Dustbin of History Looking Increasingly Attractive to the Obama Administration

admin | January 26, 2010 12:24 am

by Tom Bozzo

Update: See Brad DeLong. The exercise may even have been carefully conceived to do little harm, or perhaps little good if you’re an anti-deficit crazy. But even if this is not as bad on the substance as it could be, the engagement of the administration in the production of Potemkin policy initiatives is not reassuring.

See also: Steve Kyle at Americablog.

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Jackie Calmes’ story on the Obama administration’s apparently forthcoming appearance-of-fiscal-rectitude initiative leaves me solidly in agreement with Ian Welsh. Calmes:

President Obama will call for a three-year freeze in spending on many domestic programs, and for increases no greater than inflation after that, an initiative intended to signal his seriousness about cutting the budget deficit, administration officials said Monday…

[I]t would exempt the Pentagon, foreign aid, the Veterans Administration and homeland security budgets, as well as the entitlement programs that make up the biggest and fastest-growing part of the federal budget, Medicare, Medicaid and Social Security.

Entitlement spending may be the biggest part of the budget, but it hasn’t been fastest-growing. From 2001 to 2008, defense spending’s share of GDP increased from 3 percent to 4.3 percent, according to the CBO [note: PDF]. All discretionary spending increased by 1.5 percentage points of GDP over the same period, from 6.5 to 8 percent, so nondefense discretionary spending increased by only 0.2 percent of GDP. Entitlements collectively increased by 1.2 percentage points — from 10 to 11.2 percent of GDP — Medicare spending growth accounts for one percentage point of that. Military and other security-related expenditures dominate Bush-era spending growth, and the rate of increase for those expenditures has far outstripped that of entitlements or nondefense discretionary spending.

The payoff in budget savings would be small relative to the deficit: The estimated $250 billion in savings over 10 years is less than 5 percent of the $9 trillion to $10 trillion in additional debt the government is expected to accumulate over that time.

Cutting 1.3 percent of GDP in military spending, in contrast, would save roughly $185 billion (2008 dollars) a year; with interest, that could be around 20 percent of the projected fiscal gap.

The initiative holds political risks as well as potential benefits. Because Mr. Obama exempts military spending while leaving many popular domestic programs vulnerable, his move is certain to further anger liberals in his party, including senior Democrats in Congress, who are already upset by the possible collapse of health care legislation and the troop buildup in Afghanistan, among other things.

Gee, ya think? Even here to the left of slightly-left-of-center, not all Federal spending is equally beloved. But there’s plenty of needed economic transformation that can’t or won’t be accomplished solely by way of private spending, and can’t be funded adequately at FY 2010 levels. I am thinking particularly about bringing various of the U.S.’s mostly inadequate infrastructure networks up to (or back up to) first-world standards.

Here’s the kicker:

But one administration official said that limiting the much smaller discretionary domestic budget would have larger symbolic value: It includes spending covering lawmakers’ earmarks for parochial projects, and only when the public believes such perceived waste is being wrung out will they be willing to consider reductions in popular entitlement programs.

“By helping to create a new atmosphere of fiscal discipline, it can actually also feed into debates over other components of the budget,” the official said, briefing reporters on the condition of anonymity.

So the whole charade is seen as a method to soften the public up for Medicare and Social Security cuts. For sure, health care spending including Medicare can’t grow as projected simply as a matter of Stein’s Law. But a system of reasonably universal, reasonably affordable health care is not obviously going to involve lower Federal spending on health care entitlements. On the Social Security front, Yves Smith recently groaned over a report (via Jesse’s Café Américain) that the Obama administration was seeking to promote conversion of retirement accounts to annuities. The problem with such a proposal, though, is more that private annuities tend to suck (for insurance market failure type reasons) than that senior citizens have too much secure, inflation-protected retirement income. A logical, and maybe even efficient, solution that happens to be off-limits in most of polite society would be to add resources to Social Security to increase benefits. You may see these programs less charitably — you may also have elderly relatives who would be in less dire financial straits without them than I do. The bottom line is that entitlement spending cuts shouldn’t be ends in themselves to anyone left-of-center with half a brain.

In any event, I have had enough. Fire Larry Summers. Fire Tim Geithner. Give Peter Orszag time to spend with his children. End the one-sided pseudo-post-partisan Kumbaya bullshit. Do it now.

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