Obama #4: Debt Monster

Stephen Kershnar
Obama: The Debt-Accelerator
Dunkirk-Fredonia Observer
December 15, 2009

President Barack Obama is well on his way to being a terrible President and a Jimmy-Carter-like stain on nation. It remains to be seen whether his foreign policy will be the embarrassing mess that his economic policy is. This depends on how his decisions to continue the Iraq war and intensify the Afghanistan one turn out. Right now, it’s too early to tell.

According to the BBC, the U.S. budget deficit was $1.4 trillion this year. This is 9.9% of the economy (gross domestic product or GDP). This is the largest deficit since World War II and more than three times larger than the previous deficit record, which under President Bush was $459 billion in 2008. Not only did Obama spend like a meth user (sadly, not my metaphor), but he made it clear that he’ll continue to do so. According to a 2010 Office of Management and Budget report, the deficit will be roughly a $1 trillion per year until 2015.

The debt has also spun out of control. Public debt is the amount of money that the federal government owes to those who hold U.S. debt instruments (for example, some types of bonds). It is not a true measure of debt because the federal government also generates debt by borrowing money from its own trust funds. An example is the Social-Security Trust Fund. The gross debt is the public debt plus trust-fund obligations. According to the Office of Management and Budget, when President Bush left office in 2008,the gross debt was $10.7 trillion or 75% of GDP. It is expected to rise to 100% of GDP by the time Obama finishes his first term in 2012. This is analogous to a person who makes $50,000 a year and has $50,000 in debt. Cato Institute scholar Ted DeHaven estimates that the debt in 2010 will be equal to $81,000 per U.S. household. Our competitor and potential enemy, China, owns roughly 25% of the public debt and continues to keep us afloat.

The spending that accelerated the debt has not worked. Writing for the Heritage Foundation, Jim Robinson points out that in January 2008, the U.S. economy had 4.9% unemployment. That year, he points out, Speaker Nancy Pelosi (D-CA) passed and President Bush signed a $168 billion economic stimulus package and an even more massive $700 Troubled Asset Relief Program (TARP) designed to help the financial markets. By January 2009, he notes, the U.S. economy lost 3.5 million jobs and the unemployment rate was 7.6%. Obama and Pelosi then decided that even more spending was called for. They agreed to an even larger $787 billion dollar stimulus package and other Christmas-like bailouts. By October 2009, the economy had lost another 3.6 million jobs and the unemployment rate was roughly 10%.

Consider whether this level of spending was necessary. According to data from the National Bureau of Economic Research and analyzed by economists at New Mexico State University, from 1919-1945, the average recession was 18 months. Post World War II, the average recession was about 10 months. In the past, then, the U.S. economy has climbed out of recessions without spending the government spending us into oblivion. University of Chicago economics professor Casey Mulligan argues that it is not even clear that the economy is in worse shape today than it was as recently as 1980 to 1982.

Running up this much debt for future generations is immoral except when the money is used to purchase something that is more valuable than the debt principal plus the interest rate. Most likely, Obama and company didn’t do this.

The Democrats used some of the money to buy car companies and financial institutions for far more than private buyers wanted to pay for them. They also used some of it to lavish gifts on one of their main benefactors, public employees. According to the USA Today, from December 2007 to the present, the private sector lost 6.3% of its jobs (7.3 million jobs), but the federal government sector gained 9.8% and the state and local government gained 0.2%. During this period the federal workers got hefty raises. When newly hired workers are screened out, federal workers got an 8.7% increase over this period. 19% of them now make more than $100,000. The average federal worker makes more than $30,000 more than the average private sector worker. Defenders of federal workers respond that they are more highly skilled than those who work in the private sector and that they make less than their private-sector counterparts. Still, the differences could hardly be more stark.

The Democrats also shot up federal welfare spending. Welfare spending is means-tested aid to the poor. According to the Heritage Foundation, in his first two years in office Obama will increase federal welfare spending by one-third. When adjusted for inflation, this is two and a half times greater than any previous increase in U.S. history. We now spend 4697 billion per year. If this spending were converted into cash benefits, the money spent would raise the income of all poor families above the poverty line. Needless to say, much of it never reaches the poor.

All this spending doesn’t even take into account, the latest Democratic health care plan to expand the number of people on Medicare. According to the General Accounting Office, Medicare (specifically Medicare Hospital Insurance) is already running a deficit. If you add people to a program already running a deficit, you make the deficit worse.

There is a real wild card in the mix whose effects we haven’t yet seen. Economist Arthur Laffer points out that the fed has increased the money supply (monetary base for econ nerds) at the highest level in half a century. This will cause a tremendous threat of inflation. This wild card is not Obama’s doing, but it might well exacerbate the spending-related damage.

It is hard to see how it is moral to run up the credit card and leave the debt for future generations. This is much like dumping your garbage on your neighbors’ lawns and expecting them to clean up after you. All of this makes political sense, borrowed money can be used to buy votes, but not policy sense. For those who looked at Obama and company’s past carefully, none of this came as a surprise.

When Sarah Palin came out with her new book, “Going Rogue: An American Life,” came out her opponents shrieked that she was unqualified to be President. Fairly typical of the comments were those by New York Times columnist David Brooks who said, “[s]he's a joke. I mean, I just can't take her seriously. We've got serious problems in the country. Barack Obama's trying to handle war. …” That anyone who voted for Obama could rip Palin would be funny, if it weren’t so sad.