The GOP's Budget Problem

Just how much trouble is the federal budget in?  The coverage by the MSM of the fiscal cliff negotiations is not enlightening on this point.  For reasons that most of us in the American Thinker community and observers such as Thomas Sowell find inexplicable, the Republicans simply will not make the budget case in public.  This is true whether it is Boehner and McConnell in Congress or Romney during the campaign.

Instead we get snippets from our side when they get in front of a microphone of "$1.2 trillion" or "everything is on the table" or "keeping the Bush tax cuts."  For some reason, our side does not understand that it has to build a political predicate in public in order to have a purchase on the president who is moved by nothing but power.  He is committed to growing government without limit, as if he is unaware of the lessons of the 20th century about communism and socialism. 

He is committed to a philosophy now over 100 years old that has failed everywhere it has been tried and has the additional effect of ruining the vigor of the public, which is what supports the economic and political system itself.

So where are we in the budget?  We do not have final numbers for fiscal 2012 which ended September 20, 2012.  But we have estimates.  The estimates for 2012 for the federal budget are:

 

Table 1

Federal Budget - 2012

($ trillions)

Revenues from taxes

$  2.47

Expenditures

$  3.80

Deficit

$  1.33

Total debt

$16.35

 

What Table 1 shows is that in the fiscal year ended September 30, 2012, the federal government took in $2.47 trillion in taxes, spent $3.80 trillion, had a deficit of $1.33 trillion and ended the year with $16.35 trillion in total debt (there is a smaller debt figure which nets out holdings of the Social Security trust fund, but we'll stick with total debt).

In the fiscal cliff negotiations so far, the president is offering to cut $1.2 trillion in spending over the next ten years.  Actually, this is $850 billion in direct cuts and the rest in lower inflation adjustments for Social Security and a dubious assumption of lower interest expense from what it otherwise would have been.  But let's go with the $1.2 trillion number.

These numbers in trillions of dollars can easily be converted to numbers that could represent the budget of a household by getting rid of a few zeros:

Table 2

Federal Budget as a Household Budget

($)

Household income

$  24,700

Household spending

$  38,000

Amount added to the credit card

$  13,300

Amount owed on the credit card

$163,500

Spending cuts offered by Obama

$    1,200

Oops!  Doesn't look too good.  That debt is pretty high given the household income.  And remember, there is no silver bullet on household income.  It is going to grow at about 4% per year (it grows in current dollars meaning the real growth in the economy plus inflation).  But expenditures are going to grow as fast or faster.  And even if we actually get the cuts being offered by Obama, they are only 11% of our annual household deficit.

And if this was your household, how comfortable would you feel about having debt on your credit card of $163,500 when your income is $24,700?  That cut in your spending of $1,200 out of your total spending of $38,000 is not exactly making a difference in your problem! 

This is the fix we have gotten ourselves into.  The Obama administration has been the most irresponsible, the most profligate in our history.  And remember, these are not extraordinary times.  We have a weak recovery and the employment situation is far, far worse than the 7.7% unemployment rate (for instance, the average duration of unemployment is 40 weeks whereas historically it has been 15 weeks), but we are well into a recovery.  The recession ended in Q2 of 2009, so we have been growing for over three years. 

This recovery has been sluggish and real GDP is both below its long-term trendline and is growing at a slower rate than the long-term trendline.  But real GDP is back at an all-time high.  So while we have a weak recovery, it is a recovery.  We are not in a crisis like World War II.  We are not undertaking a great national investment.  We are just getting and spending on a day to day basis. 

What has happened is that the bill for the welfare state has come due.  We can always hope for greater economic growth, but GDP grew at 3.1% in Q3.  Meaning that there are no miracles in the future.  These are the numbers we have to work with. 

Do you think the administration is addressing this budget calamity with the urgency it requires?    

Just how much trouble is the federal budget in?  The coverage by the MSM of the fiscal cliff negotiations is not enlightening on this point.  For reasons that most of us in the American Thinker community and observers such as Thomas Sowell find inexplicable, the Republicans simply will not make the budget case in public.  This is true whether it is Boehner and McConnell in Congress or Romney during the campaign.

Instead we get snippets from our side when they get in front of a microphone of "$1.2 trillion" or "everything is on the table" or "keeping the Bush tax cuts."  For some reason, our side does not understand that it has to build a political predicate in public in order to have a purchase on the president who is moved by nothing but power.  He is committed to growing government without limit, as if he is unaware of the lessons of the 20th century about communism and socialism. 

He is committed to a philosophy now over 100 years old that has failed everywhere it has been tried and has the additional effect of ruining the vigor of the public, which is what supports the economic and political system itself.

So where are we in the budget?  We do not have final numbers for fiscal 2012 which ended September 20, 2012.  But we have estimates.  The estimates for 2012 for the federal budget are:

 

Table 1

Federal Budget - 2012

($ trillions)

Revenues from taxes

$  2.47

Expenditures

$  3.80

Deficit

$  1.33

Total debt

$16.35

 

What Table 1 shows is that in the fiscal year ended September 30, 2012, the federal government took in $2.47 trillion in taxes, spent $3.80 trillion, had a deficit of $1.33 trillion and ended the year with $16.35 trillion in total debt (there is a smaller debt figure which nets out holdings of the Social Security trust fund, but we'll stick with total debt).

In the fiscal cliff negotiations so far, the president is offering to cut $1.2 trillion in spending over the next ten years.  Actually, this is $850 billion in direct cuts and the rest in lower inflation adjustments for Social Security and a dubious assumption of lower interest expense from what it otherwise would have been.  But let's go with the $1.2 trillion number.

These numbers in trillions of dollars can easily be converted to numbers that could represent the budget of a household by getting rid of a few zeros:

Table 2

Federal Budget as a Household Budget

($)

Household income

$  24,700

Household spending

$  38,000

Amount added to the credit card

$  13,300

Amount owed on the credit card

$163,500

Spending cuts offered by Obama

$    1,200

Oops!  Doesn't look too good.  That debt is pretty high given the household income.  And remember, there is no silver bullet on household income.  It is going to grow at about 4% per year (it grows in current dollars meaning the real growth in the economy plus inflation).  But expenditures are going to grow as fast or faster.  And even if we actually get the cuts being offered by Obama, they are only 11% of our annual household deficit.

And if this was your household, how comfortable would you feel about having debt on your credit card of $163,500 when your income is $24,700?  That cut in your spending of $1,200 out of your total spending of $38,000 is not exactly making a difference in your problem! 

This is the fix we have gotten ourselves into.  The Obama administration has been the most irresponsible, the most profligate in our history.  And remember, these are not extraordinary times.  We have a weak recovery and the employment situation is far, far worse than the 7.7% unemployment rate (for instance, the average duration of unemployment is 40 weeks whereas historically it has been 15 weeks), but we are well into a recovery.  The recession ended in Q2 of 2009, so we have been growing for over three years. 

This recovery has been sluggish and real GDP is both below its long-term trendline and is growing at a slower rate than the long-term trendline.  But real GDP is back at an all-time high.  So while we have a weak recovery, it is a recovery.  We are not in a crisis like World War II.  We are not undertaking a great national investment.  We are just getting and spending on a day to day basis. 

What has happened is that the bill for the welfare state has come due.  We can always hope for greater economic growth, but GDP grew at 3.1% in Q3.  Meaning that there are no miracles in the future.  These are the numbers we have to work with. 

Do you think the administration is addressing this budget calamity with the urgency it requires?