Across-the-Board Cuts Needed to Avoid Fiscal Armageddon

Although the Congressional Budget Office has estimated that the federal budget deficit will soar to a peacetime record $1.5 trillion in 2011, President Barack Obama has offered a puny proposal to freeze domestic discretionary spending (excludes huge entitlement programs, such as Medicare, Medicaid, and Social Security) for five years. This proposal sounds much bolder than it is, because domestic discretionary spending accounts for only 12 percent of the federal budget.

That means that 88 percent of the budget, including the sacrosanct entitlements and security spending, will go untouched as the U.S. debt continues to soar. But didn’t Secretary of Defense Bob Gates just announce that he was cutting $78 billion over five years from the Department of Defense’s (DoD) budget? Yes, but only in Orwellian Washington, D.C., is a budget cut actually a budget increase. In reality, to forestall deeper reduction, the cagey Gates offered only to cut planned increases in DoD’s future budgets (excluding funds for the Iraq and Afghanistan wars). Thus, the non-war defense budget will still be increasing from year to year, but at a lower rate than the fictional plan. Clever D.C. pols regularly use such budgetary sleight of hand to dupe the public and periodic citizens’ movements for fiscal responsibility, such as the Tea Party. But occasionally, heroic budget cuts are made.

A similar deficit situation occurred in the early 1990s, when President Bill Clinton had to clean up the mess of Republicans who pioneered fake tax cuts. The Reagan administration invented the fake tax cut that the later George W. Bush administration imitated. If taxes are cut and spending rises (contrary to Reagan’s image as a “limited government conservative,” federal spending as a portion of GDP actually increased during his two terms), the government budget deficit then has to be handled by tax increases, borrowing leading to future tax increases and interest payments, or printing money (Reagan did all three). But images aside, surprisingly, Clinton was the master budget-cutter, being the only president since Harry Truman to actually reduce per capita federal spending. He turned a budget deficit into a surplus.

Then along came Bush the Younger, who made the profligate Reagan look frugal. Bush cut taxes while running two pointless nation-building wars, increasing the defense budget dramatically, and irresponsibly creating the first new major entitlement program since Lyndon Johnson’s Great Society program in the 1960s. Bush piled a prescription drug program for seniors on an already financially sinking Medicare program.

Like Nixon going to China, Democrats, who have the relatively undeserved reputation for fiscal recklessness (since Truman, the actual data show that Democratic presidents have a much better fiscal record than their Republican counterparts), usually find it easier to make budget cuts (probably why their record is better). Yet so far, Obama has been a grave disappointment in this regard. His massive, pork-filled “stimulus” bill—allegedly needed for a Keynesian jump-start to an economy in the doldrums from Bush’s cataclysmic bubble-popping meltdown—merely made Bush’s already monstrous budget deficits worse. And although Obama has overseen a net reduction in U.S. forces at war abroad (withdrawing significant forces from Iraq while more moderately escalating in Afghanistan), these hapless wars continue to drain the treasury and undermine U.S. security by swelling the ranks of Islamist terrorists angry at U.S. occupation of Muslim lands.

One of the main impediments to Obama fulfilling his party’s tradition of relative fiscal responsibility is his seeming belief in Keynesian government pump-priming economics, which has been much criticized in academic circles. He apparently believes government spending cuts will throw the economy back into recession. Yet, Britain and Germany, which are enacting significant budget cuts, still seem to be doing better economically than their European brethren. That is because government fiscal responsibility usually restores business, investor, and consumer confidence.

Ivan ElandObama’s budget didn’t offer any dramatic new proposals to reduce government spending (and even offered some scattered new spending initiatives). To keep with the bipartisan spirit after the Gabrielle Giffords’ assassination attempt and also to avoid partisan fighting over spending priorities, which will bog down and probably eventually kill any significant budget cuts, all government programs should be cut by 15 percent from last year’s budget level, including heretofore sacred defense and entitlement programs. Such reductions could be justified by saying that “we face fiscal Armageddon, and everyone has to sacrifice.”

And this just may be the start of the budget-cutting that eventually will be needed. But the American people would likely perceive an across-the-board cut as fair and, given the country’s near insolvency, accept the extreme need for shared sacrifice.

Ivan Eland
The Independent Institute

Comments

  1. says

    Commenter UFS rebuts just about everything Eland claims, and does so brilliantly.

    Though not noted by UFS, one further claim here of Eland also merits rebuttal, especially as he repeats it obsessively in piece after piece. This is his concept that USA interventions are the big factor in recruiting Islamist terrorists. According to this paternalistic concept, Islamists in effect have no agenda of their own apart from responding to and whacking at the USA. Wrong. Yes, the USA is a convenient ‘big satan’ scapegoat for the Islamists, but if the USA were to vanish the Islamists would still be devoted to their agenda of taking over all existing Moslem nations and to militantly extending the domination of Islam to all lands possible.

  2. Uri Fulla Shytte says

    A clever libertarian rant with the usual deficit fear-mongering, distortions, and misdirection. (And what the hell does Gabrielle Giffords have to do with the price of tomatoes?)

    First things first. Social security has nothing whatsoever to do with either the debt or the deficit. Nothing. Nada. Zippo. It is a self financed, extremely successful (for 70 straight years), which even if absolutely nothing is done to “fix” it, will continue 100% payouts (just like it has forever) till about 2037 at which time payouts are expected to drop to about 75-80%. And the only reason this will occur is because of Greenspan’s faulty assumption about middle class wage growth and employment levels (too low). The way to cure this anticipated problem is raise the lifetime cap. Problem solved. You’re welcome.

    Second, Medicare is a genuine problem. But the reason why has to do with the predatory health care system we maintain, which Obama’s health bill continues (sadly). By this nation allowing private health insurers to enter the primary care delivery market, the market is skewed and screwed toward only the healthiest possible clients. Further, the waste and abuse of private industry (30% average bureaucratic overhead versus Medicare’s 3-5%) siphons health care dollars away from care and into the pockets of the sociopathic CEO predators. Enough. This industry has no right or reason to exist in anything other than the niche markets like facelifts. We are the last western industrialized nation on the planet that doesn’t have some form of single payer which provides the greatest access to care at the lowest unit cost. Under the present predatory health care system, we pay twice as much on average for care with much worse outcomes than single payer nations. What does this mean for Medicare? Medicare is a single payer island in a sea of sharks who are constantly driving up the cost of care for everyone including those on Medicare. Institute single payer, dramatically widen the patient pool, costs will drop like a ton of bricks, and we can get more people into preventive programs to start changing people’s bad lifestyle choices responsible for most primary care health issues in the first place.

    As for “defense”, the label we now use to disguise war profiteering, Mr Eland is absolutely right, not just about Gates’ flim-flammery, but about the obscene, illegal, and counterproductive wars (yes, we’re still in Iraq, both physically and financially). But it’s even worse. We don’t do “defense”. We do “offense”. We also do scamming. So the extremely profitable armament machine can keep wasting the country’s time and resources on unproductive manufacturing (there’s no return on bombs and bullets — you just blow ‘em up or let ‘em rot — a dead economic waste). And don’t forget the national interest payments racking up for all this crap — a major source of debt.

    So here’s what we’ll do: cut the “defense” budget by two-thirds, you know, down to a level of actual defense. Then we’ll retrain all those displaced “defense” workers for a green energy “Marshall Plan”, and for the health care sector to accommodate the newly added patient pool when we convert to a single payer health care system.

    A few last points that Mr Eland got wrong. Obama’s stimulus package suffered only from being much too small, and, for containing about 50% of it as tax cuts. Every single Republican hypocrite politician runs around in their jurisdictions claiming credit for economic improvements directly and specifically due to the “pork-stimulus”. Pork — it’s the other white meat. I’ll have more please.

    Oh, and the oft repeated canard about Keynesian economics: Keynesian economics not only makes intuitive and theoretical sense, but it has been proven — proven — to work. FDR’s Keynesian spending lowered unemployment (and increased money flowing into the private economy) consistently over his tenure with one glitch. In response to Republican pressure in 1937, he reduced spending and just like clockwork, employment stalled and recession deepened. Then he quickly saw the light in 1938, reversed course, and the economy returned to recovery. Now I know the rejoinder: “the New Deal didn’t end the Republican great Depression, it was WWII !” True, but incomplete. WWII in economic terms was the greatest “big government spending” program (on borrowed money !! oh no!!) that the world has ever seen. And this evil crazy Keynesian spending actually worked. Sorry conservatives, you lost that one too.

    Keynesian government pump-priming economics has been much criticized in academic circles. Yeah, right wing academic circles that ignore all the real-world evidence in order to grind their ideological axe.

    Government spending cuts will not only throw the economy back into recession, but cause untold permanent suffering to hundreds of millions of American citizens. It may not matter to you, but it does to me. Britain and Germany, which are enacting significant budget cuts, are each different situations. Germany is doing better, but it is because they both spend half as much on health care nationally and its citizens are not being wiped out like the plague by a blood-sucking health care system —physically for lack of access and financially by medical bankruptcy. And the rest of their social safety net is light years superior to ours, including unemployment considerations.

    Fiscal responsibility? Create jobs any way you can. Restore business, investor, and consumer confidence? Create jobs any way you can. If the private sector can’t (or won’t), then the government is obligated to do so in any civilized democracy, as I hope the US will one day become.

    An economy begins with demand. Always. Demand comes from people having money to spend, which comes from a decent-paying job.

    Everyone has to sacrifice? I agree, but since the American middle class has been taking it up the a$$ for the last 35 years of insane conservative economic policies, I’d say they’ve already done their part. So now it’s time for the parasitical class — who physically produces nothing — to pay what they owe back to the society that made them obscenely and sociopathically rich. It’s not a “taking”. It’s what they owe. It’s their debt, they need to man up and pay it.

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