Like Toyota, Obama's Accelerator Pedal Is Stuck
The level of red ink just seems inexorably to rise.
As he professes to want to reduce the dangerous budget deficit, Obama brings to mind the hapless engineers at Toyota who find that their vehicles accelerate whether or not the driver wants them to.
It appears that no matter how hard Obama jams on the brakes with his new-found commitment to deficit reduction — having already almost doubled the deficit in one year — the level of red ink just seems inexorably to rise. Obviously, more fundamental change in the budget’s engineering is needed. But, unfortunately, it is easier to recall a car than a president.
Obama’s announced intention to freeze 13 percent of the budget spending for three years is a relatively minor cut. It will reduce the deficit by only 3 percent over the decade. If Obama really wants to get serious about reducing the deficit, he could do so easily.
All he has to do to bring the deficit under control is to stop the remaining $500 billion of his $800 billion stimulus package from being spent and to refund back to the U.S. Treasury the $500 billion in TARP funds the banks have repaid.
Instead, he is merrily proceeding to build pork barrel projects all over America using stimulus funding despite its demonstrated inability to curb the recession.
Only $300 billion of the stimulus has been spent. He could easily call back the remaining $500 billion before its expenditure creates a deficit so big that America’s economy may not be able to find its way out. But he won’t do so. His commitment to expansion of government spending reminds one of nothing so much as an alcoholic’s desire for a drink right before going on the wagon or a dieter’s attachment to one last banana split before starting a diet.
And, when the money George W. Bush laid out in TARP funding is repaid by the banks that borrowed it, Obama is intent on using these funds to pay for his stimulus 2 package, earmarking $100 billion for state and local aid, $30 billion to small businesses for job creation and $30 billion for consumer credit.
He is, literally, intercepting the money the banks are repaying before it lands in the Treasury and sending it out the door again — this time as spending that will never be recouped instead of the short-term lending for which the money was initially appropriated.
Obama has only to get out of the way and let the banks repay the Treasury to bring the deficit down by a further $500 billion.
When will Obama learn that deficit spending is not the way to stimulate the economy? When will he realize that by adding to the deficit, he is stopping business from borrowing to create jobs and blocking consumers from getting the capital they need to make purchases?
With Treasury debt up 41 percent over the past year and commercial and consumer lending down by more than 20 percent, doesn’t Obama get the point that by hogging the loan window, he is blocking, not catalyzing, job creation.
Yet despite the evidence that stimulus 1 did little to cure the recession, he proceeds with stimulus 2.
Like the Medieval doctors who bled a patient to expel the evil spirits that they believed were causing his illness, he drains the economy of the capital it needs to grow. And, when the patient got sicker as the blood flowed out, the doctors decided they had not bled enough and resumed opening his veins. Likewise, Obama has figured that he has not diverted enough capital to the public sector and is about to reopen the spigot.
And, in a novel way to encourage economic growth and new spending, he has announced drastic tax increases on the horizon for next year. What an incentive to potential consumers to know that next year, they will have to pay taxes that are about one-eighth higher than those they pay this year (from 35 percent to 39.6 percent)! And what an inducement to investment to know that when you go to sell your real estate or stocks, you will be socked with a capital gains tax 33 percent higher than at present (15 percent to 20 percent)!
With incentives like these, no wonder the unemployment rate seems stuck at its current high level.