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Exchequer

NRO’s eye on debt and deficits . . . by Kevin D. Williamson.

Words I Never Expected To Type



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Man, I miss the fiscal discipline of the Bush era!

Gulp.

I never expected to write those words. The Bush-era Republicans were out-of-control big spenders, fiending for appropriations, handing out largesse, creating giant new health-care entitlements here, building nations there, all with a devil-may-care attitude about where the money would come from. They were all carrot and no stick, cutting taxes but not doing a thing about spending.

And then:

A mid-year budget review by the Obama administration forecasts the deficit will be $1.47 trillion this year and $1.42 trillion next year as the U.S. struggles to recover from the recession.

This year’s budget shortfall is $84 billion less than President Barack Obama’s budget office projected in February because of lower than projected spending for unemployment and some government programs. Still, the total would be a record and represent 10 percent of gross domestic product.

That is from the Mid-Session Budget review, where the government checks in on the federal books and sees how closely they match up to the actual budget. Pretty close, in this case — unfortunately.

Let me see if I can type this right: $1,470,000,000,000.00 — and that is just the part of the bill that we do not know how to pay. The actual bill for government  spending this year is more than twice that. We are borrowing 41 cents of every dollar we spend. We are spending $36,000 per household.

Okay, here is the ritual denunciation: That is the biggest deficit in the history of the United States of America, in gross dollars. For Pete’s sake.

And here is the reality: That is the biggest deficit in the history of the United States of America since World War II, as a portion of GDP. That deficit is about  10 percent of GDP; the Bush-era deficits were typically about 3 percent of GDP.

Heritage puts it this way:

These future deficits are driven almost exclusively by rising spending. President Obama’s budget would push inflation-adjusted federal spending past $36,000 per household by 2020—$12,000 above the level that prevailed under President Bush. Even President Obama’s enormous and anti-growth $3 trillion tax increase proposal won’t stop this spending spree from pushing the national debt to economically dangerous levels.

The Mid-Session Budget Review also confirms the failure of Obama’s economic agenda. The President concedes that the unemployment rate will remain at nearly 10 percent this year and not revert to pre-recession levels until 2016—and even that is based on the same optimistic Keynesian economic models that claim the stimulus created or saved 3 million jobs. If this is economic policy success, one wonders how failure would look.

I do not like to make predictions (because I am really bad at it, and the world is too complicated) but here is one: Obama will find it much more difficult to get himself re-elected in 2012 if the unemployment rate is 9.7 percent than if it is 7.7 percent. I have said, on several occasions, that the only way I expect a Republican to defeat Obama in 2012 is if unemployment persists at very high levels or if there is another major economic disruption. It must be clear, even to President Obama, that his program is not working. It certainly is clear to those members of his increasingly incoherent economics team who are skedaddling. For a guy who campaigned on hope and change, Barack Obama is proving to be absolutely pig-headed when it comes to sticking to what does not work. Memo to the president: This is no way to run a welfare state.

More words I never expected to type: Meanwhile, in the land of liberty, Canada:

Canada’s federal budget deficit amounted to $4.2 billion during the first two months of the fiscal year, much smaller than in the same period last year when the economy was mired in recession, the finance department reported Friday.

The Finance Department’s fiscal monitor noted the government spent $7.2 billion more than it took in during April and May of 2009 because tax revenues were down and social and economic spending to offset the slump was higher.

“The data is reassuring that the deficit should continue to narrow,” said Mary Webb, an economist with Scotia Capital. “And it continues a trend we saw in the last quarter of fiscal 2009-2010, which is that revenues were coming back reflecting the strength of the Canadian recovery.”

The improvement in the deficit year-over-year was most visible in revenues from personal income taxes and provincial sales and services taxes.

The government says the deficit includes about $1.7 billion in spending under the stimulus package introduced in January 2008.

Whatever you think about socialism, here is an undeniable fact: Canadians are better at it than Americans are. We are managing to inflict the costs of welfare statism on ourselves without even deriving any of the benefits: Heritage now ranks Canada’s economy as more free than that of the United States. Its government spending is only marginally higher than our own, and its government institutions are much cleaner and more effective. It went into the financial crisis with low levels of government debt and a sounder banking system, thanks in no small part to the fact that the Canadian government is not as dominated by narrow financial interests as the U.S. government is. (Question: Why is it that the lefties who rightly appreciated what a rent-seeking nightmare our financial system is do not see that they have just helped to create a substantially similar situation in the health-care industry? Just askin’.)

The upshot? Canada already is packing in its stimulus measures. And tiny little Canada is creating more jobs than is the United States:

Canada has recouped 403,000 jobs, or 97% of those lost in the recession. Employment rose by 93,200 in June – a number five-times greater than economists had expected – following a gain of 24,700 in May and a record-high surge of 108,700 in April.

By comparison, the United States, which has a population 10-times larger than Canada’s, only added 83,000 jobs in June. And if you factor in the loss of 225,000 temporary Census jobs, the United States actually lost 125,000 jobs. Worse, if you include “discouraged workers” who haven’t looked for a job in the past four weeks, the U.S. labor force has shrunk by 974,000 in the past two months alone.

Canada’s unemployment rate slid to 7.9% in June compared to 9.5% in the United States.

… Canada has already begun the process of reigning in its stimulus measures. The Bank of Canada (BOC) yesterday (Tuesday) raised its key interest rate a quarter of a point to 0.75%. That was the second such high in as many months.

If you want to emulate Canada, emulate the parts that work: clean government, balanced budgets, low debt.

– Kevin D. Williamson is deputy managing editor of National Review.

 


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