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Obama-nomics 101
By John L. Rothra | February 4, 2010 | Commentary, Economy
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I previously wrote about how Obama’s proposed spending freeze just doesn’t add up. As a follow-up, let’s take a look at Obama-nomics. This presentation will use the same dot-based graphic to illustrate how it works.
I previously wrote about how Obama’s proposed In this entry we will look at two things. First, we’ll look at the Administration’s economic philosophy. Second, we’ll see how that applies to the proposed 2011 federal budget.
Obama-nomics 101: Does It Work?
The Obama Administration’s economic philosophy is pretty easy to explain: spend, spend, spend.
In a Summer 2009 press conference, the President tried to explain that he reduced the deficit by increasing it. I’ll explain that after the video, but watch it first . . . if you can (skip to time index 0:45 and watch through time index 2:20):
In case you got lost in his rambling, let me quote the prominent section: “Our budget had a ten year projection . . . [of] a $9.3 trillion deficit over the next ten years. Because of the changes we made, it’s gonna be $7.1 trillion. Now that’s not good, but it’s $2.2 trillion less than it would have been if we had the same policies in place when we came in.”
The changes that were made refer to the $787 billion stimulus package and his 2010 budget, both of which added to the deficit.
Earlier that year, he said this regarding the stimulus bill:
Now, Vice President Biden is much more succinct and to the point. He explains Obama-nomics this way:
As you can see, Obama-nomics is simply this: to save money you have to spend money. The key to saving the economy, reducing the debt, and creating jobs is massive government spending.
But, the question is, does it work?
This brings us to the relationship between deficit and debt. Put simply, the deficit is money spent each year that the government does not have; the debt is the total owed. Whenever the government has deficit spending, that amount is added to the national debt. Often, the budget includes payments made to reduce the debt, but as long as there is a deficit, money is added to the debt. So, if the debt is paid down by $100 billion, yet the government has deficit spending of $150 billion that year, the debt is increased by $50 billion.
It’s like a credit card. Let’s say you owe $10,000 in credit card debt. Each month you decide to make payments that reduce the balance by $500. However each month you charge $600 on that credit card. The result: you’re debt increases by $100 each month. The only way to eliminate that credit card debt is to stop using the credit card.
Apply this to the federal government. In order to reduce the debt, they have to stop deficit spending. As long as there is deficit spending, the debt goes up. How much has it gone up? In January the Senate voted to increase the debt ceiling to $14 trillion and the House is set to follow suit. According to the Treasury Department, Congress will reach its current debt ceiling of $12 trillion this month. Basically, Congress has maxed out the credit cards and now wants to fix it by increasing the limit!
Meanwhile, Obama’s philosophy claims that to fix this, the government must spend more money! The way to fix the debt problem is to have deficit spending, he seems to think. How does this work for the 2011 budget? Let’s take a look.
Obama’s 2011 Budget: Deficits Galore
The Obama Administration has proposed a $3.8 trillion budget for 2011 (a 5.5% increase over his budget for this year). In this, he anticipates a budget deficit of $1.56 trillion, which is 41% of the total budget. However, he is proposing a spending freeze on selected programs that his team claims will save $15 billion next year.
Using the dot-based graphic, how does that look?
Obama's $3.8 trillion 2011 budget (all dots) and projected $1.56 trillion deficit (red dots)
In the picture above, each dot represents $1 billion, each square (100 dots) is $100 billion, and each row of ten squares is $1 trillion. The total: $3.8 trillion. Thus, all the dots represent Obama’s proposed 2011 budget. Of that, the red dots represent the deficit he anticipates. As you can see, the deficit is nearly half of the entire budget.
Nevertheless, he claims that some money will be saved. The image below includes that proposed savings.
The $15 billion savings Obama claims the spending freeze will generate in 2011
Money that is saved is money that reduces the deficit, thus, any savings will replace the red dots. Obama’s budget calls for a spending freeze that he claims will save $15 billion in 2011. The fifteen green dots represent the savings.
The Results of Obama-nomics
When one looks deeper into Obama’s 2011 budget, one notices that he plans on funding his spending spree with “phantom” cap-and-trade revenue, massive tax hikes, and increased exports. However, the first two will harm employers, lead to more job losses, and reduce production of goods. With fewer goods produced, one must ask what Obama plans on exporting.
The biggest problem facing the American economy is the debt. Obama’s 2010 and 2011 budgets not only fail to address this problem, they contribute to it! Obama’s budgets add over $3 trillion to the debt! Furthermore, the Wall Street Journal reports that the Obama deficits continue until 2015, and maybe beyond if he is re-elected.
Common sense tells you that the government cannot reduce the debt by continuous deficit spending. The government cannot save money by spending more! The only solution is to end deficit spending, create a surplus, and use that surplus to reduce the debt. Obama-nomics cannot and will not lead to economic prosperity. Contrary to Biden’s explanation, neither a family nor a nation can spend its way out of bankruptcy.
Obama-nomics is not healthy for America–it is poisonous. As economist Charles Payne concludes, our government is spending us to death:
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