Obama Warns of One Bush Administration Legacy: "Trillion Dollar Deficits for Years to Come"

by Damozel | While Obama and his crew are presumably working all the hours there are on that economic stimulus package of which we hear so many reports, Obama doesn't want anyone to assume that this or anything else is going to be more than a palliative for our current dire straits.

President-elect Barack Obama on Tuesday braced Americans for the unparalleled prospect of “trillion-dollar deficits for years to come,” a stark assessment of the budgetary outlook that he said would force his administration to impose tighter fiscal discipline on the government.  (NYT)

For the ignorant layperson, meaning me, the article explains:

At $1 trillion, the deficit would not only shatter the largest previous shortfall in dollar terms — $455 billion last year — but it could also exceed the post-World War II-era record by the measure more meaningful in economic terms, the deficit as a percentage of total economic activity.

Diane Rogers, chief economist at the Concord Coalition, a nonpartisan organization that supports fiscal discipline, estimated that the deficit this year would hit 7 percent of the gross domestic product. The largest previous record in those terms was in 1983, when it hit 6 percent.

....In just the first three months of the 2009 fiscal year, which began on Oct. 1, the government spent $408 billion more than it took in. About one-third of that shortfall stemmed from the Treasury Department’s rescue program of injecting capital into banks, which the government will book as an “investment” rather than “spending.”

The recession itself will add hundreds of billions of dollars to the deficit. Even before Congress adds any new stimulus measures, higher outlays will climb for existing unemployment benefits, food stamps and other social programs. Tax revenues will fall because of rising unemployment, falling corporate profits and huge investment losses in the stock and bond markets. Mr. Obama’s stimulus program could add another $400 billion in each of the next two years.  (NYT)

Okay, actually I---ignorant layperson though I am--- had actually worked all that out already.  I frequently parse my way through articles on the current economic crash (moving my lips as I spell out the words).  Most of that is old news.

So what, for Obama's purposes, does this mean?  How is his program going to help?

Mr. Obama sought to distinguish between the need to run what is likely to be record-setting deficits for several years and the necessity to begin bringing them down markedly in subsequent years. Even as he prepares a stimulus plan that is expected to total nearly $800 billion in new spending and tax cuts over the next two years, he said he would make sure the money was wisely spent, and he pledged to work with Congress to enact spending controls and efficiency measures throughout the federal budget.

“We’re not going to be able to expect the American people to support this critical effort unless we take extraordinary steps to ensure that the investments are made wisely and managed well,” Mr. Obama said, speaking about the dire fiscal outlook after meeting with his economic team for a second straight day. (NYT) 

It's one of those political paradoxes:  when a government has no money --- and it's pretty clear that Bush and his Wall Street cronies and other pals have ensured that we have NO MONEY --- you can only get money by spending what you don't have.

This actually makes sense to me.  If you're stuck in a deep, dark cave with both legs broken and the tunnel's been blocked by falling rocks, you aren't going to survive unless your rescuers invest in a pickaxe, some climbing equipment, a stretcher, and medical equipment-- and even then there's all that breaking of rocks, emergency medical procedures, and climbing back out to be done.  The question of exactly how those costs are going to be defrayed can wait...or at least that's going to be the perspective of the poor sod with the two broken legs.

If not his plan, then what plan?  Show me the alternative!   Because it's not so clear, as noted previously, that Congress intends to cooperate (or to cooperate boldly and swiftly enough for it to work). 

Republicans and some fiscally conservative Democrats have expressed concern that the need for a substantial economic stimulus plan could sweep away for years any serious effort to bring government spending into line with its revenues. (NYT)

Yeah, I'm waiting to hear how they propose to solve the problem.  I have to admit that "limiting government spending" ain't at the top of my concerns at the moment.

In the meantime, the economists are fretting over whether this plan, however much we need it, will even work:

While economists almost universally support running large deficits to combat the kind of steep recession the country is grappling with now, they are increasingly expressing alarm at the prospect of sustained fiscal imbalances heading into a period in which the aging of the population will create huge budgetary strains because of the growing costs of the Medicare and Social Security programs. (NYT)

Yeah, speaking as one of the "aging population," I am very much hoping that I can continue working for another 20 years or so, at which point I hope that Bush's legacy will be a thing of the past.   Fingers crossed....

Naturally, there's plenty of criticism of his plan among these "fiscal conservatives" around and about the politophere....I am waiting eagerly to hear the critics' better (as in more-likely-to-succeed) ideas....  (Yes, and where were they when Bush and those aforesaid cronies were squandering our resources like drunken sailors?)

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Comments

[David Dzidzikashvili]

The trillion dollar stimulus package contains some of the spending that is not necessary and we've got to look at the package in terms costs and benefits. If creating a $40k-$50k a year job costs taxpayers $200-$300K, then this does not make sense and such programs are not necessary. We'd be better off transferring that money directly to struggling homeowners and giving further larger tax breaks for laid off workers and the middle class. I think we need to concentrate on further empowering the middle class, rather than spending taxpayers money on unnecessary spendings such as opening/renovating museums and constructing water parks.