Friday, March 12, 2010

The Price of "Doing Something"

It's become a common refrain for those who defend the Democrats and the Obama Administration that one year not enough time to judge their respective performances especially after the mess that the previous administration left behind with wars and bailouts. Didn't Obama have to "do something" after all?

One defense is that it was Bush's budget that was implemented in 2009 though the Obama transition team played a significant role in crafting the response by the government to the financial crisis after the 2008 election (Wall Street Journal). Another argument is that the Bush Administration 'borrowed money to pay for tax cuts to the rich' which has resulted in significant deficits. As of this year, the Bush tax cuts have 'expired' - so presumably the deficits should be gone or at the very least considerably reduced? Besides, how much more could Obama possibly spend more than Bush given that the Iraq war seems to be winding down and the engagement in Afghanistan is much smaller by comparison?

From the Washington Post - Projected Deficits, as of March 21, 2009:
Of course, a lot has changed in the span of a year. From The Hill (emphasis my own): "Annual deficits under Obama’s budget plan would be about $976 billion from 2011 through 2020, according to a CBO analysis of Obama's plan released Friday. [...] The independent CBO and Obama expect a similar amount of government spending over the next 10 years -- about $45 trillion. But the CBO expects Obama's policies to bring in $35.5 trillion in tax receipts, less than the $37.3 trillion expected by the White House." And yes, this data includes all war spending.

But what of "stimulus spending". Presumably that had an effect? Ignoring for a moment the numerous documented bizarre earmarks and spending under the guise of stimulus, at least insofar as 2009 goes, from a study by Joshua Aizanman and Gurnain Kaur Pasricha (Marginal Revolution) - the effect on the economy has been "close to zero":
This note shows that the aggregate fiscal expenditure stimulus in the United States, properly adjusted for the declining fiscal expenditure of the fifty states, was close to zero in 2009. While the Federal government stimulus prevented a net decline in aggregate fiscal expenditure, it did not stimulate the aggregate expenditure above its predicted mean.
Things will only get worse with the mounting unfunded liabilities because of retiring baby boomers and doesn't include any healthcare plan that they're hoping to pass. Definitely not fun times for US taxpayers. Any equivalence to deficits during the times of the Bush Administration (which I also disagreed with and were largely the result of wasteful spending) should and can be rejected on their face and with extreme prejudice. The current administration very much owns their recovery plan and response to the financial crisis upon which I believe they've used as justification for significant spending on a much larger and arguably radical agenda.

Update (March 17, 2010): "Over the last five decades, most forms of government spending have grown. The main exception is military spending, which fell after the end of the Vietnam War and the cold war." (NYT)

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