On February 5, the Congressional Budget Office released a report titled, "Macroeconomic Effects of Alternative Budgetary Paths". Full disclosure: even to us policy wonks, this report sounds a bit dry. Not exactly 50 Shades of Grey, if you know what I mean. But this report did contain some very interesting nuggets. Prepared at the request of the Chair of the Senate Budget Committee, Patty Murray, I'm certain that it came as a bit of a surprise.

The report analyzes 3 broad approaches to budgeting and their projected effects on economic productivity over the 10 year period from 2013-2023. The 3 approaches are:

1. $2 Trillion increase in primary deficits
2. $2 Trillion decrease in primary deficits
3. $4 Trillion decrease in primary deficits

The report outlines the dire circumstances we face in its introduction:

Federal debt held by the public now exceeds 70 percent of the nation’s annual output (gross domestic product, or GDP) and stands at a higher percentage than in any year since 1950. Under an assumption whereby current laws generally remain unchanged, federal debt will be 77 percent of GDP in 2023, the Congressional Budget Office (CBO) projects.1 Such a large amount of federal debt will reduce the nation’s output and income below what would occur if the debt was smaller, and it raises the risk of a fiscal crisis (in which the government would lose the ability to borrow money at affordable interest rates). Moreover, the aging of the population and rising health care costs will tend to push debt even higher in the following decades.

The question is, how much will the nation's output be affected by the three proposed changes to our deficits and debt?

Well, as you might imagine, economic output is changed quite a bit, depending on which approach is followed.

 


Technical note: "primary deficit reduction" includes legislated government spending and excludes debt service (interest payments on the public debt).

Figure 2 from the report shows some very interesting findings. The Democrats will focus on the short term effects that GNP will increase a little over the next two years, and Conservatives need to be ready to counter this argument. According to the report,

.... real GNP under current law will grow by 1.3 percent in 2013 (as measured by the change from the fourth quarter of the previous year) and by 3.3 percent in 2014. Economic growth is then projected to pick up further, and the economy is projected to reach its productive capacity in 2017 and continue to grow in line with the increase in that capacity thereafter.

In other words, we're due for an expansion of the economy through 2015. The Democrats will focus only on the short term projections that aggressive deficit reduction efforts will stunt that growth.

For proof of this, head on over to the Senate Budget Committee website and check out the whiplash-inducing spin Patty Murray puts on the testimony given by CBO Director, Dr. Douglas Elmendorf. She went even further the next day, conducting hearings on "The Impact of Federal Budget Decisions on Families and Communities" - doing her very best to demonize those mean old deficit cutters who want to throw single moms out in the cold.

However, the report is very clear, as seen in the graph, that these short term effects are illusory. The FAR LARGER point here is that the long term health of our economy would greatly benefit from deficit reduction. How can a stronger economy help all families across America? The effects are almost too numerous to calculate.

So, it turns out that the Tea Party and fiscal conservatives were right - excess public spending has a strong negative effect on our economy, and the proper way to create long term, sustainable, stable economic growth is through aggressive deficit reduction measures.

According to ex-governor Jennifer Granholm, Congressman Paul Ryan (R-WI) needs a “reality check” over his new budget. Blogger Jonathan Bernstein adds that Ryan’s budget “is not serious.” A Los Angeles Times editorial nods in agreement, insisting that, “it seems fated to wind up in the… dustbin.”

More pointedly, Salon editor Joan Walsh labels the budget “a cocktail of snake oil and castor oil.” Columnist Dana Milbank writes that some of the wording in the budget is “Orwellian” and he considers Ryan “patronizing.” Blogger and academic Robert Reich claims that the budget is an example of “radical Social Darwinism.” Washington Post writer Matt Miller considers the budget full of “deceptions” and argues that “the first order of business is to expose Ryan’s overall plan for the misguided, misleading, and unacceptable vision it represents.” Finally, White House Press Secretary Jay Carney joined in to proclaim that the Ryan budget is “aggressively and deliberately ignorant.”

Whoa.

Sounds bad.

Well, is it? Is Paul Ryan’s budget, titled “The Path to Prosperity: A Blueprint for American Renewal”, really as extreme and uncompromising as its opponents suggest?

First, we must understand what goals one considers when creating a budget. Obviously, budgets are meant to provide a spending and policy outline to the government. However, budgets are also inherently political, and they convey distinct messages to the political world. What messages are this year’s budgets proclaiming?

The Obama budget reeks of “re-elect me.” After his budget died in the Senate with a 0-97 vote last year, President Obama decided to move farther left by abandoning any pretenses of concern over spending. His budget racks up trillions of dollars more in debt and never balances.

What message does Paul Ryan’s budget send? To an honest reader, the answer is mostly “compromise.” The Medicare reform at the heart of his budget is the result of a partnership with Senate Democrat Ron Wyden. The Ryan budget repeals ObamaCare, but a majority of Americans support repeal. The budget doesn’t really touch Social Security, and avoids drastic measures to balance the budget, only doing so in 2040. Just for a point of contrast, Senator Rand Paul’s (R-KY) budget proposes to balance the budget by 2017, more than twenty years earlier than Paul Ryan.

The question isn’t whether the Ryan budget is “too extreme” for serious consideration. The question is, should conservatives support it? After all, the Ryan budget is full of compromises. Programs and agencies that conservatives want to eliminate are instead reformed. The budget does not abolish a single department, whereas Rand Paul abolishes four.

It is very rare for a bill, let alone a budget, to make it through the legislative process without amendments or compromises. Particularly with a divided government, compromise is necessary for passing legislation. Does Paul Ryan compromise too much? Perhaps. Compared to the excellent “Tea Party Budget” proposed by Senators Rand Paul, Mike Lee (R-UT), and Jim DeMint (R-SC), the Paul Ryan budget does not go as far in reforming and shrinking government as we would like. However, it is an excellent first step, and an undeniably massive improvement on the existing system or the Obama budget.

As conservatives, we must be able to compromise on legislation in order to make a difference, but we can never compromise on principles. Paul Ryan’s budget may be too limited and cautious, but it does not compromise on fundamental principle. It repeals ObamaCare, privatizes government-sponsored housing giants Fannie Mae and Freddie Mac, block-grants Medicaid and food stamps, caps the size of government, and implements necessary tax reform. We cannot let the “best” be the enemy of the “good”. Rand Paul’s budget may be best, but Paul Ryan’s budget is good enough to support.

This morning, President Obama proposed a budget for the 2013 fiscal year. Even though more than one thousand days have passed since the Senate passed a budget, each year the Obama administration continues to suggest one. Last year, the president’s budget proposal was unanimously rejected by a vote of 0-97, which means that not even a single Senate Democrat was willing to vote for it. Frankly, that’s a little ridiculous. Is this year’s budget plausible enough to garner even a single “yea” from the president’s supporters in the Senate?

It’s doubtful. Admittedly, congressmen dread controversial election year votes, so Senate Democrats might try to postpone the vote or even avoid it entirely. More importantly, this budget won’t actually please anyone. Representative Emanuel Cleaver (D-MO), chairman of the Congressional Black Caucus, has already labeled the budget a “nervous breakdown on paper.” It’s a calculating bill that reeks of election year politics, with plenty of giveaways targeted toward specific portions of the electorate. Simply put, Obama is following the Franklin D. Roosevelt model of vote-buying in order to be re-elected. As FDR’s close advisor and fellow New Deal architect Harry Hopkins explained, “We will spend and spend, and tax and tax, and elect and elect."

What are the important facts about this new, $3.8 trillion dollar budget? It would burden the struggling economy with an astonishing $1.4 trillion dollars in new taxes. Year-to-year federal spending would grow by nearly $200 billion dollars in 2013. $476 billion dollars would be spent on transportation over the next six years, while defense spending would be $487 billion dollars less than previously planned over the next ten years. More than $800 million dollars would be spent on foreign aid specifically targeted toward countries participating in the “Arab Spring”. Overall, this budget would add more than $7 trillion dollars to the public debt from 2013 to 2022.

In 2009, his first year in office, President Obama promised that he would cut the deficit in half by the end of his first term. During 2008, the deficit was only $458 billion dollars. However, the projected deficit in 2012 will reach $1.327 trillion dollars for a record-setting fourth straight year of trillion-dollar deficits. Instead of halving the deficit, the president has nearly tripled it since taking office.

Less than a year ago, in what amounted to an early campaign speech at George Washington University, Obama demanded $4 trillion dollars in deficit cuts over the next twelve years. However, as Senate Budget Committee Republicans have pointed out, there is barely $300 billion dollars in true deficit reduction in the budget behind the gimmickry and accounting tricks. Unless Obama plans more than $3 trillion dollars in cuts to the deficit over years eleven and twelve, this is yet another broken promise by the president. Realistically, that part of the budget is just a feeble appeal to moderates in order to make it look as though the president is actually concerned about the massive $15 trillion dollar debt and the annual trillion dollar deficits. Since taking office, the President has overseen a rise in the public debt from about $10 trillion dollars to more than $15 trillion dollars, a staggering 50% increase.

The budget begins with a self-congratulatory essay praising President Obama, which is titled “Building a Strong Economy.” Really, that’s the problem. President Obama sincerely believes that it’s the federal government’s job to “build” the economy and that this budget is the blueprint for how to do it. 

That’s nonsense. The economy is built by the American people, by hundreds of millions of free individuals acting in their own self-interest, creating wealth through innovation and entrepreneurship. That’s the classic story of American prosperity, not a top-down, centrally-planned economy “built” by the federal government.

President Obama’s budget simply isn’t a realistic approach to either the sluggish economy or the debt. America needs to unshackle the private sector and small business in particular from over-regulation and over-taxation, while also balancing the budget and beginning to pay down the debt. The grassroots-generated Tea Party Budget is a realistic, significant effort to accomplish just that by freeing up the private sector to create jobs, cutting spending by $9.7 trillion dollars over the next ten years, and balancing the budget in four years.

If you would like to learn more about the Tea Party Budget, here is the link.