Tuesday, February 15, 2011

2012 Budget Proposal - a Broken Process

On my drive home today I listened to some Senators speaking about President Obama’s proposed 2012 budget. Their speeches reminded me of just how broken our government is.

First, to Federal politicians who think it is important for the Federal government to “live within its means,” put up or shut up. And if you’re not a member of the House of Representatives, shut up. The President doesn’t make the budget; the House of Representatives does with the appropriations bills that are required to originate there. It is the House’s job to pass the necessary spending legislation that funds the Federal government’s operations. Period. Senators and the President are irrelevant until the House has decided what spending authorization bills it is willing to pass.

Further, if a balanced budget is important, then make it happen today. To propose a budget that shrinks or “eliminates the deficit” sometime down the road is disingenuous at best. The spending authorization bills for this year are for this year! This year’s spending authorization bills don’t constrain or affect the spending 3 or 5 or 10 or 20 years from now at all. Such claims have been so much blather every single time they have been made by Republicans and Democrats alike.

If the Republicans who currently control the House of Representatives are unwilling to pass spending authorization bills that are in-line with reasonable expectations of tax revenue, that is their prerogative. But please, please, stop lying to us about how important a “balanced budget” or “deficit reduction” or “living within our means” are. I don’t care if you pass such authorizations knowing that the Senate will refuse to pass matching legislation or that the President will veto the bill. Not one dime can be spent without the House’s authorization. The party that controls the House of Representatives can make this happen; all it takes is the courage to insist that no other spending will be authorized. Everybody else is along for the ride.

Likewise, the President can insist on a balanced budget this year, right now. Or, he can insist on a deficit of not more than some defined limit. All it takes is vetoing any spending authorization that exceeds revenues. If the House and Senate insist on spending more than that, let them override your veto.

As for the various arguments over proposed cuts in the proposed budgets… Just stop. Just stop unless and you have figured out what the goal is.

Is the goal a deficit of $1,000 billion, $1,500 billion, $300 billion, or no deficit? Is the goal to spend the maximum amount of money on every desirable program with no regard to revenue? To some extent, the actual goal doesn’t matter. What matters is that there is a goal and that at least a handful of people share that same goal, and that it is simple enough that it can be clearly articulated so that it can be used to inform spending decisions. Without at least some defined goal, every argument for cutting or increasing the allocation for any department or program is inevitably juvenile bickering.

If the deficit is reduced by cutting spending then it is a foregone conclusion that every single cut will be made to a program or agency that was sufficiently worthwhile to have garnered support in the past. When the Federal government has to borrow over 40 cents of every dollar it spends, any meaningful spending cuts will not be easy. Similarly, if the goal is to increase tax revenue to fill the gap, the additional $560 dollars per month that will need to be collected from every adult that isn’t in prison looks mighty steep.

One very important fact has been glossed over in the budget discussion ­­at all but a few online sites: of the $130+ billion the Federal government is borrowing each month, only a paltry 14% is coming from actual investors. Each month, the Federal Reserve is printing over $100 billion dollars to buy Treasury debt in order to keep the interest rates on it from skyrocketing. We have already passed the point where “the market” is willing to buy our debt at interest rates low enough that we can afford to keep borrowing.

Even if we were to completely eliminate the Departments of Defense, Energy, Education, Transportation, Agriculture, of Energy, Housing and Urban Development and NASA, we would still be unable to borrow this money from “the market” at today’s interest rates without the Federal Reserve printing the money for most of it. That is how serious the current budgetary situation is. And it is our fault, yours and mine, for electing three decades of morons who appear to be unequal to the challenge before them.


C3 said...

pretty much, here comes the inflation!

Scott Wimer said...

I don't know.

The inflation has been ramping hard in commodity prices (the ~ $100 billion a month that the Fed is pouring into this sector is also sloshing into commodities and equities).

But, in the U.S, these don't make up a huge portion of our costs. Now, don't get me wrong, the commodity price ramp job that has been going on has been creating significant margin compression for lots of companies and making food and gas more expensive.

However, the place this really hurts is in the 2nd and 3rd world where food makes up 50-70% of the average cost of living instead of 7 to 15%. There is a reason the high price of food has been a common theme in riots in Tunisia, Algeria, Egypt, Yemen, Jordan, and Morocco.

I'm sort of curious how long it will take this exported inflation to result in similar riots in India and China. In those last two, at least, it seems less likely that the result will be regime change.

There is always the possibility of the U.S. doing the right thing of cutting spending and allowing insolvent institutions to fail. That will be cause pretty significant deflation. Of course, that deflation will come eventually, bad debts are bad debts. It's just a question of whether or not we go through a collapse of the currency through hyper-inflation before we get there.

Should be interesting if nothing else.