Obama's Dangerous Gamble

Barack Obama is a master of spin. The guy has proposed a new budget that will increase government spending to $3.6 trillion or 27% of the Gross Domestic Product and then in his weekly radio address he tries to sound like a conservative determined to hold the line on spending:

"I know these steps won't sit well with the special interests and lobbyists who are invested in the old way of doing business, and I know they're gearing up for a fight," Obama said, using tough-guy language reminiscent of his predecessor, George W. Bush. "My message to them is this: So am I."

Some analysts say Obama's proposals are almost radical. But he said all of them were included in his campaign promises. "It is the change the American people voted for in November," he said. Nonetheless, he said, well-financed interest groups will fight back furiously.

Insurance companies will dislike having "to bid competitively to continue offering Medicare coverage, but that's how we'll help preserve and protect Medicare and lower health care costs," the president said. "I know that banks and big student lenders won't like the idea that we're ending their huge taxpayer subsidies, but that's how we'll save taxpayers nearly $50 billion and make college more affordable. I know that oil and gas companies won't like us ending nearly $30 billion in tax breaks, but that's how we'll help fund a renewable energy economy."

It's pretty hard to argue with the list of cuts or 'taking on special interests'. But Obama's budget isn't about cutting subsidies it's about massively increasing government spending and revenue through direct or indirect taxation. Republican Senator Richard Burr says describes the budget succinctly: He said Obama is pushing "the single largest increase in federal spending in the history of the United States, while driving the deficit to levels that were once thought impossible."

I like the way the Indiana Star Star described the situation:

President Barack Obama isn't betting that big government is the answer to all that ails America. He's gone all-in on the notion that huge government is the solution. The scale of the new president's first budget is astonishing. Federal spending under Obama's plan would spike to $3.6 trillion a year. The proposal also contains $1.4 trillion in tax increases and forecasts a $1.75 trillion deficit this year.

The administration projects significantly lower deficits in future years, but that is based on two unlikely assumptions. The first is that the economy will grow by more than 3 percent next year and will expand by an average of 4 percent in the years to follow. The second assumption is that Congress, after indulging in an unprecedented spending spree, suddenly will discover restraint next year and thereafter.

Just how large would Obama's government grow? Federal spending is expected to account for more than 27 percent of gross domestic product, its biggest share of the economy since the end of World War II. The deficit is estimated to equal more than 12 percent of GDP, also the largest in the postwar era.

If Obama wanted to be more honest with people he would describe what justification and benefits are for massive spending increases rather than talking about small budget cuts and deficit reduction. And even that deficit reduction is a red herring as the Economist magazine reports:

Most of Mr Obama’s targeted deficit-reduction comes not from his own actions, but from the expiry of the temporary stimulus, a halt to bail-outs, and the natural restoration of tax revenue as the economy pulls out of recession and grows by 2-3% over the next decade. And therein lies the biggest threat to the president’s plans. The economic outlook has darkened significantly even since January. Ben Bernanke, the Federal Reserve chairman, said this week that the recession would end this year only if the financial system stabilises, which so far it has not.

Sounds like a big gamble. So big that the Digital Journal reports, "Many moderate Democrats were caught off-guard by the boldness of Mr. Obama’s budget." If a gamble this big goes wrong, this budget could cripple the American economy for years to come. So far so bad, markets have already reacted negatively to the budget.