It seemed surreal yesterday to hear President-Elect Obama talking about scouring the federal budget for savings at the same time that the Federal Reserve was literally gushing money into the economy, another $800 billion in one day.
Some are saying that the federal budget deficit could reach $2 trillion next year. Not surprising when the Federal Reserve announces a new program to pour a trillion dollars into the economy on a weekly basis. So what’s the point? Does it really matter if a few wealthy farmers collect farm subsidies for which they weren’t eligible? Will that money have any less effect on the economy than if it had been rat-holed into another bankrupt financial institution? Isn’t that the whole premise of supply side economics – to just lavish money on the wealthy so that they’ll toss a few peanuts to the peons?
But enough of my cynicism. Give Mr. Obama credit for being so old-fashioned as to still believe in fiscal responsibility. But, if he’s looking for wasteful programs, I’m afraid he’ll find the pickings pretty slim if he confines his search to the federal budget. There’s lots of savings to be had, but he needs to look beyond to the “current account” spreadsheet. It’s no mere coincidence that our cumulative trade deficit since 1975, $9.1 trillion, closely matches our national debt of about $10 trillion.
Yes, I realize that the trade deficit is funded by the sale of treasuries and corporate stocks and bonds, and that only the sale of treasuries adds to the national debt. (Until recently, treasuries were a small component of the funding, but they now account for the majority.) But regardless of whether trade dollars come home to buy stocks or treasuries, federal spending must be boosted to offset the negative consequences of the trade deficit on the economy. Unemployment compensation is just one example, where hundreds of billions of dollars are spent as a direct result of jobs being lost to parasitic trade predation. The same is true of other federal programs to address poverty. All are a direct result of our misguided trade policy. I’m not saying that all poverty is due to trade, but it would certainly be reduced dramatically if we brought six million manufacturing jobs home.
Mr. Obama, you cited the issue of health care as an example of where savings could be made. Is it really that our health care is so expensive, or is the real problem that incomes haven’t kept pace with the cost of living? Your economists will tell you that incomes have, until recently, kept pace with inflation. But inflation, as calculated by the government, is not a cost-of-living calculation by its own admission. Is health care the problem, or is it really a matter of governmental self-delusion about where the problem really lies?
So, Mr. Obama, if you’re truly interested in finding some real savings in the budget, don’t just skip over the line items like unemployment insurance and say “well, we certainly can’t cut that, so let’s move on to the next budget item.” Instead, stop and ask yourself “why.” “Why do we spend so much to offset the effects of unemployment? What’s causing such high unemployment?” Then be willing to look beyond the federal program to the root cause. Take a look at the current account spreadsheet and a savings of $700 billion per year will jump right off the page at you.