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Budget follies: Demagoguery and sophistry reign

By PETER MORICI, UPI Outside View Commentator   |   April 5, 2011 at 6:23 AM   |   Comments

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COLLEGE PARK, Md., April 5 (UPI) -- U.S. federal finances are in shambles and Americans should be amused if not disgusted by the explanations and solutions both political parties offer.

President Barack Obama's budget plan issued in February projects a $1.6 trillion deficit for 2011 and a cumulative shortfall of $11 trillion through 2021.

Things may get worse, as additional revenue and cost savings from healthcare reforms don't materialize and the 4 percent growth assumed by the president's budget for the next four years proves Pollyanna.

Time and again, Obama and House Democratic Leader Nancy Pelosi, D-Calif., have demagogued the problem, blaming two wars and tax cuts instigated by President George W. Bush and the Great Recession.

To set the record straight, in 2007, the year before the financial crisis, with wars in Afghanistan and Iraq at full tilt and Bush tax cuts in place, the federal deficit was $161 billion. In 2011, with the economy in its second year of recovery and Troubled Asset Relief Program money returning to the Treasury, the deficit is 10 times larger and greater than $1.4 trillion notched in 2009, the pit of the recession.

Neither Bush's wars and tax cuts nor the recession caused the 2011 mess.

After Pelosi became speaker of the House of Representatives in 2007 and Obama became president in 2009, annual federal spending jumped $1.1 trillion -- 40 percent -- thanks to additional spending on Medicaid, Medicare and other forms of income redistribution; fanciful industrial policies for electric trains, windmills and the like; and more regulators to shut down domestic oil and natural gas production, limit bank lending to small businesses and affluent home buyers; and pretend to curb abusive Wall Street trading and salaries.

To keep pace with inflation, federal spending would have to had grown $200 billion from 2007-11 and this economist scratches his head to ask: How are ordinary Americans better off for the additional $900 billion in federal spending?

Enter those tough-minded House Republicans, who propose to cut spending much less than half of $900 billion in 2012 and only $4 trillion, cumulatively, over the next decade.

It's the same old story, when the Democrats get the reins they increase spending by a dollar and when the Republicans seize back control they can manage to slice the excess by 50 cents.

What is more comical are the means the GOP present for restoring fiscal sanity.

Healthcare costs are running away in the United States -- Americans pay 18 percent of gross domestic product for healthcare while the Germans and Dutch pay 12 percent to accomplish outcomes as good or better.

Americans simply pay much more for drugs, health insurance administration and malpractice than do the European but each interest group has enough congressmen or a president in their vest pocket to keep real reform at bay.

Now, Republican wunderkind and House Budget Chairman Paul Ryan, R-Wis., proposes block grants to the states to cut Medicaid spending and vouchers for poor folks so they can negotiate better prices for visits to doctors, hospital stays and drugs.

Absolute sophistry!

It is incomprehensible that poor folks can do a better job of negotiating with drug and insurance companies than the federal government and block grants will merely shift the burden of the overspending and cutting from Washington to the states.

I love those brave Republican congressmen -- no guts to stand up to special interests, so put it on the backs of the poor and state legislatures.

On Social Security, the Republicans promise savings but don't say too much about how. They simply won't get behind what is needed -- raising the retirement age to 70 for everyone under 55.

Ryan likes private investment accounts but those would have yielded zero invested in U.S. equities over the last decade. His solution: the federal government should guarantee returns on private accounts. The economics is complex but that is essentially what Social Security does right now on public custodial accounts but because people are living longer and the economy is not growing rapidly enough, Social Security is a festering crisis.

Republicans need two things to lead. First, the courage that Obama lacks on healthcare and Social Security to regulate drug prices, insurance overhead and torts, and level with Americans about the need to raise the retirement age.

Second, replace Ryan. Like Obama, he sounds good but doesn't have much useful to say.

Americans really need adults to govern but few can be found on either side of Pennsylvania Avenue.

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(Peter Morici is a professor at the Smith School of Business, University of Maryland School, and former chief economist at the U.S. International Trade Commission.)

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(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

© 2011 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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