Friday, February 27, 2009

High hopes...Dashed

We are about to enter a new world...a world of change. Sadly this is a change I believe we will come to regret over the next 10-30 years. I had high hopes that Obama would be a centrist, using the best parts of Conservatism and Liberalism together. Instead he has demonized the choices of the past 30 years, during which our country has grown by leaps and bounds, the quality of life ever improving, by casting derision on anything conservative, fomenting a populist rage that will result in a dramatic reshaping of America into a place where Government decides how the economy should be run instead of the private sector. We are going to watch the unprecedented expansion of Government into every aspect of our lives. I do not think people understand how this will change what we understand to be 'America'.

And it will be very hard to stop it or change it once in motion. I believe it is already too late.

The party line is that these 'investments' ie spending, will all be cut back in 2 years. Fat chance. Government never gets smaller...only larger. Once these programs are in place who will have the will to cut them? Nobody. That is what the Democrats are counting on. These new constituencies who are on the receiving end of the Governments handouts will have a powerful interest in maintaining their newfound gifts.

If I believed that all this spending was for future looking projects that would show a return greater than that of the money being used in the private sector I would give it a chance. But what government agency has ever made a profit? Or created something that makes new jobs, not just make work? A much more practical approach would be to fund start ups, give tax breaks to entrepreneurs and encourage people to create new ideas and business. Dumping Trillions of your tax dollars into the same old system will just get the same results.

Will throwing another 100 billion dollars at education (doubling the budget, which already had doubled under George Bush) do anything unless the incentives for teaching change? Unless Obama reforms all of these institutions we are going to see good money going after bad.

I have included an article below from the WSJ....check it out. The numbers are staggering.

With trepidation I am looking to the future...

The more things Change, the more they stay the same,

Durand

The Obama Revolution

Paid for by the people.

In the closing weeks of last year's election campaign, we wrote that Democrats had in mind the most sweeping expansion of government in decades. Liberals clucked, but it turns out even we've been outbid. With yesterday's fiscal 2010 budget proposal, President Obama is attempting not merely to expand the role of the federal government but to put it in such a dominant position that its power can never be rolled back.

[Review & Outlook] AP

The first point to understand is the sheer magnitude of federal spending built into this proposal. As the nearby chart shows, federal outlays will soar in fiscal 2009 to $4 trillion, or 27.7% of GDP, from $3 trillion or 21% of GDP in 2008, and 20% in 2007. This is higher as a share of the economy than any year since 1945, when the country was still mobilized for World War II. It is more spending by far than during the Vietnam War, or during the recessions of 1974-75 or 1981-82.

But let's assume, for the sake of argument, that Mr. Obama is right that this spending is needed now to "jump-start" an economic recovery. Though the budget predicts that the economy will recover in 2010, spending will still be 24.1% of GDP that year, and the budget proposes that spending will remain higher than 22% for the entire next decade even as the defense budget steadily declines. All Presidential budgets predict spending will decline in the "out years," if only to give the illusion of spending restraint. Mr. Obama tries the same trick, but he is proposing so many new and expanded nondefense programs that his budgeteers can't get anywhere close even to Jimmy Carter spending levels.

[Review & Outlook]

These columns focus on spending, rather than deficits, because Milton Friedman taught us that spending represents the real future burden on taxpayers. Nonetheless, the 2009 budget deficit is estimated to be an eye-popping 12.7% of GDP, which once again dwarfs anything we've seen in the postwar era. The White House blueprint predicts that this will fall back down to 3.5% as soon as 2012, but this is based on assumptions about Washington that aren't going to happen.

For example, Mr. Obama's budget assumes that nearly all of the new stimulus spending will be temporary -- a fantasy. He also proposes to eliminate farm subsidies for those with annual sales of more than $500,000. This is a great idea, and long overdue. But has the President checked with Senators Kent Conrad (North Dakota) or Chuck Grassley (Iowa)? We hope we're wrong, but a White House that showed no interest in restraining Congress during the recent stimulus bacchanal isn't likely to stand athwart history to stop the agribusiness lobby.

The falling deficit also assumes the largest tax increase in U.S. history, starting in 2011 with the repeal of the Bush tax rates on incomes higher than $200,000 for individuals and $250,000 for couples. The White House says this will yield upwards of $1 trillion, if you choose to believe that tax rates don't affect taxpayer behavior.

In the real world, two of every three tax filers who fall into this income category are small business owners or investors, who are certainly capable of finding ways to invest that allow them to declare less taxable income. The real impact of this looming tax increase will be to cast further uncertainty over economic decisions and either slow or postpone the recovery. Ditto for the estimated $646 billion from a new cap-and-trade tax, which no one wants to call a tax but would give the political class vast new leverage over the private economy. (See here.)

Then there is Mr. Obama's plan for national health care. The White House has put a $634 billion place holder in the budget to pay for covering tens of millions of uninsured Americans with government subsidized coverage. But even advocates of this government plan say the cost will be closer to $1 trillion over 10 years, and probably much more. Meanwhile, the President is promising to reform entitlements, but his budget proposes a net increase of about $1 trillion in Medicare, Medicaid and other entitlements.

The biggest illusion in this budget may be its optimistic economic forecast. The White House assumes that the economy will decline by only 1.2% this year, before growing by 3.2% next year. This assumes the recovery will begin later this year and gather steam quickly to return to normal levels of growth. By 2010 to 2013, the budget adds, the economy will be cooking by an average of 4% a year -- which is also how it conjures up magical deficit reduction.

This growth is a lovely thought, but how? The only impetus for growth in this budget comes from the government spending more money that it is taking out of the job-producing private economy. With $1 trillion of new entitlements, $1.4 trillion in new taxes, and $5 trillion in new debt, America's entrepreneurs aren't getting any help soon from Washington.

Democrats will want to rush all of this into law this year while Mr. Obama retains his honeymoon aura and they can blame the recession on George W. Bush. But Americans are only beginning to understand the magnitude of Mr. Obama's ambitions, and how much of their own income will be required to fulfill them. Republicans have an obligation to insist on a long and considerable debate on all of this, lest Americans discover in a year or two that they live in a very different country.

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