Obama, McCain, and Financial Disaster

Empty promises won't fix America's broken budget

Steve Chapman | July 10, 2008

Federal budget policy is a dry subject with far too many numbers and charts, which makes it uninviting to most Americans. But the theme of the current budget story is one that could have come from a blockbuster summer movie: We are doomed. There is a fiscal asteroid on course to pulverize us, and no one is coming to the rescue.

The problem is simple and depressingly familiar. This year, federal spending will exceed federal revenue by more than $400 billion. Given the weak state of the economy, the deficit will get worse before it gets better.

Actually, it may never get better, because the current shortfall coincides with the start of the most dreaded fiscal event of all time: the retirement of the baby boomers, who will soon consume eye-popping amounts in Social Security and Medicare.

If that's not bad enough, Bruce Willis is not on hand to intercept the doomsday object before it arrives. Worse yet, neither Barack Obama nor John McCain wants the job.

The latest proof came when McCain unveiled his economic plan, in which he vows to eliminate the deficit in four years. His plan to balance the budget is simple: He plans to balance the budget. Exactly which programs he will trim to reach that goal are anyone's guess.

For someone with a reputation as a fearless foe of congressional earmarks and pork-barrel waste, McCain is amazingly timid in taking on the rest of the budget. About his only specific proposal is a one-year freeze in those discretionary programs that don't involve defense or veterans.

McCain doesn't say how much that would save, but it wouldn't be a lot. Those expenditures amount to only 17 percent of all federal outlays. Eighty-three percent of the budget would keep on growing. After a year, so would the other 17 percent.

He vows to follow up with "comprehensive spending controls." But promising to control spending in general means promising to control nothing in particular.

Just because voters will go along with a vague limit on total outlays doesn't mean they are willing to surrender funds going to them or their favorite causes. It's one thing to inform a toddler that he shouldn't eat too much candy. It's another to take the Tootsie Roll Pop out of his hand.

The Republican standard-bearer, however, acts as though the task will be easy. Among the methods offered in this plan: "Eliminate broken programs. The federal government itself admits that one in five programs do not perform." How about naming one? How about promising to pound a stake through its heart?

When it comes to spending, though, Obama is even worse. The National Taxpayers Union Foundation added up all the promises made by the two candidates and found that McCain's would cost taxpayers an extra $68 billion a year. Obama's add up to $344 billion a year.

The Illinois senator's pledge to get tough on unnecessary expenditures is as solid as cotton candy. Among his vows is to "slash earmarks to no greater than what they were in 2001," but earmarks make up less than 2 percent of the budget. Trying to restore fiscal discipline by cutting earmarks is like trying to lose weight by adopting an exercise program for your left index finger.

Obama claims he'll pay for all his new spending with new revenues and spending cuts. But like McCain, he has been hazy on the details. And it will be far easier for him to get Congress to approve new spending than to enact the measures needed to pay for it. Unless Obama is willing to take on his own party with the veto pen, we should expect four more years of irresponsible budgeting.

His only defense is that he would not have to make up as much lost revenue as his rival. The Tax Policy Center says his tax plan would cut federal receipts by $2.7 trillion over the next decade, compared with $3.6 trillion for McCain.

The details differ, but the basic picture is the same regardless of who wins: Washington will spend more, red ink will roll down like a mighty river, and we as a nation will continue to dodge the critical choices we face.

It would be nice to think some unexpected event will save us from the consequences of that folly. But as McCain is fond of saying, it's always darkest just before it goes totally black.

COPYRIGHT 2008 CREATORS SYNDICATE, INC.

Comments

hotsauce|7.9.08 @ 5:10PM|#

This is one dire prediction that will likely come to fruition.

|7.10.08 @ 7:25AM|#

The only way for Americans to free themselves from this revolving door of the government owes me mentality, is through education; and that education will come in the form of hardship.

When we finally realize that there is no way to achieve the "American Dream" in America, only then will we demand reform from our elected officials.

Guy Montag|7.10.08 @ 7:58AM|#

I am hiding my money and wallet before clicking through to the column.

|7.10.08 @ 8:02AM|#

The only way for Americans to free themselves from this revolving door of the government owes me mentality, is through education; and that education will come in the form of hardship.

...which will lead to more pleas for new government programs to alleviate said hardship.

|7.10.08 @ 8:13AM|#

"...which will lead to more pleas for new government programs to alleviate said hardship."

Indeed, that is the revolving door of government subsidized everything. With the extinction of the middle class, it may just be enough to make us aware of the fundamental problems plaguing our nation.

|7.10.08 @ 8:21AM|#

As any one knows,all they have to do is not spend more than is coming in.Not every problem needs federal money.

|7.10.08 @ 8:31AM|#

Federal budget policy is a dry subject with far too many numbers and charts, which makes it uninviting to most Americans. But the theme of the current budget story is one that could have come from a blockbuster summer movie: We are doomed.

Great opening sentence. The rest of the piece is not bad either. You surprised me this time Steve. Nice job.

|7.10.08 @ 8:53AM|#

TAANSTAFL. It ain't that hard to understand.

Nick M|7.10.08 @ 9:00AM|#

Hypothetically, what would President Bob Barr do?

|7.10.08 @ 9:01AM|#

I think BigG is right. I learned a lot about living within my means and paying off debt when my dad let me fall on my ass early on in life, just to teach me an important lesson about money (the hard way seems to be the only way I learn important lessons).

What works for us individually, sadly, does not seem to work for our collective society. Chapman (and a host of others) want details on the budget plans for each candidate, but it seems to me that revealing details could be campaign suicide. Mention one or two specific programs that will be experience cuts or be cancelled, and that candidate might well just kiss his hopes goodbye.

Episiarch|7.10.08 @ 9:04AM|#

No programs will be cut by either candidate. You have to keep the bribes in place because every vote counts.

|7.10.08 @ 9:05AM|#

OT...can anyone recommend some good primers on economics for me? This is becoming a subject of great interest for me, but one for which I am reluctant to return to school and study. Preferably something with the math laid out in easy format, math is not my forte. Thank you.

|7.10.08 @ 9:06AM|#

Steve, in the future I would suggest not mixing the costs of extra spending per year ("McCain's would cost taxpayers an extra $68 billion a year. Obama's add up to $344 billion a year") with the decrease in revenue from tax cuts over a decade ("The Tax Policy Center says his tax plan would cut federal receipts by $2.7 trillion over the next decade, compared with $3.6 trillion for McCain.")

It's needlessly confusing, and besides, if you want to talk about who would "have to make up as much revenue," you might as well as people to compare spending and revenue over the same time frame. E.g., Obama per year average: $270 billion in tax cuts + $344 billion in new spending = $614 billion/year effect on budget, McCain per year average: $360 billion in tax cuts + $68 billion in spending = $428 billion/year effect on budget. (At least a decade versus a year doesn't make people do difficult mental math at all.)

How about naming one? How about promising to pound a stake through its heart?

I believe he has named the ethanol program (in Iowa, where he claimed that he was for ethanol but that it could succeed without subsidies, which he was against-- this was portrayed as a flip-flop) and said he would have vetoed the farm bill. Of course, farm bill vetoes will always be overridden, so there's only so much that the president can do on that (or the highway bill).

|7.10.08 @ 9:09AM|#

I can relate, Madbiker. Need good non-fiction.

|7.10.08 @ 9:10AM|#

Epi, gotcha. When you have 300 million people with their assorted pet needs and programs, how do you win a campaign by laying out how you will specifically reduce "X" programs funding? It just seems to me that we will never get specifics on one candidate or another's plan for balancing the budget, because any one decision at any given time is going to get someone's dander up and could spell doom.

Pardon my basic statements and arguments. Politics, like economics, is another field I am trying to better understand. I feel like I am in 3rd grade here sometimes, my level of knowledge is so low...

Bearded Spock|7.10.08 @ 9:10AM|#

J sub D-"TAANSTAFL. It ain't that hard to understand."

But it is hard to spell: There Ain't No Such Thing As A Free Lunch. TANSTAAFL, not TAANSTAFL.

|7.10.08 @ 9:11AM|#

Madbiker, here is a link to column written by Ron Paul.
http://www.lewrockwell.com/paul/paul311.html

It seems to be right what you're looking for.

Nigel Watt|7.10.08 @ 9:12AM|#

Steve, you surprised me - a good slapdown of both of them.

That same NTU study, IIRC, said Paul would reduce the federal budget by $300 billion or so.

Guy Montag|7.10.08 @ 9:14AM|#

Madbiker,

Look for any Thomas Sowell book on the subject.

Guy Montag|7.10.08 @ 9:17AM|#

Hypothetically, what would President Bob Barr do?

Until the anti-impoundment act and the anti-deficiency act are repealed ther is not a damn thing he or any other President could do.

He can give all the "orders" he wants to not spend, but I doubt his career fiscal managers are going to risk jail time or personal financial peril to violate those laws.

Face it folks, something else the 1970s gave us was complete Congressional control of spending.

Other Matt|7.10.08 @ 9:19AM|#

What works for us individually, sadly, does not seem to work for our collective society.

A lot of ignorance out there, confuses "Deficit" with "National Debt", not realizing the latter being the sum of the former.

Thanks to Thacker for doing the math.

|7.10.08 @ 9:20AM|#

Those expenditures amount to only 17 percent of all federal outlays. Eighty-three percent of the budget would keep on growing. After a year, so would the other 17 percent....

earmarks make up less than 2 percent of the budget. Trying to restore fiscal discipline by cutting earmarks is like trying to lose weight by adopting an exercise program for your left index finger.

In general that's true, but don't forget that total outlays are about 20% of GDP and the deficit has ranged in recent years from 1.2% of GDP in 2007 to 3.6% of GDP at its height in 2004. That means that the deficit has ranged from 6-18% of total outlays. Eliminating earmarks (assuming the money wasn't made up elsewhere in non-earmarked funds) or freezing discretionary spending for a year alone wouldn't balance the budget, but neither would those be insignificant in a budgetary sense. Earmarks make up about 0.4% of GDP; a freeze in domestic discretionary spending in 2007 compared to 2006 saved 0.2% of GDP. Those are as much as, say, the entire foreign aid budget. (All numbers from CBO historical data.)

|7.10.08 @ 9:25AM|#

Of course, eliminating earmarks is likely to cause the money to still be spent elsewhere, just as a domestic discretionary freeze is likely to cause a larger increase next year, which is what we've seen in 2008 with outlays. That combined with the tax rebates (and decreased corporate tax revenues from smaller profits) has led to a larger deficit this year, probably around 2.0% of GDP when all said and done.

|7.10.08 @ 9:38AM|#

Thanks Guy and BigG. Good starting points for me.

|7.10.08 @ 9:39AM|#

John McCain's budget projections - does that include Iraq, Steve?

Bub|7.10.08 @ 9:54AM|#

John McCain's budget projections - does that include Iraq, Steve?

I'd bet that McCain's inevitable war against Iran will cost plenty, too.

Guy Montag|7.10.08 @ 9:59AM|#

Bub,

ANY President's budget projections are meaningless. The only purose that the PB serves is as a long memo to the Congress about what the Executive would like to have funded.

The Congress has had complete control of Appropriations since 1787 and the last say over spending since 1974.

|7.10.08 @ 10:00AM|#

MadBiker,
Try Henry Hazlitt's Economics in One Lesson.

Nick M|7.10.08 @ 10:11AM|#

MadBiker,

Economics In One Lesson is excellent.

I began my economics reading at Sparknotes actually, while simultaneously reading Milton and Rose Friedman's Free To Choose.

ed|7.10.08 @ 10:12AM|#

Each successive generation inherits the obligations, expectations, and infrastructure of the previous one. It's the reality they're born with. Add an alarming ignorance of history and economics and you have a extraordinarily massive and stubborn inertia to deal with. If and when class warfare finally rears its head, you'll know it's the beginning of the end of our greatness. (You can catch a glimpse of it here now and then, as Generation-Whatevers wring their hands and whine about the evil, selfish Boomers.)

|7.10.08 @ 10:15AM|#

Its hard to avoid the conclusion that actual program cuts are a non-starter, but I would think that just a hard freeze on all spending would be a lot easier to sell and accomplish, and would be a huge improvement over the alternative budget creep.

|7.10.08 @ 10:21AM|#

[I]Add an alarming ignorance of history and economics and you have a extraordinarily massive and stubborn inertia to deal with.[/I]

I am being very serious with this question: how do we correct the ignorance? Debate about the merits of public schooling aside, to what device(s) can we turn to overcome the ignorance of history and economics? I teach English, but I am not powerless to insert lessons on both topics into my classroom. I see an alarming dearth of knowledge about each subject (and many others). Knowledge of basic cause-and-effect is very low among most of the kids I work with.

If their parents have ignorance, and many of their teachers have ignorance, how to we assure future generations do not inherit the same ignorance?

Guy Montag|7.10.08 @ 10:22AM|#

RCD,

So, you are going to propose new legislation that freezes permanant appropriations (aka "off budget")?

Yes, I agree with your notion, of course. I just do not see it having any chance of passing.

Guy Montag being silly.|7.10.08 @ 10:23AM|#

If their parents have ignorance, and many of their teachers have ignorance, how to we assure future generations do not inherit the same ignorance?

By subscribing to the Lew Rockwell newsletter of course!

Nick M|7.10.08 @ 10:26AM|#

MadBiker | July 10, 2008, 10:21am | #

...

I am being very serious with this question: how do we correct the ignorance?

Well, I think most of us here would agree that the main reason that our school systems sucks is that it's run by the government.

So, just privatizing the schools would solve most of the problem.

|7.10.08 @ 10:28AM|#

MadBiker -
You could have them all read Ayn Rand ;)

|7.10.08 @ 10:29AM|#

Guy, of course...I would actually recommend it if I thought the kids had a level of reading comprehension that would enable them to get anything out of it.

When over 60% of my 126 tenth graders read below an 8th grade level (and some even lower - 4th grade), I have bigger challenges than their economic ignorance at this point.

My motivation to teach is to overcome exactly these problems and develop a more prosperous, free-thinking, educated, and dare I say liberty-loving society, but the problems of under-education and lack of basic skills seem insurmountable sometimes.

You may be joking about subscribing to LewRockwell.com, but I could not even recommend or require it because overcoming ignorance of history and econ, sadly, falls far below the need to overcome lack of basic skills and reading comprehension.

shrike|7.10.08 @ 10:30AM|#

The WSJ reports today that Fannie Mae and Freddie Mac are insolvent - a view shared by the Fed's William Poole in a statement today. This will add an eye-popping $5 TRILLION to the national debt after a taxpayer bailout.

What does the Journal suggest?

Our own proposal, made months ago, is to require a more honest form of socialism by injecting taxpayer money now into both companies (say, in the form of subordinated debt or preferred stock) to recapitalize them enough to weather the current storm. This would help prevent a U.S. balance sheet debacle, and it would force the politicians to acknowledge the mess they have created. Then as the crisis passed, the taxpayers would at least get something for their money, while regulators could work to unwind Fan and Fred's liabilities and shrink these monsters to a less dangerous size.

(The Price of Fannie Mae, July 10)

The US itself is insolvent. After this rescue taxpayers will be on the hook for $15 trillion in Treasury notes, $41 trillion in unsourced liability, two wars, and a mountain of personal and trade debt.

Now Paulson and company are on trying to mitigate the political cost of this debacle for McCain's benefit. Unreal...

|7.10.08 @ 10:31AM|#

Reinmoose, I did recommend The Fountainhead to a few students, but only the smartest among them. Two gave up almost immediately; the third devoured it and asked for more. I am convinced this kid will be a millionaire before age 30. You should see the business plan he put together as his final project for an elective class he took. He is one of my bastions of hope...

|7.10.08 @ 10:36AM|#

MadBiker -
I understand your concern, but I think the problem is less those that graduate high school but can't read at an 8th grade level than it is those who think they are well-educated and that they are going to save the world by forcing the less-educated and evil people to do what they think is best.

I don't think political battles can be won by targeting underperforming youth as much as it can by targeting those who will likely one day be piloting the ship.

Guy Montag|7.10.08 @ 10:37AM|#

MadBiker,

On a serious note, I have heard that one of the Thomas Sowell books, Econ 101 I think, is written in simple, normal, non-Econoid language with the focus on teaching basic Economics to laymen. (or is that laymyn now?)

I guess I could suggest you read it and see which portions are of value, then give reading/writing assignments from it on occasion.

Other Matt|7.10.08 @ 10:43AM|#

I am convinced this kid will be a millionaire before age 30. You should see the business plan he put together as his final project for an elective class he took. He is one of my bastions of hope...

Don't know if this is redudant to what you already know, but you might want to send him here for a look if he's college bound. I can't get my teens to bite, but I have had some reasonably good luck with a couple other books.

As an english teacher...definitions? "Class, today we'll discuss the definition of Insolvency"

classwarrior|7.10.08 @ 10:43AM|#

It's all a good argument to switch to a parliamentary form of government. Canada balanced it's budget in '95 (and has run surpluses ever since) after becoming the second most indebted country in the G7, now we're the least indebted. We also have an actuarially sound public pension system, unlike Social Security.

|7.10.08 @ 10:44AM|#

"I don't think political battles can be won by targeting underperforming youth as much as it can by targeting those who will likely one day be piloting the ship."

But those who will be piloting the ship are few, and those who will be choosing the Pilots are many, and it is the many who appear to be undereducated.

I suppose at the heart of it, I want to contribute to developing educating, crtically-thinking VOTERS and CITIZENS, if nothing else.

Montag, good suggestions, thank you for it. I've been using some Heinlein, et. al. sci-fi in the same vein with moderately good results.

|7.10.08 @ 10:46AM|#

should be "educated" not "educating" above

Guy Montag|7.10.08 @ 10:55AM|#

MadBiker,

Thank you!

Just caught this at The Corner.

Seems Ralph Nader does not know jack about welfare, transfer of property, contracts or any other thing about non-Socialistic systems. At least he gives no clues in his letter to Rush Limbaugh demanding that Mr. Limbaugh pay the federal government some massive portion of his salary because the radio stations that broadcast his show do not pay enough, in Mr. Nader's opinion.

It is truly funny, no matter what you think about the people involved.

|7.10.08 @ 10:55AM|#

I meant "those...piloting the ship" to encompass more than just elected officials. I meant to include lobbyists, activists, non-profit leaders, organizers - - - those who have a lot of influence over what policy is made, and frankly, how the less-educated think of these issues. Many have no reasoning ability beyond "I think everyone should have health care, so it is logical that I vote for it to be mandated." Teaching them how to think more critically is important, but psychologically people want to believe that they can make decisions that have positive effects without simultaneously severely and negatively impacting others.
These decisions are not made through rationality, so strengthening rational thought on the part of the voter is not going to yield much different results.

|7.10.08 @ 11:11AM|#

You can catch a glimpse of it here now and then, as Generation-Whatevers wring their hands and whine about the evil, selfish Boomers.

This would be more convincing as an example of class warfare if the Boomers weren't both (a) wealthier, as a class, than succeeding generations and (b) soon to be the beneficiaries of massive wealth transfers from succeeding generations.

If there's class warfare here, I think the aggressors are those taking the money, not those giving it.

|7.10.08 @ 11:13AM|#

So, you are going to propose new legislation that freezes permanant appropriations (aka "off budget")?

Probably not realistic, but a hard freeze just for on-budget "discretionary" spencing would prevent additions to those programs from hard-wiring in even more permanent growth.

Episiarch|7.10.08 @ 11:14AM|#

Canada balanced it's budget in '95 (and has run surpluses ever since) after becoming the second most indebted country in the G7, now we're the least indebted.

"classwarrior" is a Canuck. Everything makes sense now.

The US would have a much better chance of balancing the budget if we weren't spending a trillion dollars on pointless war.

|7.10.08 @ 11:15AM|#

I feel a lot better with McCain at the helm--he at least has a good record on earmarks.

BTW, check out this great new website, www.notwrightforamerica.com. They're right, Obama is not WRIGHT for America!

robc|7.10.08 @ 11:19AM|#

It's all a good argument to switch to a parliamentary form of government. Canada balanced it's budget in '95 (and has run surpluses ever since) after becoming the second most indebted country in the G7, now we're the least indebted.

If a parliamentary form of government fixed the problem, whats the excuse for the rest of the G7 (other than the US)? Or for Canada to begin with?

|7.10.08 @ 11:46AM|#

Thanks, Montag! Nader always makes me laugh. His followers among the ranks of college students usually make me laugh harder, though.

I wonder what Nader thinks of the broadcasters and companies that also use public airwaves to share their liberal-leaning sentiments.

from Nader to Limbaugh: "Payment of rent for the use of public airwaves owned by the American people is the conservative position"

I thought this was what called a broadcasting license - companies have to have one from the FCC before they can use the airwaves. It's not like Limbaugh is squatting on a repeater or pirating frequencies.

Nigel Watt|7.10.08 @ 12:01PM|#

Freddie Mac now has a bigger projected deficit ($7 billion) than market cap ($5.2 billion). Nice.

|7.10.08 @ 12:06PM|#

Of course, farm bill vetoes will always be overridden, so there's only so much that the president can do on that (or the highway bill).

No president can credibly claim that they will balance the budget. If they are a radical libertarian and honest, they could say that they would force the Senate to go from 60 votes to 67 votes to pass taxing and spending legislation, which would of a certainty still result in an unbalanced budget and quite possibly continued runaway spending, just at a slower rate of increase.

But, being a radical libertarian and being honest are both disqualifications for getting elected president right now.

Guy Montag|7.10.08 @ 12:49PM|#

I thought this was what called a broadcasting license - companies have to have one from the FCC before they can use the airwaves. It's not like Limbaugh is squatting on a repeater or pirating frequencies.

Nader appears to cover that, in his own strange way, by saying that broadcast licenses are too cheap.

Brings me back to my point from the NASCAR thread, it is the government driving the price train, so go complain at them and stop griping at the folks, in this case, paying the fee.

For one thing, the show is syndicated. I don't know if stations who play the show pay for the show and try to sell advertising, or if the syndicator offers the show free and they keep a portion of the advertising spots, but either way, Limbaugh is the talent and the station is the buyer.

For another thing, if these stations did not have to pay a fee to spew electrons through the air, then they could pay more for the show.

I wonder if Mr. Nader is sending a similar letter to every athlete in professional sports? What about college sports players? All of these folks are "using the public airwaves free of charge" to promote themselves and make money too.

Douglas Gray|7.10.08 @ 2:51PM|#

Chapman's scenario doesn't even include the probability that due to economic downturn, governments at all levels will see declines in tax revenues. Adding this to the equation makes it even more dismal

Psychowhackjob|7.10.08 @ 3:50PM|#

THERE IS ONLY ONE SOLUTION THE FINAL SOLUTION. READ "THE STAND" BY STEPHEN KING IT WILL EXPLAIN EVERYTHING

economist|7.10.08 @ 3:55PM|#

Actually, I agree with Nader that licenses are too cheap, because it is through the ability to distribute these licenses below market price that the FCC can maintain its power. I would prefer a solution where companies bid for licenses to certain frequencies in given areas at certain intervals of time (say ten years). However, my plan would also remove all the asinine statist restrictions and essentially abolish the FCC, while I think Nader would strongly prefer to see complete government ownership of all broadcast media.

economsit|7.10.08 @ 3:58PM|#

classwarrior,
what the hell does a Parliamentary form of government have to do with massive deficits?

economist|7.10.08 @ 4:03PM|#

"He will be a millionaire by the time he's thirty".
Did he read Atlas Shrugged? Because then he might just disappear from the face of the earth for a while and then suddenly reappear with a three-hour speech on the radio. On the upside, I would enjoy helping him with the rest of that plan.

Kolohe|7.10.08 @ 4:56PM|#

re: simple economics education

to weave to disparate themes, no free lunch in economics education either - indeed it is part of why we are where we are. you need to get into the math.

i would recommend looking at delong's site, http://www.j-bradford-delong.net/movable_type/. he puts up the complete bibliography (plus most of his lecture slides) for his econ 101 and other courses (he might only do it 'in season' and take it down after the course is over for the semester.

yes delong is left of center. but there are two broad areas of agreement that people who tend the other way can make with him:
1) free trade
2) hatred of george bush

now delong hates republicans of all stripes, so it only goes so far. but the math he teaches is apolitical, and even his history is fairly uncontentious, albeit it is the general received wisdom that I know touches some viscerally (e.g. great depression)

|7.10.08 @ 8:33PM|#

To reason readers concerning freedomfest I needs some help here,

fo to humanevents.com there's an article today titled "Free-Market Economic Solutions Could Fix Current Problems" thomas winter the editor of the website (and I might state an economic dum dum) put in his $.02 concerning the free market. read what he states then help me out in the comments. thx.