’t even pay off the interest - they would just add it to the principal and then pay interest on the interest. Ten years from now, the Breece household would be paying the equivalent of $6,000 a year more in mortgage interest than it is today.
Then there’s the question of “investing” for the future. Among Mr. Obama’s proposals is the plan to sink tens of billions of dollars into a high-speed rail system that cannot pay its ongoing operational costs, much less its upfront capital costs. That would be like Rachel majoring in Old English literature or the ethnology of Papua New Guinea highlanders instead of business, engineering or some other practical degree that will help her land a job when she graduates.
Higher interest payments, slipping deeper in hock, no real cuts. If there is any equivalence between the way the U.S. government and American families conduct their financial affairs, we all should tremble: We’re heading straight for bankruptcy court.
James A. Bacon is author of “Boomergeddon” (Oaklea Press, 2010) and publisher of the Wonk Salon blog (thewonksalon.com).
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