This time, unfortunately, we’re the Russians

This, President Obama said, is our "Sputnik moment". The President was speaking, of course, of the launch of the Sputnik satellite in 1957. By getting the first man made satellite into orbit, the Soviets kicked off the space race. This was a factor in the economic growth and technological advance in America that followed the Second World War. Whether Sputnik was all that big a factor is doubtful.

What the President had in mind was the fact that the U.S. Federal debt declined from an astonishing 120% of the GDP to under 40% by 1981. That was accomplished almost entirely by robust economic expansion which led in turn to robust federal receipts. "Let's do it again!" the cheerleader in chief was, perhaps, trying to cheer.

The comparison is not felicitous. The enormous debt in 1945-6 was the result of fighting a world war. We had to produce larger armies and navies, more tanks, ships, and airplanes, than our major adversaries at two ends of the earth. After the war we stopped having to do that. As our money and our men at arms came home and turned instead to building highways, cars, and little pink houses, the debt was relatively easy to pay off. It was in fact coming down rapidly well before Sputnik was launched and did not appreciably accelerate with that event. To be sure, our space program left the dysfunctional Soviet economy in the terrestrial dust.

Today the public debt is rapidly climbing toward 100% again. We are fighting a couple of wars right now, but hardly on the scale of WWII. The Taliban has no navy or air force. The growth of U.S. debt today is structural rather than expedient. Imagine what post war economic history would have been like if the U.S. had had to keep spending WWII levels of national treasure for decades. It is unclear to me what level of economic growth would be necessary to compensate for current rates of spending, but I am doubtful that the President's rhetoric or more wind towers will produce it.

The day after the State of the Union address, the CBO dropped a bomb.

The nation's budget deficit will widen to nearly $1.5 trillion this year, and the country faces "daunting economic and budgetary challenges," the nonpartisan Congressional Budget Office said on Wednesday as it released its most updated fiscal report.

The budget office noted that "the deficits of $1.4 trillion in 2009 and $1.3 trillion in 2010 are, when measured as a share of gross domestic product, the largest since 1945 – representing 10 percent and 8.9 percent of the nation's output."

You might have guessed, by the President's speech, that he didn't see this one coming. It is clear that the President isn't thinking much about it. He barely mentioned it in his speech. He surely did not offer, nor has he ever offered, any hint of how he plans to deal with it or even that he considers it very important.

He did mention a "spending freeze," but one at current high levels, one that does not affect the biggest spending programs. That's like a guy losing a million dollars a minute at roulette who decides to become fiscally responsible by promising that he won't gamble any faster on one part of the table. Almost all of the President's speech was devoted to encouraging more federal spending, which appears to be the compass of his imagination.

The Washington Post was disappointed by Mr. Obama's speech. When a Democrat loses the Post…

Where will the money come from? … Mr. Obama didn't elaborate… The reality, as Mr. Obama understands [please insert evidence here], is that the country is headed for fiscal catastrophe unless it does some politically unpopular things: unwind the Bush tax cuts, including for the middle class; reduce projected Social Security benefits for future retirees, exempting the poor and disabled; rein in the cost of health care; limit popular income tax deductions. Mr. Obama knows this, but last night he did little to prepare Americans for any of it. The best you could say is that he left the door open to work with Congress on these issues.

Leaving the door open or perhaps pointing toward the door is the modus operandi of this Administration. By the end of his first term, the U.S. will have racked of deficits of close to six trillion dollars. Contrary to what the Post says, I see no evidence that the President understands this or is the least bit interested in it.

Our frightening fiscal deficit is compounded by an appalling deficit of leadership at the top. A lot of people once hoped for greatness from this man. Right now I'd settle for the competence of a mediocre minor league manager. It is not longer possible to hope for that.

ps.  Its' not only my conclusion!  From The Hill:

Senate Budget Committee Chairman Kent Conrad (D-N.D.) said Thursday that his panel might have to take the lead in solving the nation’s long-term budget problems.

Conrad's comment that solutions “may fall to this committee” came shortly after Sen. Jeff Sessions (Ala.), the ranking Republican on the Budget panel, ripped President Obama’s State of the Union speech for failing to tackle the nation’s budget problems.

Comments

[unicorn4711]

I agree completely that the debt is structural rather than expedient. As much as we'd like to think making government leaner and more efficient will solve the problems. Unfortunately, major overhauls in entitlement programs are going to be necessary. Retirement benefits need to be adjusted. The underemployed Millenials can't pay for middle class Boomers much longer. New taxes are probably going to be necessary. The situation is that bad. Why, then, is there still no mention of reform sacred cows like agricultural subsidies, morgage interest tax deductions, and military spending?

I think that the cause of these structural problems is directly related to our political system. Certain interests need to be appeased by our politicians in order to make reelection possible. The result is a lot of key issues cannot even be discussed and both parties are left trying to tweak a few issues that have a large enough impact to adequately address our problems. Congress is broken. This is why we need a complete election and campaign funding overhaul so badly.

A few examples:

No one has the gull to argue that corn production on the Great Plains is made far more profitable because of government intervention. An acre of corn gets about $18-24 in government funds (if you or someone else has better and more precise figures, please share). Regardless of the exact figure, corn production would be far lower without them. This is wealth redistribution from profitable to otherwise unprofitable sectors. Why are Thune and Noem not up in arms about it? Because they want to be re-elected.

The tax code has so many sacred cows it can't even be counted. I'll address one of the most sacred. Others exist. No one argues that morgage interst tax deductions (along with many other causes) helped promote buying homes on credit with barely anything down, which in turn inflated housing prices. They don't drive up home ownership (compare US to Canada in this respect). They do, however, benefit the banking sector. Why does no one suggest reform? Because making enemies in the banking sector is bad for re-election prospects.

No one is willing to address our military spending. Do we really need military bases in Germany, Italy? Can we afford them? Is Afghanistan even winnable? We've been there almost 10 years now. The government looks corrupt. Drone attacks into Waziristan aren't exactly helping us make friends and are probably illegal. The President addressed this major problem for about two minutes. The Republicans ignored it entirely. Why? The influence of the military-industrial-congressional complex. (That and the issue is so difficult to resolve that no one wants to risk their career on it.)

Despite structural problems, no one is willing to mention new taxes, even targeted taxes that help promote long-term goals. Why do both parties still shun both VAT and carbon taxes? We all seem to want to move away from foreign energy sources and putting a price on carbon to integrate the external costs it causes would help move us away from foreign energy while adding a source of tax revenue. A VAT creates a stable source of tax revenue and brings in those not paying anything through income tax. Food and clothing can be exempted if voters demand it. A carbon tax, even if you think climate change is hogwash, is a silver bullet in the heart of OPEC because it gives domestically produced green energy a market advantage. The additional cost of oil and coal use may be hard to swollow in the short-term, but the trade off is that we slowly back away from or reliance on foreign oil and stimulate the creation of technology that be exported for a profit. Yet, industry labels this a job killer. Tell that to Sweden and Germay, both of whom have aggressive enivornmental taxes, both of whom have stronger manfacturing sectors than the US. The coal industry puts out ads promoting yet to be invented carbon sequestization technology. Foreign oil companies work to influence US climate change legislation. (No, really, it's here: http://www.npr.org/templates/story/story.php?storyId=130982095)

Big issues can't even be discussed in American politics. Both parties just want to tinker with the edges of discressionary spending without doing anything that might actually rock the boat and screw up their own chances at re-election. Until Bachmann, Noem, the Tea Party, the Republicans, or the Democrats accept that we are in a situation where nothing is sacred and all reforms are on the table, we're not going to get anything done that will actually help resolve the situation.

[Lynn]

We could start with term limits that wouldn't solve the problem but would make it much harder for lobbying interests to get their death grip around the necks of legislators. Also the legislators would not have to worry so much about getting re-elected as they would only have two (or even one) term anyway. The legislators will never do this as they would gore their own ox by doing so.

I believe, and even more so with every passing day, that Obama doesn't care one iota about saving the nation as we know it. He IMO prefers that our economy collapse so that he can "fundamentally change" it into what he wants. Or bring on one global gov't which he believes in also.

I hope that the legislators come to grips with the situation. If our gov't fails, they would probably be out of a job too, so it behooves them to do something about this. CUT THE SPENDING!!!!

[BillW]

KB,

We need to get beyond the notion that wars stimulate the economy. They don't. World War II did, not because wars are somehow econmicially good - in fact they waste enormous resources - but because it destroyed the global compeition. The glory days of our economy from 1945 to 1975 took place while every factory and the infrastructure of Europe and Asia was digging out of the rubble. As soon as they recovered, the wasteful spending of our government, the outrageous behavior of labor unions, and our dismally poor manufacturing management was exposed and saner, more disciplined people in Germany, Japan and now China began kicking our proverbial rear ends.

Neither Obama nor any other President since 1976 has been willing or able to confront this reality and acknowledge the fundamental changes that are needed. They continue to espouse variations on the same themes - big government and one side or the other of a moot struggle between dysfunctional labor unions and an equally dysfunctional Wall Street.

[Guy Gregory]

It's not President Obama that is at fault here. He has shown a willingness to work with the other side and the State of the Union was not "rhetoric" as many on the Right call it. No, the Right percieves it as "rhetoric," and as a result it is they that show the unwilingness to govern responsibly now that they control the House of Representatives.

[Guy Gregory]

Ken, I challenge you, along with those both on the left and right, to put aside extreme partisanship:

My latest post on Badlands Blue:

http://badlandsblue.blogspot.com/2011/01/from-heart-are-our-leaders-in-dc.html

[Jimi]

Guy,

"No, the Right percieves it as "rhetoric," and as a result it is they that show the unwilingness to govern responsibly now that they control the House of Representatives."

Pretty words....now make a case with some evidence to offer some context.

[Donald Pay]

There is a deficit of honest leadership, but calling the fiscal deficit "frightening" is part of the dishonesty. It's a very correctable situation, but it means Republicans have to give up some cherished myths. That is not likely to happen, so the country will continue to go down the tubes.

[Jimi]

Donald,

"It's a very correctable situation"

Since your the only one I know that believes that, can you pleaase explain it to us? From my perspective, unless ObamaCare is repealed, S.S. is reformed, and Defense cut in half.....We are Greece at best!

We should grow our way to prosperity....Obama hinted at that in his speech....nobody believes him....and the fundementals of our economy are very limited at this stage. We have no manufacturing base, we have a ridiculous trade situation, and we can't tap our own resources. These problems started and were championed by the left.

[Guy Gregory]

Donald,

What is your solution then?

[larry kurtz]

At a time when China is moving toward super-power status it seems increasingly prudent to consider merging several countries into one mega-power capable of exerting quieting strength over a burgeoning economic megalith under one President and one Congress.

It's time for all Americans to enjoy the protection of law by being part of one nation: erase the artificial borders and grant Life, Liberty and the Pursuit of Happiness to all the people of North America...Mexico, Central America, Canada, even the Caribbean if they'll have us.

ip is not a New World Order guy, does not support the North American Union (god bless you please, Mr. Roddenberry) and believes that the US Constitution is a big enough canvas in order to paint a more perfect masterpiece, a big enough score for all to sing. No violence. No more drug wars.

[Guy Gregory]

Jimmi,
And I'm also going to ask you as I did Donald: do you have a solution in working together to fix the problems that affect all of us?

[Miranda]

Guy:

I find it somewhat amusing that you call for ending "extreme partisanship" and then provide a link to a blog post that says:

"I no longer want to hear you and other conservatives complain, whine, bicker, moan, and point fingers at our President since your party now controls the House of Representatives."

Come on! That's not even trying!

[Jimi]

Guy,

"do you have a solution in working together to fix the problems that affect all of us?"

Yes....Tell your boy in the White House to redo the Health Care Reform Debate, and allow Republicans to participate this time. Also....for Democratic Ideology to give up on the idea that government spending is the engine of our economy...which it clearly is not, and cannot be. We are either Free-Market Capitalist or we aren't.

I find it amusing that after Republicans getting the House back for a month, all of sudden the Left is out running around screaming for bi-partisianship. We just went thru (4) years of Democratics Majorities....(2) Years of Democratic Super Majorities and what did we get during that period?

We got "I Won"....."The War is Lost"...."Bush is a War Criminal"...."Republicans solution to Health Care is for you to die." We feel like the Democrats had their chance to work together and they blew it....if they want to participate they should put the effort in the to build confidence within the population to be trusted again. Until then....Sorry!

[Guy Gregory]

Jimmi,

I take it that you do not have solution then. Can't get anything accomplished with that attitude. You have to be willing to let go of your anger and move on or forever be stuck in that misery. I feel sorry for you.

[Miranda]

Guy: The problem with both your view and the view of the Democrats in congress is you seem to want any solution NOW. It doesn't matter if we really know what the solution is or if it is badly flawed, you just want to pass something. Safer and better legislation can only be created with care and deliberation. Conservatives are asking for that.

[Jimi]

Guy,

"You have to be willing to let go of your anger and move on or forever be stuck in that misery."

What are you my Psychiatrist now? I could care less what you and your ilk think....you people aren't to be trusted!

"I take it that you do not have a solution then."

Well that all depends on what your definiton of a "solution" is. If it involves compromising with President "Affirmative Action" and his Super Hero Friends in the Senate...then the answer is a definite NO! I'd rather let the situation fester.

BTW....I went to your "Blog" cite...your a Hypocrite!

[Ken Blanchard]

Good discussion. BillW: I agree that war itself doesn't directly stimulate economic growth and that goes for the Second World War in particular. End massive expenditures in war can stimulate growth as the productive capacity is shifted back to things that show a return. However, I think that WWII did stimulate the explosive post-war growth in an indirect sense. Americans felt like we could do anything. When joined with genius, industry, pent-up demand and surplus capacity, that is a recipe for growth.

[Ken Blanchard]

Guy: I am a little amused to be lectured on partisanship by Badlands Blue, a site which routinely uses the term "teabagger" to describe a large portion of the electorate with whom the authors do not agree.

My post is hardly an example of "hyper-partisanship". I cite the Washington Post, a solidly Democratic paper, in support of my argument. I notice that today Ruth Marcus, not exactly a friend of Republicans, made an argument similar to mine. So did Kent Conrad, Democratic Senator from N. Dakota. The view that the President's speech was empty of leadership in fact represents a bipartisan consensus.