Usually I blog my flaming social liberal side - here's my grumpy fiscal conservative side

[essentialsaltes]

This image encapsulates what's wrong with the government's fiscal policy:


For a less funny analysis, check out Time's article on the deficit.

Let's look more closely at budget revenue and outlays. In a normal year, our federal tax system takes in around 17% of GDP — less in the current recession and more in years of financial bubbles, when capital-gains-tax collections are high. It's important to understand what that revenue buys us. Military spending accounts for around 5% of GDP. Health spending (including Medicare, Medicaid and veterans' health) is around 5% of GDP, as is Social Security (retirement, disability and veterans' benefits). Interest payments on the debt will soon reach 2% of GDP. In short, the Federal Government collects tax revenue sufficient to cover just four budget items. The rest of the budget is funded by borrowing.

Assuming we want the government to do something other than these four things, this is not sustainable. We need to cut expenditures, or raise revenues, or both. That is all.

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[rizwank.livejournal.com]

The Economist did a great wrap up this week. (And the Economist endorsed Obama - it's not part of the Obama-hating universe.)

But by 2012 the threat posed by deficits will loom large. The annual deficit will still be above 5% of GDP, and public debt will exceed 70% of output. With this persistent flow of red ink, rising interest rates may become a threat to continued recovery. Mr Obama would have been wiser to carve out resources for job creation by trimming back waste elsewhere.

That concern aside, this budget provides a needed lift to the labour market at an acceptable cost to the short-term budget picture. But none of Mr Obama’s plans may survive scrutiny by Congress, especially one where the Democrats are starting to lose their grip.

The longer budget view is far bleaker. The president’s challenge in the 2011 budget was clear—begin the push towards medium-term deficit stabilisation, with an eye towards a long-term budget fix. Here he has come up woefully short.

A substantial amount of deficit reduction—from 10% of GDP to 5% by 2015—is baked into the budget, based on the hoped-for economic recovery and the ending of the stimulus. It is in cutting from 5% to 3% of GDP that the tough decisions must be made. Mr Obama had hoped to get most of the way there through economic growth and reforms to the health-care system. The passage of any health bill now looks highly doubtful (see next story), but this did not stop the administration from writing $150 billion in health-care savings over ten years into its budget. Many analysts doubt whether those savings would have materialised anyway. Even if all miraculously went right, the product of a year’s worth of back-breaking legislative work would amount to about 1.5% of the total 2010-20 deficit—a drop in the ocean.

This graph scares the crap out of me :