Orzag: Is There A Truth-Teller In The House?

Nice editorial……

At some point in every negotiation over fiscal policy, once the high-minded speeches and other pleasantries have been delivered, the disagreeable details poison the atmosphere. Everyone is in favor of tax and entitlement reform, after all, until they see the specifics.

The reaction to the cost-cutting strategy that Defense Secretary Leon Panetta revealed last week suggests this is about to happen with regard to Pentagon spending.

Let me be very clear: Substantial efficiencies can and should be wrung from the defense budget, and Panetta’s approach has many attractive features. But the strategy he sketched out — most of the details have yet to be provided — reveals the underlying tensions that arise whenever significant defense cuts are promised.

Bah.  Like so many before him and in fact like Pete before, he’s willing to lay markers that he knows are false — just like the so-called “Tea Party”, just like Democrats, and just like so-called “mainstream” Republicans.

The truth is much uglier: Our government is fully 50% larger than we can afford.

This means we must either double tax revenues (not rates, revenues, cut the size of government in half, or some combination of the two.

Let’s take defense.  To have defense pay its “fair share” of these reductions our roughly $750 billion in expenditures would have to be slashed by $350 billion per year, or $3.5 trillion over a decade.  This is nearly four times the amount that people are screaming about now.

To do the same thing with Medicare not only must we stop adding 9% a year to expenditures we must cut the $800 billion that medical expenses are consuming in half, that is, by $400 billion a year, or $4 trillion over ten years — and we must do it now.

What’s also interesting is that the budget cuts needed in areas outside defense are, if anything, even steeper and thus even less realistic. As Richard Kogan of the Center on Budget and Policy Priorities has noted, if the cuts are actually made, by the end of this decade, non-defense discretionary spending would wind up at its lowest share of gross domestic product since 1930. I wouldn’t bet on that, either.

All of which suggests that both political parties have locked into inadequate revenue levels for the next decade. As a result, they are forced to count on spending cuts much larger than what, in the end, they are likely to implement — in some cases, much larger than what they should implement.


What’s clear is that we have been, and are, continuing to write checks we cannot cash.  We’ve been doing it for a long time too — it’s not new.  In fact, it goes back thirty years or more, and it’s not just in Washington DC — it’s everywhere.

Look around you.  The vast majority of Americans, were they to lose their jobs and their credit card access would literally starve and/or freeze to death within two weeks as they have zero savings and once the food in their pantry was exhausted (what little there is) they’d be utterly hosed.  With not one dime in savings they could not put gasoline in their cars or pay the electric bill either.

In the last month of 2011 the Federal Government borrowed $112.4 billion in new funds.  That’s $3.63 billion every single day, or about $11 per person in America, per day, every day for a total of $340.61 for each man, woman and child in America in the month of December alone.

This is new debt and does not include the interest on existing debt — just new obligations.  You sunk that far further into the hole.

This will stop.  It will either stop voluntarily or it will stop as it is ending in Greece.  Those are the choices — the only choices.

Yeah, Pete is right to bring this up in the context of the Pentagon, but the biggest issues are not with military spending.  They lie in the medical realm where roughly 8% compounded growth over the last 30 years has taken the US Federal on-budget spending on medical care from $53 billion in 1980 to over $800 billion today, with fully half of that borrowed instead of taxed.

Get ready folks — it’s coming.

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