Chart of the day

"It's ... a budget that leads to broad economic growth by moving from an era of borrow-and-spend to one where we save and invest." -- President Barack Obama

via Club for Growth

Update: New York Post editorial:

After running a campaign against the $1 trillion deficit he ‘inherited’ from President Bush and the Republicans, Obama quickly matched it. During his first 50 days in office, he and his Democratic-controlled Congress spent $1 billion an hour. Under Obama’s proposed budget, the overall national debt doubles in five years and triples in 10.

The easy way out

Larry Kudlow expresses unease over the Fed's decision to introduce $1 trillion into the economy, a sentiment I share:

Of course, the Fed wants to get mortgage rates down toward 4 percent, and some on Wall Street will cheer this. However, it all has a 1970s feel to it.

The Obama budget raises tax rates on investors and businesses, and supports a cap-and-trade tax, universal health care, and various regulations for unionization. Meanwhile, a spate of trade protectionism is breaking out with Mexico and China. All of these are anti-growth policies. And now the Fed is ramping up its monetary pump-priming. So the obvious risk is too much money chasing too few goods producing a stagflationary recovery.

The dollar is out the window. Monetizing debt is back in style.

There are several ways to jump start the economy, the easiest of which is the Fed's current approach -- injecting more money and lowering the discount rate at which banks borrow money from it. There are potentially at least two significant problems with this approach. The first is that easy money promotes inflation. When everyone is suddenly flush with cash without a commensurate surge in production you can expect prices to go up. The second problem is that easy money promotes a more reckless investment climate where people throw money around willy-nilly. This helps explain the housing bubble, when credit was cheap and easy.

Low interest rates are only a good idea to the extent they are used to fund worthwhile investments. Taking out a cheap loan to fund fish farms in the Arizona desert isn't the kind of growth we need.

More broadly this strikes me as symptomatic of the overall approach the government tends to be taking these days, which is looking for the easy way out. Instead of cutting taxes and reducing spending we are spending more and borrowing what we don't have. Instead of trying to expand free trade we are kowtowing to established interests and throwing up new restrictions. Instead of reducing the regulatory burden, which many people actually benefit from (and now just lawyers), we are thinking up new ways to encumber our businesses through measures such as card check.

The thread that runs through all of these policies is the ease of their implementation. Spending money that will have to be paid by future generations is easy. Promising more government goodies is easy. Giving political payoffs to your teacher and labor constituencies is easy.

In contrast cutting spending is hard. Reforming the tax code is hard. Overhauling regulation is hard. Pushing for free trade is hard. Yet these are the steps that are most needed.

For all of his rhetoric to the contrary it is rather apparent than Obama is more interested in being popular than being bold or promoting real change.

Fuzzy math

I gave Obama credit for this part of his speech:

My administration has also begun to go line by line through the federal budget in order to eliminate wasteful and ineffective programs. As you can imagine, this is a process that will take some time, but we have already identified $2 trillion in savings over the next decade.

Looks like that was just a bunch of hot air according to Megan McArdle:

Take the Iraq war. We were not, under any administration, going to spend as much in 2015 as we did in 2005. But by treating that spending as an ongoing cost, Obama now gets to take as much credit for reducing it as he would for closing permanent air bases in Germany, or trimming Social Security. Reducing the cost of "overseas contingency operations" acounts [sic] for $1.5 trillion of Obama's much vaunted $2 trillion in savings.

It's just an accounting gimmick. So really Obama is talking about saving $50 billion a year over 10 years. Of a budget that is already over $2 trillion and headed for three -- if we aren't already there -- that's about 2.5 percent.

Hard choices, sacrifice, change, yada yada yada.

It's like this guy is from the Chicago school of politics or something.

Update: Greg Mankiw notes the pronounced contrast in projected GDP growth rates between the Obama Administration and blue chip forecasters.

Update: Calafia Beach Pundit has more on the budget fantasy:

Federal receipts are assumed to skyrocket at double-digit rates in 2010 and 2011, despite only a modest recovery, as higher taxes and new limits on deductions presumably succeed in grabbing hundreds of billions of extra dollars from the pockets of the rich. Receipts are then expected to stabilize at just over 19% of GDP, even though they have averaged less than 18% of GDP over the past 40 years and have only exceeded 19% for a handful of those years.

Spending will surge this year, but is then expected to perform the never-before-seen feat of not growing at all for the next 5 years, even as the government brings a huge portion of the population under its healthcare wing and countless government programs expand in coming years thanks to the recently passed "stimulus" bill. Spending is expected to stabilize at just over 22% of GDP, even though it has averaged about 20% for the past 40 years and has only barely exceeded 22% in a handful of those years.

Sigh.

Federal budget and expenditures per capita

A couple of interesting graphs I found:

On both an absolute and per capita basis federal spending grew significantly under George W. Bush. Obama promised change -- and yet is only accelerating this trend.

We've already tried this path, how about something new?

Update: Related thoughts here. (via instapundit)

Update: One more graph from the Cato Institute:

And please read this.

Change

Change:

The consequence free era

Excerpts from President Obama's inaugural address:

Our challenges may be new, the instruments with which we meet them may be new, but those values upon which our success depends, honesty and hard work, courage and fair play, tolerance and curiosity, loyalty and patriotism -- these things are old.

...Now, there are some who question the scale of our ambitions, who suggest that our system cannot tolerate too many big plans. Their memories are short, for they have forgotten what this country has already done, what free men and women can achieve when imagination is joined to common purpose and necessity to courage.

...That we are in the midst of crisis is now well understood...Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some but also our collective failure to make hard choices and prepare the nation for a new age.

Honesty and hard work. Courage and fair play. Hard choices. These are the things that Obama spoke of and these are the things that I applauded at the conclusion of his speech. But how can they be reconciled with what has transpired over the past month?

A stimulus bill was passed that demanded nothing in the way of courage or hard choices. It was simply a spending spree for items on the Democratic wish list. It demanded all the courage of setting aside your maxed-out credit card and applying for a new one.

Now the President is set to pass housing legislation that punishes those of us who were prudent in our collective decisions not to buy that which we could not afford. This is fair play? This is what passes for honesty and hard work?

As I have written before, we are now living in a consequence free era in which the guiding paradigm is that no one should suffer for their actions. If you're a bank that invested poorly you get a bailout. If you are an individual that wanted to buy a house because everyone was else was getting rich doing it you get a bailout. The only people that aren't getting a helping hand from the government are those among us who chose wisely, we are the ones footing the bill.

We are subsidizing stupidity and greed, and when you subsidize something you tend to get more of it. This does not bode well at all, either on moral or practical grounds.

Update: James Pethokoukis calls it "savior-based economics."

A look back

Almost four weeks ago President Obama spoke the following words:

The question we ask today is not whether our government is too big or too small, but whether it works, whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified.

Where the answer is yes, we intend to move forward. Where the answer is no, programs will end.

And those of us who manage the public's dollars will be held to account, to spend wisely, reform bad habits, and do our business in the light of day, because only then can we restore the vital trust between a people and their government.

Can this in any way be reconciled with what has actually occurred since then? Obama implied a government guided not by ideology but pragmatism -- but has clearly governed as a traditional liberal. He has expanded programs but ended none. He spoke of managing money wisely, but has spent with abandon. He spoke of doing business in the light of day but is set to sign legislation that even members of Congress were not given an opportunity to fully digest before voting on.

He then followed with this bit:

Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched.

If Obama truly believes this then why did his stimulus package do nothing to promote the market? If it is unmatched in its ability to expand wealth -- which we surely need more of -- then why is the stimulus package based on the expansion of government rather than the market? If he truly believes in the awesome power of the market to spread prosperity then he should let slip the surly bonds that hinder it.

So far it's all sizzle and no steak.

Update: An excellent analysis of the state of Obama's presidency here.

The dangers of fearmongering

Remember, they don't call the presidency the bully pulpit for nothing:

Mr. Obama's analogies to the Great Depression are not only historically inaccurate, they're also dangerous. Repeated warnings from the White House about a coming economic apocalypse aren't likely to raise consumer and investor expectations for the future. In fact, they have contributed to the continuing decline in consumer confidence that is restraining a spending pickup. Beyond that, fearmongering can trigger a political stampede to embrace a "recovery" package that delivers a lot less than it promises. A more cool-headed assessment of the economy's woes might produce better policies.

Trying to advance your agenda is one thing, but placing the economy at unnecessary risk is another. Read the whole thing.

Abandoning hope

The man who became synonymous with hope is now a prophet of doom. Discarding the sunny optimism that characterized his presidential campaign, President Barack Obama has apparently decided to embrace a presidency whose chief hallmarks are fear and demagoguery. Jake Tapper of ABC News describes today's radio address:

President Obama then warned, "if we don't move swiftly to put this plan in motion, our economic crisis could become a national catastrophe. Millions of Americans will lose their jobs, their homes, and their health care. Millions more will have to put their dreams on hold."

Mr. Obama described his opponents as offering "tired old theories that, in eight short years, doubled the national debt, threw our economy into a tailspin, and led us into this mess in the first place" and "a losing formula that offers only tax cuts as the answer to all our problems while ignoring our fundamental economic challenges..."

This is quickly becoming rather tiresome. Obama talks about breaking from the past but then goes for more of the same, slams deficit spending but then increases it and employs strawman arguments against his opponents. He speaks of looming catastrophe and then offers himself as the country's only possible salvation.

It's going to be a long four years.

Update: Sen. Jon Kyl (R-AZ):

“In discussing with the American people his approach to the stimulus of our economy, he has first really used some dangerous words. It seems to me that the president is rather casually throwing out some careless language.”

Fear

"If we do not move swiftly to sign the American Recovery and Reinvestment Act into law, an economy that is already in crisis will be faced with catastrophe." -- President Barack Obama, Feb. 4

"If nothing is done, this recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse." -- President Barack Obama, Feb. 5

Responding to Obama

"The only thing we have to fear is fear itself."

That, of course, is the most memorable line from Franklin Delano Roosevelt's 1933 inauguration. Indeed, a key element in FDR's approach to the economy was re-instilling confidence and assuring people that things were going to be OK.

It's a remarkable contrast to President Obama's op-ed in today's Washington Post in which he seemingly reaches back to the 1986 movie The Fly, warning people to "Be afraid, be very afraid."

By now, it's clear to everyone that we have inherited an economic crisis as deep and dire as any since the days of the Great Depression. Millions of jobs that Americans relied on just a year ago are gone; millions more of the nest eggs families worked so hard to build have vanished. People everywhere are worried about what tomorrow will bring.

...Because each day we wait to begin the work of turning our economy around, more people lose their jobs, their savings and their homes. And if nothing is done, this recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.

This is overwrought and just plain inaccurate. So far this recession isn't even as bad as the one in 1982, where unemployment peaked at 10.8% in December of that year. Rather than reassuring Americans, he then goes on to unequivocally state that the economy will lose 5 million jobs and sink into a potentially irreversible crisis "if nothing is done."

Given such hyperventilation I feel it is my duty to calm and reassure the president.

President Obama, I can assure you that something is being done. Even today thousands of businesses and millions of Americans, acting in their own self-interest, are responding to the crisis. They are cutting unneeded workers and reducing expenses, positioning themselves for renewed growth. Investments in unneeded sectors such as housing are slowing and money is being re-allocated to more productive sectors. Already new companies stand ready to expand and grow -- here is a list of 20 companies that are hiring with at least 350 vacanies.

That's not to say that Americans do not face obstacles. They struggle with an income tax code that has already claimed a number of your nominees as victims. They pay seemingly ever rising taxes that Congress wastes on ill-advised pieces of legislation such as your stimulus package that only serves to drive us further into debt. Money is taken out of our paychecks to fund programs like Medicare and Social Security that will probably go bankrupt before many of us even reach retirement. Those that choose to start businesses have to face an expanding number of regulations that make an already difficult endeavor even more so.

Obama continues:

In recent days, there have been misguided criticisms of this plan that echo the failed theories that helped lead us into this crisis -- the notion that tax cuts alone will solve all our problems; that we can meet our enormous tests with half-steps and piecemeal measures; that we can ignore fundamental challenges such as energy independence and the high cost of health care and still expect our economy and our country to thrive.

I reject these theories, and so did the American people when they went to the polls in November and voted resoundingly for change. They know that we have tried it those ways for too long. And because we have, our health-care costs still rise faster than inflation. Our dependence on foreign oil still threatens our economy and our security. Our children still study in schools that put them at a disadvantage. We've seen the tragic consequences when our bridges crumble and our levees fail.

He begins with a strawman. No one ever said that tax cuts will "solve all our problems." Rather, tax cuts have been offered up as a preferable means of stimulating the economy than wasteful government spending. The president's unwillingness to engage in intellectually honest debate does not reflect well on him.

Obama is correct, however, that Americans voted for change. Why, however, he thinks that increased federal involvement in education (No Child Left Behind), energy policy (2005 energy bill) or health care (Medicare drug bill) is a break from the past is inexplicable. Been there, done that, doesn't work.

He concludes:

So we have a choice to make. We can once again let Washington's bad habits stand in the way of progress. Or we can pull together and say that in America, our destiny isn't written for us but by us. We can place good ideas ahead of old ideological battles, and a sense of purpose above the same narrow partisanship. We can act boldly to turn crisis into opportunity and, together, write the next great chapter in our history and meet the test of our time.

President Obama, I couldn't agree more. We need a break from bad habits like rampant overspending, pork barrel politics and government control over the economy. And you are absolutely correct that some tough choices, particularly from you, are in order. Which constituencies are you willing to offend to overhaul the tax code and make it simpler and more fair? Which entitlement programs will you reform to make viable? Are you willing to cut benefits? Which government agencies and programs will you abolish to bring our deficit under control?

The future of our country depends on your answers.