Business

Budget Bolero

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Anyone familiar with Ravel’s Bolero will instantly recognize the simple musical phrase that is repeated throughout the entire piece. It begins slowly with a snare drum establishing a military march-like rhythm, then joined by a solo woodwind, then a flute, then more instruments are added with every iteration until the entire orchestra is engaged. The piece was written for ballet, is simplistic and highly repetitive, yet as the increasing musical voices repeat the same monotonous refrain, it becomes oddly compelling. The composition was popularized in the movie “10” when Bo Derek declared it as the perfect musical accompaniment for getting screwed. Which, when you think about it, makes the Bolero a perfect analogy for the political process surrounding the federal budget.

On Monday, as the President’s proposed budget was released, the right and left executed a familiar pas de deux. On Tuesday the President introduced the budget in a Press conference:

“Just like every family in America, the federal government has to do two things at once. It has to live within its means while still investing in the future. If you’re a family trying to cut back, you might skip going out to dinner, you might put off a vacation. But you wouldn’t want to sacrifice saving for your kids’ college education or making key repairs in your house. So you cut back on what you can’t afford to focus on what you can’t do without. And that’s what we’ve done with this year’s budget…

We also know that cutting annual domestic spending alone won’t be enough to meet our long-term fiscal challenges. That’s what the bipartisan fiscal commission concluded; that’s what I’ve concluded. And that’s why I’m eager to tackle excessive spending wherever we find it -– in domestic spending, but also in defense spending, health care spending, and spending that is embedded in the tax code.”

The president is absolutely right. Like the family in his example the US has been overspending for a long time. In fact our extended American family is now spending $5 every year for each $3 of revenue we bring in (H/T KK). Anyone with basic arithmetic skills can easily understand this as problematical and unsustainable.

If one was to quibble with the President’s message, it would be with his measured tone and not the words themselves. I’m just not sure that skipping a few dinners out and cutting back on vacations is going to cut it when the family debt is greater than the gross economic output of the entire fracking planet. Just sayin….

The problem is not with what President Obama says. His message is spot on. The problem is with what he does. The problem is that despite what he says, the budget he is proposing does not reduce spending. He says we need to “live within our means”. This budget does not. He says we need to “cut back” on spending. This budget increases spending.

Chris Edwards at Cato:

The chart shows Obama’s proposed spending for FY2012 from last year’s budget, and his proposed spending for the same year from his new budget. His new budget proposes slightly more discretionary and entitlement spending for next year than did his last budget!
  • Last year, Obama planned to spend $1.301 trillion on discretionary programs in FY2012, but now he plans to spend $1.340 trillion.
  • Last year, Obama planned to spend $2,107 on entitlement programs in FY2012, but now he plans to spend $2,140.

So take that Tea Party!

Obama claimed in his “Budget Message” yesterday that “taking further steps toward reducing our long-term deficit has to be a priority,” but looking at his actual budget numbers shows that isn’t true.”

I am going to cut President Obama some slack here. I assume that this budget is a tactical non-serious opening offer in what the administration expects to be a protracted, knock-down drag-out no-holds-barred steel cage match negotiation with Congress. Given the slings and arrows the President suffered from his left flank attacking his negotiating posture on Obamacare and the lame duck tax compromise, we should expect a different opening gambit now.

The administration knows that whatever they put on the table, the need to compromise with the GOP will force deeper cuts into the final budget. So why not start with a budget that makes no cuts whatsoever? It is a good negotiating posture, but I just can’t believe he has the cajones to describe this budget as if it represents any fiscal belt-tightening at all. Even the press corp had a hard time finding anything resembling fiscal responsibility in the proposed budget.

This glaring credibility gap between what the President says and does is the defining characteristic of his first term. This budget may be the worst example yet. Remember when President Obama said there would be no more budget gimmicks to hide the real cost of programs and the impact on the deficit? Remember when President Obama claimed that Obamacare will lower costs and reduce the deficit? Well, meet the Mother of all Budget Gimmicks, used to disguise the fact that Obamacare is not paid for and does not reduce the deficit. Not even close. This is not a credibility gap, this is a credibility Grand Canyon.

Megan McArdle explains

“Obama’s budget includes a two-year, paid for fix. But how it’s paid for is pretty worrying: as Cannon’s graph shows, the spending is all done in the first two years, but the cuts needed to pay for them take place over 10 years.
  • Limit the taxes that states can place on Medicaid providers, which has had the effect of increasing the federal contribution to state Medicaid budgets: $18 billion over 10 years
  • Claw back “erroneous payments” to United Healthcare under Medicare Advantage: $6 billion one time
  • Limit the ability of brand name pharmaceutical manufacturers to cut side deals with generic manufacturers to end patent challenges: $8.8 billion over 10 years
  • Shorten the market exclusivity period for biologic drugs from 12 years to 7: $2.3 billion over 10 years
  • Lower Medicaid reimbursements for home medical equipment: $6.45 billion over 10 years
This is a dog’s breakfast. First of all, as I noted yesterday, many of these things are having trouble getting through Congress as it is; and second of all, why on earth would you use this motley grab-bag of long-term pay-fors to cover short term spending? The answer, I suspect, is that the cupboard is bare. They don’t have any better revenue mechanisms left–everything that anyone even thought was plausible went into ObamaCare. And yet, they can’t simply cut doctor’s reimbursements by one fifth. So they scrambled for anything at all–and the only way they could come up with the necessary revenue was to stretch the cuts out over ten years, while covering the spending for only two years.

Obviously this is not a sustainable strategy, any more than I can simply pay for an increase in my annual restaurant budget by cutting back on my movie budget for the next ten years–eventually, you’ve zeroed out the rest of the entertainment budget, and the tab at Komi is still growing. Yet this seems to be the only plan the administration has to pay for the doc fix–a problem that wasn’t addressed during health care reform, as far as I can tell, precisely because it was too expensive.”

The music plays on.



Despite my problems with President Obama (and they are legion), I would like to see him re-elected, as I distrust One Party Republican rule even more than I distrust President Obama. But President Obama is not going to get re-elected if he continues to treat American voters like they are complete idiots. He cannot tell us that a spending increase is really a spending cut, and that a massive new entitlement program will save money when it will actually cost money and expect to maintain any credibility.

If he wants to get reelected he needs to outflank the Republicans on fiscal responsibility by supporting the bipartisan recommendations of the deficit commission he sponsored. If he puts the full weight of the Presidency behind the Simpson-Bowles Plan and pushes it to a floor debate, the American people would put their electoral weight behind him.

Shall we dance?

X-posted from Divided We Stand United We Fall