The three deficit conundrum

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By Keven Todd, Publisher

This country is currently facing a huge triple threat to its future in the form of deficits: the first is a deficit of trust; the second is a deficit of jobs; and the third is a deficit of dollars.

The current administration and Congress, apparently unable to break free from the bonds of ideological thinking, continue flailing away but repeatedly come back to the table with the same untenable solution and that’s to spend more money.

That’s not the answer. It never has been and it never will be. Government cannot spend its way to economic prosperity. While the deficit of dollars that began in the Bush years was the equivalent of a hand grenade going off in the economy, the onset of the Great Recession and subsequent stimulus spending has resulted in something like the detonation of a nuclear bomb with a mushroom cloud that portends to obliterate any chance at financial prosperity for generations to come.

As long as the specter of a lame economy looms large on the horizon, there’s little likelihood that the deficits of trust or jobs can be reduced either. Government can only gain the trust of the American people when it makes sound policy decisions. Likewise, as long as private sector employers are uncertain of the economy, hiring will be slow to rebound – such as what we’re experiencing right now.

President Obama’s 2011 budget proposal does little to buoy hope that this administration can successfully unravel the three deficit conundrum. The caps and freezes in non-security related discretionary spending are not a bold enough stroke to make a meaningful dent in what’s projected to be a $1.55 trillion deficit for this year. The administration needs to make some serious re-evaluations of the role of government and pursue a path that eschews the contrived notions of Democratic ideologues. Heaven forbid that Obama move to the center for the good of the country, lest he alienate what’s left of his rapidly deteriorating base of support.

It’s been said that the President took a scalpel to programs in addition to the spending freezes to arrive at a final budget proposal. But there are those who would argue he brought a knife to a gunfight. This is not the time for timidity. Obama should be making like Paul Bunyan when it comes to wielding a mean budget ax. If Obama’s claims are true in that he doesn’t really care if he’s a one-term president or not, then his eyes should be firmly fixed on doing the right thing for the future of America — not on re-election.

In recent chilling testimony before the Senate Budget Committee, Alice Rivlin, senior fellow, economic studies at the Brookings Institution, told the senators that the U.S. budget is on an unsustainable track. “There is no disagreement among the Office of Management and Budget (OMB), the Congressional Budget Office (CBO), the Government Accountability Office (GAO), and leading private forecasters on where the budget is headed if we do not change course.”

Rivlin went on to tell committee members that in the next decade and beyond, federal spending will balloon due to the impact of an aging population and rising costs of health care associated with Medicare, Medicaid and Social Security. “Revenues, at any likely set of tax rates, will grow only slightly faster than the GDP,” Rivlin said. “The gap between spending and revenues will keep widening. The growing deficit will be more and more difficult and expensive to finance. Ultimately, we will not be able to borrow enough to finance the widening gap between spending and revenues.”

She warned the senators that if solutions aren’t found — and soon — then the U.S. runs the risk of making foreign creditors (who own half of the country’s debt) nervous about our ability to get our financial house in order. That, in turn, would lead to demands for dramatically higher interest rates in order to lend us more money.   

“We no longer have the luxury of waiting for several years until we are sure the economy is growing strongly before taking action to stabilize the debt,” Rivlin said in her testimony. “It is unconscionable for today’s Americans to live persistently beyond our means and pass our bills on to future taxpayers.”

It remains to be seen whether the President will be able to muster the intestinal fortitude and summon the bipartisan leadership skills necessary to do the right thing for the American people. But one can imagine how Ronald Reagan might inspire him if he were still around: “Mr. Obama, tear down that deficit!”