Out of Control Policy Blog

Breaking Down Obama's Debt Commission

Yesterday was the first meeting of the National Commission on Fiscal Responsibility and Reform, a bi-partisan panel designed to come up with ideas for fixing America's debt and deficit woes. Oh, and the Commission is also toothless and will offer political cover for the President if they wind up suggesting tax increases. Yes, the idea for the Commission as presented is noble, but the practice is already political. Yet, for all of the politics of old, President Obama had some good things to say. And if he follows through on his words today, we might actually see some improvement. Let's break it down:

  • "As a nation, we continue to experience the consequences of three distinct but closely related challenges. One is a financial crisis, born of reckless speculation that threatened to choke off lending to families and businesses."

Well, that's a rough start. Actually, the financial crisis was born of misaligned incentives for the marketplace as created by decades of well intentioned, but distorting government policies that had the unintended consequence of creating conditions for the meltdown. That same government also created unrealistic expectations for lending capacity by expanding the money supply over the past decade and making economic development dependent on the government.

  • "This crisis led, in turn, to the deepest recession we’ve known in generations – costing millions of Americans their jobs and homes, closing thousands of businesses, and devastating Main Streets across our country. And over the past two years, this downturn has aggravated an already severe fiscal crisis, brought on by decades of bad habits in Washington."

Nice recovery, Mr. President. You continue to be way off in your analysis of the crisis, but yes, this crisis has been painful, and unearthed the consequences decades of bad habits in Washington.

  • "As a result, the day I walked in the door, the deficit stood at $1.3 trillion, with projected deficits of $8 trillion over the next ten years."

Right, so, question: why did you make it worse? If you understood this to be a problem, why pile on and extend the deficit to $1.6 trillion in your first year, and threaten to extend the deficit well beyond this in coming years?

  • "Now, over the past year, we’ve had to take emergency measures to prevent the recession from becoming another Depression. And at a time when millions of people are out of work, we’ll continue to do what it takes to spur job creation while investing in a new foundation for lasting growth. But these emergency measures have added about $1 trillion to the deficit over the next ten years."

Oh, yes, that's your reasoning. Here's the rub: the recession was trying to correct market imbalances created by government distortion over the past few decades. By preventing this, the problems are still pressing down in the system. The government’s job creation tactics are making the unemployment problem worse in the long-term, are not creating sustainable jobs, and misunderstand what is really causing unemployment in America today. It was politically popular to spend to create the illusion of a recovery, but the can has just been kicked down the road, and the politics of today have reflected the politics of the previous administration: we don't like deficits, but they are needed for the good of the country.

Mr. President, your logic for deficits is the same as Mr. Bush's logic for deficits. He believed the war on terror was necessary for the good of the nation. You believe having the government "jump start" the economy is good for the nation. Even if you were both right (which you're not) this argument is completely unprincipled and is another of those bad habits you've talked about.

  • "As a result, even as we take these necessary steps in the short run, we have an obligation to future generations to address our long-term, structural deficits which threaten to hobble our economy and leave our children with a mountain of unpaid bills."

I absolutely agree that we have an obligation to the next generation. From my perspective we are stealing from future generations by spending now and putting the debt weight on them. Just as previous generations have stolen from us. What confuses me, Mr. President, is why your policies have not reflected this statement you've made. If you believe we have to address long-term issues, why did you sign the stimulus, which added $1 trillion to the national debt long-term? Or the jobs bill? Or the bailout, which you voted for?

  • "That’s why I asked Congress to restore the 'pay as you go' rule. This rule says that Congress can’t spend a dollar on a new tax cut or entitlement program unless it saves a dollar elsewhere."

This has been one of the most positive planks of your economic plan, Mr. President, at least in theory. During the campaign, you said you'd push for this rule. During the transition, your website proudly posted the commitment to "pay as you go" responsibility. But then it mysteriously disappeared when you started pushing for the stimulus. In any case, this is a good thing. But again, as long as it is void of political posturing. The ObamaCare bill is said to be "deficit neutral" and thus conforming to the pay as you go rules. But the OMB and CBO estimates of the cost of the bill are based in so many guesses as to what the economy will look like in four, five, and ten years, that it really is somewhat disingenuous to make a hard claim on that piece of legislation fitting this standard. Given the fact that Medicare now costs about 1000% more than was estimated when it passed in 1966, it is not hard to believe that ObamaCare could also get out of hand.

All that to say, Mr. President, I appreciate your desire to control spending with this rule, and I applaud you for it. Just don't abuse it and use the rule for political capital in claiming a spending program won't increase debt problems.

  • "Next, we’ve been scouring the budget, line by line, identifying more than $20 billion in savings this year alone."

Great! But $20 billion is just 0.2% of publicly held debt ($8.3 trillion according to Treasury), and 0.1% of all US debt including Social Security. I know $20 billion sounds like a lot, but please don't play politics and act like you've made much of a dent with that number.

  • "We’ve cut or eliminated scores of outmoded or ineffective programs and begun to reform our bloated contracting system."

Mr. President, I hate to say it, but your reform of federal sourcing is actually going to cost the taxpayers more. The Bush administration's competitive sourcing programs saved taxpayers $7.2 billion between 2003 and 2007. But you are returning those costs to the taxpayers by killing the program through reform. You are expanding federal payrolls instead of promoting the private sector. You are bringing more work in house to appease public unions instead of leveraging the benefits of a more efficient and effective private sector. Sure there have been privatization abuses, and federal sourcing hasn't been perfect. But instead of fixing those errors by designing better contracts, ensuring competition for bids, and offering enforcement of contract provisions, you're increasing costs of taxpayers by reducing competitive sourcing. And that is a shame.

  • "Finally, I’ve proposed a freeze in government spending for three years. It won’t affect benefits through Medicare, Medicaid, or Social Security. And it will not affect national security – including benefits for veterans."

This is good, though is also a small step. Consider that Medicare, Medicaid, Social Security, and defense spending make up roughly 70% of the proposed 2011 budget. It is like only treating cancer when it is in the little toe while ignoring the cancer in the lungs. Sure, you want to get the toe cancer. But the real issue is still killing you.

  • "But these steps – while significant – are not enough."

Thank you for understanding that President Obama.

  • "And it will not make up for the chronic failure to level with the American people about the costs of the services they value. This will require that people of both parties come together and take a hard look at the growing gap between what the government spends and what the government raises in revenue. And it will require that we put politics aside – that we think more about the next generation than the next election."

Again, I completely agree. But I have serious doubts you really mean all of this. This whole address has been laced with political jargon. Just last week you were playing politics with an ad hominem attack on GOP Senate leader Mitch McConnell.

As to the hard look, I'm sure your commission will look, but when it comes right down to it, will you cut the Department of Commerce? Will you put an end to Fannie Mae and Freddie Mac and refrain from replacing them with a government agency? Will you slash the Department of Education budget in half? Will you sell off most of the Federal government’s land in states out west? Will you cut funding for wasteful high-speed rail programs? If so then we might actually start getting somewhere, but again, I don’t see this happening given your track record—much less the dismal track record of both democrats and republicans.

Making it more complicated will be the American people. Will they want to see these cuts when it impacts their bottom line. Why would most of America want the tax code revised when they currently don't play taxes? Will seniors who stand with tea-parties for fiscal responsibility be excited to see their social security checks cut back? What American currently benefiting from government assisted housing will sit by and just allow the government to start acting responsibility?

That is why I am pessimistic about this whole process. There is a lot of good language, but it is unlikely to produce anything other than a political win for you Mr. President, who some how manage to talk about fiscal responsibility while at the same time doubling the deficit.

Anthony Randazzo is Director of Economic Research


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