As is my frequent custom, I recorded a spot for a Northern Indiana AM radio station. These segments are aired on that station and its FM affiliates the following morning, with the occasional hour-long round-table airing live.
Now, this is just a little piece of media in a small Hoosier area. However, you might be surprised at the number of emails I receive from listeners who appreciate a college and university professor explicating issues relative to business and economics in a manner inconsistent with the liberal bent we all have come to know and despise. Below I have pasted a brief summary (as detailed in yesterday's media appearance) of my take on the impending budget battle and what it means for the country. Please feel free to comment/criticize/support in any way you deem appropriate...I have thick skin :)
General Budget Notes
In his final budget request prior to the 2012 Election, President Obama rolled out a $3.8 trillion spending request for Fiscal Year 2013 that promises more debt than the president’s proposal to reduce debt back in September of 2011. In the best of circumstances and according to his own economic team, President Obama’s budget will add an average of no less than $600 billion annually to an already $16 trillion national debt. This means that the national debt, by the end of 2022 and under the best of economic circumstances, will climb to $22 trillion.
That’s the bad news…here is the really bad news:
The president’s estimates operate under a number of optimistic assumptions. Namely, that the unemployment rate will slowly drop to (and stay at) 5% by 2020 and that Gross Domestic Product (GDP) will simultaneously ascend beyond the 1-3% range it currently produces to the tune of 4-5% growth. This budget also assumes that inflation will remain relatively static – an assumption that is contradicted by the existence of recurring deficits and a weak dollar.
As if that wasn’t bad enough, here is the really, really bad news:
Social Security, Medicare and Medicaid program spending obligations are projected by the Congressional Budget Office (CBO) to comprise amounts equal to 12.5% of overall GDP. That number is presently about 10%. At the same time, according to the CBO the number of Social Security recipients is expected to jump to about 75 million Americans by 2022 compared to 55 million as of 2012. This jump occurs at a time when the birth rate in the United States is about 3% lower than in years past…meaning there will be less workers paying the bills for these programs.
So what’s the deal?
If ever there was a time for House Republicans to hold the line on spending and validate the support they received during the 2010 midterm elections, that time is NOW. The Democrat-controlled Senate will likely rubber-stamp Obama’s budget request, opting to punt to the next congress and avoid making tough choices before the election. However, the House of Representatives is controlled heavily by a GOP faction that was put in place to handle this very dilemma.
The absolute worst thing Republicans can do is cower from a budget fight. Economically, this country is stuck in the mud due to recurring deficits, a weak dollar, and high oil and gas prices that have persisted due to that weak dollar. Businesses are just beginning to hire again, but they will be less likely to further do so if they believe their taxes will be increased in the months and years to follow…and the president’s budget proposal stands to do that very thing.
Then there are the last GOP presidential candidates standing. If ever there was an opportunity for Newt Gingrich to stay competitive in this race, that time is NOW. He was House Speaker when we balanced our budget. He has also successfully stared down a popular Democrat president (Clinton) and won battles on several fronts…including budgetary, social and energy-related fronts. Mitt Romney must hammer away at the business end of the discussion by pointing out that the path to robust business growth does not involve depriving small businesses, many of whom will fall under Obama’s $250,000 or more tax target, of operating capital. Rick Santorum? He should forget the other two candidates and be in full-time attack Obama mode. This budget gives him a mighty salient and convenient tool to do so.
This is a dangerous time for the country and its economy. Greece is in ruins because it kicked the debt can down the road so long that is was forced into severe
spending cuts to secure a path out of oblivion. Will the United States take a quicker path to solving its budget woes, or will it kick the can like Greece has? Do we have the will to do what is necessary, or will we wait until the spending cuts are so draconian (and the tax increases so debilitating) that the country will slip into depression? That answer may well rest with House Republicans – who are likely the only obstacle standing between fiscal and monetary sanity and another $6+ trillion in debt.