Well, that didn't last long. I wrote the previous post, "A Brief Outbreak of Irrational Optimism," for the Washington Examiner two days ago expressing hope that the new Congress might make real progress on the budget. Crazy, huh? Don't worry, there's no need to call the doctor. I'm back to normal now. Reality crushed my flirtation with optimism almost immediately. I raised three reasons for hope. I have been disabused of two already and have dwindling expectations for the third.
About that $100 billion in cuts. Before the election, the House Republican leadership vowed to deliver $100 billion in spending cuts, re-setting the discretionary domestic budget to pre-TARP, pre-Stimulus levels. Now, with the GOP taking control of Congress today, we're not so sure. Reports the New York Times:
WASHINGTON — Many people knowledgeable about the federal budget said House Republicans could not keep their campaign promise to cut $100 billion from domestic spending in a single year. Now it appears that Republicans agree. As they prepare to take power on Wednesday, Republican leaders are scaling back that number by as much as half, aides say, because the current fiscal year, which began Oct. 1, will be nearly half over before spending cuts could become law. Now aides say that the $100 billion figure was hypothetical, and that the objective is to get annual spending for programs other than those for the military, veterans and domestic security back to the levels of 2008, before Democrats approved stimulus spending to end the recession. Yet " A Pledge to America," the manifesto House Republicans published last September, included the promise, “We will roll back government spending to pre-stimulus, pre-bailout levels, saving us at least $100 billion in the first year alone.”
Boy, it didn't take long to break that promise!
About that stronger economic growth. Many economists are ramping up their estimates for economic growth in 2011 to 3% or better. Jim Quinn, author of the Burning Platform website, put me back in touch with my inner troll with his latest rant, "The Year of Catch 22." (I use the word "rant" in the most respectful sense -- the man is outraged by what is happening.) He provides a useful reminder of how much of the "growth" we're experiencing is the result of massive and unsustainable federal stimulus.
Here's the core argument:
It seems the consensus for 2011 is that the economy will grow 3% to 4%, two million new jobs will be created, corporate profits will rise, and the stock market will rise another 10% to 15%. Sounds pretty good. The problem with this storyline is that it is based on a 2010 that gave the appearance of recovery, but was a hoax propped up by trillions in borrowed funds. On January 1, 2010 the National Debt of the United States rested at $12.3 trillion. On December 31, 2010 the National Debt checked in at $13.9 trillion, an increase of $1.6 trillion. ... Over this same time frame, the Real GDP of the U.S. has increased approximately $350 billion, and is still below the level reached in the 4th Quarter of 2007. U.S. politicians and Ben Bernanke spent almost $1.8 trillion, or 13% of GDP, in one year to create a miniscule 2.7% increase in GDP. This is reported as a recovery by the mainstream corporate media mouthpieces. ...
About that overhaul of the tax system. As Erskine Bowles and Alan Simpson, co-chairs of Obama's budget-balancing commission, pointed out late last year, balancing the budget will require reform of the roughly $1 trillion in "tax expenditures" that hollow out the tax code with exemptions, credits and deductions. Today's legislative overview in the Wall Street Journal suggests that any tax overhaul this year will be narrowly focused on corporate tax rates, and that it will get linked to overhauling individual taxes, which "rolls into the 2012 election season."
The bottom line: I should have trusted my instincts. We are heading to Boomergeddon right on schedule.