Tuesday, February 2, 2010

Obama's Monopoly Money

The following is excerpted from Wikipedia's entry on former South Dakota senator and 1972 Democratic presidential candidate George McGovern.

In 1988, using the money he had earned from his speeches, the McGoverns bought, renovated, and began running a 150-room inn in Stratford, Connecticut, with the goal of providing a hotel, restaurant and public conference facility. It went into bankruptcy in 1990 and closed the following year. In 1992, McGovern's published reflections on the experience appeared in The Wall Street Journal and the Nation's Restaurant News. He attributed part of the failure to the early 1990s recession, but also part to the cost of dealing with federal, state and local regulations that were passed with good intentions but made life difficult for small businesses, and to the cost of dealing with frivolous lawsuits. McGovern wrote, "I ... wish that during the years I was in public office I had had this firsthand experience about the difficulties business people face every day. That knowledge would have made me a better U.S. senator and a more understanding presidential contender."

McGovern had believed that his experience as a legislator qualified him for the job of chief executive of the largest, most powerful nation on earth. It turned out he couldn't even run a hotel successfully. The American people were wise enough (much wiser than I was) to deny McGovern the chance to fail as a leader of their country. Unfortunately, such wisdom was lacking in 2008 (the ever perceptive Fouad Ajami calls it a loss of poise) and an inexperienced novice was elected president. We are now, literally, paying the price for that grievous error.

NRO runs the numbers.

According to the president’s budget, released yesterday, the federal deficit for 2010 is expected to reach nearly $1.6 trillion, a record. And that would come on top of a $1.4-trillion deficit in 2009 and before another $1.3-trillion deficit in 2011. Between 1789 and 2008, the U.S. government borrowed a total of $5.8 trillion. But in just the first three years of the Obama administration, the government is set borrow $4.4 trillion more.

And even that wouldn’t be the end of it. If the Obama budget is adopted in full, federal borrowing will top $18 trillion by 2020. Over the period 2011 to 2020, the president’s plan is to run deficits totaling an astounding $8.5 trillion.

But these are conservative estimates. The erroneous assumption is that Obama's anti-growth policies won't hinder revenue growth. They certainly will. It takes an optimist to believe that revenues will increase by $400 billion next year. Deficits will be even larger than projected. Obama's proposed budget this year is $3.72 trillion and $3.834 trillion next year. With Democrats at the helm, that 2011 number is subject to upward revision. And lurking in the background are the proposed twin boondoggles of Obamacare and cap and tax.

In an attempt to head off the anticipated charge of fiscal mismanagement, Obama recently announced a "spending freeze". The portion of the budget that will be "frozen" is roughly one-sixth of the total. Chris Edwards, blogging at the Cato Institute website notes that even that portion isn't really "frozen".

The first thing to note is that the portion of the budget to be frozen grew 60 percent between 2000 and 2008, during a period of low inflation. And since this portion of spending excludes defense, homeland security, and veterans affairs, it has nothing to do with the reponse to 9/11 or various foreign wars.

Then comes 2009 and the massive “stimulus” bill, which pushed up spending on this part of the budget to $699 billion. Finally, the figure shows the freeze at $447 billion, which is 71 percent higher than the level of authorized spending in 2000.

Here’s the important point: a very large part of the 2009 spending spike of $699 billion will be sloshing forward into 2010 and later years. (As illustrated by my fancy arrow in the chart). The new CBO budget estimates show that only 18 percent of authorized stimulus funding will be spent in 2009, with the rest sloshing forward.

Obama is ”freezing” the budget only because he already has a large amount of cash floating around from the stimulus bill that he can spend on all his favorite big government projects in 2010 and beyond. In budget-speak, federal spending measured in “outlays” will be far from frozen.

Unlike McGovern's hotel, the U.S. won't declare bankruptcy. The printing presses will continue to churn out dollars, feeding inflation. Taxes will soar, impeding growth. Resources that could have been used to generate innovative products and services, improving our quality of life, will instead be suctioned into a vast wasteful government bureaucracy. Or move elsewhere.

The Wall Street Journal notes that now that voters in Oregon have approved income and corporate tax increases, its business community has become a target rich environment for other states. Even the Democratic mayor of Chicago, Richard Daley plans to "...be out in Oregon enticing corporations to relocate to Chicago." More enticing than Illinois (3% income tax) are states like Tennessee and Texas which have no income tax. And then there's just about any country outside the U.S. Our 35% corporate tax rate is higher than any free market nation's except for Japan. The Democrats' spending binge guarantees that this won't be coming down anytime soon. Obama wants to further punish U.S. multinational corporations by taxing their overseas profits. Now that would be a generous gift to their foreign based competitors. Hello Toyota. Goodbye Ford.

As George McGovern admitted, his business experience gave him a perspective that was lacking when he was a politician. He opposes the proposed "card check" legislation that would remove the right to a secret ballot in union elections. And he opposes compulsory arbitration giving the government the power to dictate the terms of labor contracts. Both of these positions are anathemas to knee-jerk, big government liberals.

Barack Obama is squandering an entire generation's worth of wealth simply because he has no McGovern-like, hard earned, real world experience. The victims of his ignorance are the American people and more importantly, their descendants. Our entrepreneurial spirit is famously resilient, but in Obama it may have met its match.

No comments:

Post a Comment