2011 April 13 Wednesday
Chump Change And Budget Cuts

In so many ways America's best years are behind it. Granted, technology is still advancing and so we'll get neater gadgets in the future. But demographically and financially the nation's headed down. Another sign of this: The recent budget deal. Before the recent budget deal between Obama and Congressional Republicans Boston U econ prof Laurence Kotlikoff pointed out the stakes they are fighting over are so small compared to the problem that it is hard to take the differences seriously.

The two parties are having a heated debate over the Republican plan to slice $61 billion off Uncle Sam’s projected $3.6 trillion budget. If the Republicans get their way, the deficit will fall from 9.5 percent of gross domestic product to 9.1 percent. If they don’t, they’ll probably shut the government for a couple of days. Then they’ll compromise on, say, a $40 billion budget cut, having proved they gave it their best shot.

Kotlikoff was close but a bit optimistic: the final deal cuts US federal spending by $38 billion. We'll go over the fiscal ledge about 5 minutes later.

But wait, Philip Rucker of the Washington Post reports that some of that $38 billion in cuts are just accounting gimmicks. Note the use of "worst-sounding" about social program cuts. Worst-sounding to who?

But some of the worst-sounding trims are not quite what they seem, and officials said they would not necessarily result in lost jobs or service cutbacks. In several cases, what look like large reductions are actually accounting gimmicks.

The imaginary $4.9 billion cut:

The legislation includes $4.9 billion from the Justice Department’s Crime Victims Fund, for instance, but that money is in a reserve fund that wasn’t going to be spent this year. Crime victims would receive no less money than they did before the deal.

You might ask: Is the US government headed for a fiscal disaster? Yes. Are we going implement the severe cuts needed to avoid it? Nope. Not gonna happen. Remember that run-away train in one of the Back To The Future movies that went plunging into a canyon? That's America's future. You'll need some sort of floating boogie board to get off in time before it takes the plunge.

Share |      By Randall Parker at 2011 April 13 06:36 PM  Economics Squanderville Thriftville

Black Death said at April 14, 2011 7:24 AM:

It seems the Beltway classes are in total denial about the severity of our fiscal problems. Suppose we totally abolish four pretty useless federal bureaucracies - the Departments of Education (which has done nothing to improve education), Energy (which has done nothing to promote our energy independence), Housing and Urban Development (which probably made the housing bubble worse) and Transportation (which has a few useful functions like the FAA but is mostly just bureaucracy). Now I know there are a few functions in these leviathans that we would want to preserve, such as the DOE's nuclear programs, which could be transferred to the Department of Defense, but just stick with me on this and let's not quibble over pennies. How much have we saved so far? About $200 billion. Now we're going to throw in President Obama's cherished surface transportation (pork barrel) package for another $125 billion. We're at $325 billion now. Here comes the biggie - Defense is about $800 billion, depending on who's counting, so we cut it in half, reducing US defense expenditures to $400 billion or about 2.8% of GDP, still more than China and our NATO allies (of course, the US has a much bigger GDP, but let's be fair). How we doing now? Well, with all these massive cuts, we've reduced the deficit around $725 billion, or about 45%. The remaining deficit would be about $875 billion, or about 5.8% of GDP. And we still haven't dealt with Medicare, Medicaid or Social Security. Now it's possible to argue with some of the numbers here and there, but the overall picture doesn't change. We are headed for a fiscal train wreck.

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