by James A. Bacon
President Obama has a catchy new slogan. He wants a budget that will create an economy “built to last,” evoking the best-selling book of the same name that explored the secrets of exceptional, long-lasting corporations.
Unfortunately, Obama’s budget, if ever enacted, would more likely create an economy that’s “built to crash.” In essence, his formula is this: Raise taxes on the rich. Instead of using the revenue for deficit reduction, he will use it to expand government “job creating” initiatives. Evidently, the geniuses in the White House, despite having presided over the weakest economic expansion since the Great Depression, still believe they can do a better job of allocating the nation’s wealth than the people who got rich by actually creating the wealth.
One way to gauge the effectiveness of Obama’s interventionist policies is to compare the Office of Management and Budget real (inflation-adjusted), year-to-year growth assumptions embedded in Obama’s four budget documents. In nearly every instance, the result of Obama’s policies has been an economy that has under-performed expectations by a wide margin.
Particularly instructive are the results for Fiscal Year 2011, which Obama assumed early in his administration would grow a robust 4.0%. But succeeding budgetary assumptions downgraded growth expectations to less than half that rate, to 1.8%, over three years. Likewise, the OMB has lowered growth assumptions for fiscal 2012 and 2013.
But in the out years of 2015 and 2016, the fiscal forecasts get rosier than before on the basis of no known evidence or logic. Whereas the Obamanauts had assumed early in the administration that robust economic growth would taper off in five or six years as the business cycle matured, such realistic thinking has largely disappeared. Now, for growth assumptions to prove accurate, one of the weakest business expansions in U.S. history will have to morph into one of the longest lasting. Good luck with that.
Moreover, the optimistic growth numbers coincide with the expiration of the Bush-era tax cuts for the “rich” — millionaires, billionaires… and households making more than $250,000 a year. The projections are predicated on the beliefs that (a) taxing the rich at a higher rate will not induce them to shift more of their wealth into non-taxable assets, and (b) that unburdening the rich of their unjust share of the nation’s wealth will have no deliterious effects upon job creation and economic growth, with the result that (c) economic growth will continue unimpeded.
Both suppositions are, I believe, incorrect, although I am fully aware that I will not persuade anyone who does not want to be persuaded. All one can do is wait a few years, look back and see who was right and wrong… which I fully intend to do.
If my analysis continues to prove correct, then budget deficits will greatly exceed the $7 trillion in Obama’s forecast over the next decade. Barring a seismic shift in spending patterns, the tax structure or economic growth rates, the United States will continue to rack up $1 trillion-a-year deficits for the foreseeable future. Inevitably, the United States will endure a financial crisis, either defaulting outright on its debt or engaging in its moral equivalent, the engineering of hyper-inflation. Either way, an economic catastrophe — a crash — will ensue, devastating job creation, tax revenues and the social safety net. That day is still years off, and Obama always can hope that the calamity will not take place on his watch. But it will come. Indeed, there is likely no reversing it now, regardless of which party controls Congress and the White House.
For the record… There are two glimmers of light in the proposed 2013 budget. First, Obama continues to cut military spending and to reformulate a strategic doctrine aligned with smaller military resources. That is something that Republicans and conservatives are not willing to do, yet must be accomplished if there is any hope to balance the budget. Second, he actually proposes cuts to farm subsidies. Of course, farmers are doing better than most of the rest of us, so it’s high time they get off the dole. The proposed cuts are more of a no-brainer than an act of budgetary courage. But the solons in Washington typically quail before the farm lobby, so any sign of fiscal discipline, meager though it may be, should be celebrated.
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