In a Fox News interview with President Obama to air later today, the president will make an interesting remark:
“It is important though to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession.”
In all fairness, this isn’t completely new language from the president. Obama has mentioned the problem of deficits since his campaign. His first budget was called “A New Era of Fiscal Responsibility” on the platform that spending was out of control. The problem is that his actions have never matched his words.
I agree with the president that out of control spending, piling on to the debt, could cause a double dip recession. I’ve said so on this blog, as early as May this year. But what is not clear is how the president can support increased national budget spending programs while also taking this Roubiniesk position.
- Health care will not be deficit neutral. Despite what the CBO score winds up being (which on the House bill it is well over $1 trillion), history shows that these kinds of bills always wind up spending more than was originally projected.
- Financial services reform as has been proposed by Sen. Dodd and Rep. Frank will damage the financial industry, firms will make less money, and tax receipts (aka revenue) will decline, further hampering the federal deficit.
- Cap and trade would wreak serious havoc with our debt level.
And this doesn’t even go into issues like revenue damage done by the SCHIP cigarette tax, Treasury’s talk of extending TARP, the pending “need” to bailout FHA, or what health care proposed tax increases will actually do to revenue. New York and Maryland are prime examples for how millionaire taxes ultimately hurt your tax base, not increase it.
Oh, and a $250 check to seniors because inflation didn’t raise the level of social security checks? Buying their vote on health care and throwing a few billion more on the debt pile?
Why would the president support all of this if he fears debt will trigger a double-dip recession? A great first step towards recovery would be to end the recently extended first-time housing buyers credit. This is artificially supporting the price of housing, stealing demand from the future, and distorting the real price of houses. It is preventing the housing industry from finding its real bottom to build back up from and is extending the length of the recovery process.
Right now Congress is wrestling with one of our major budget issues: out of control Medicare costs. We have the opportunity to reform the system and make our economic future more stable. The president should tell congress he will veto any health bill that does not fix this problem. (Of course, my definition of fix will never be the president’s, so I won’t hold my breath.)
Another thing to do would be to slash some big cost item in the budget. Nips here and there aren’t going to reduce this debt issue. A serious surgery is needed. And a major move, like putting an end date on the social security program, would show the president really means business.