The Budget Mess: A Crisis in Legitimacy

The Budget Mess: A Crisis in Legitimacy
by Sheldon Richman, April 26, 2011

Reality has finally caught up with the ruling elite, and its members inside and outside government are in a panic. They have freely spent the taxpayers' money for generations building a corporatist warfare-welfare state, and when that wasn't enough to finance their projects, they borrowed just as freely. For a long while it paid off handsomely in power and wealth, but now even they realize things can't go on as they have for so long.

This fiscal year the government will spend $3.8 trillion, more than 40 percent of which will be borrowed. In the last full year before the current administration came to power, outlays were just under $3 trillion. Earlier this year, the Office of Management and Budget estimated that under President Obama's budget, spending in 2016 will rise to $4.5 trillion. The FY 2008 deficit stood at less than half a trillion dollars -- an astounding amount in its day. It hit a record $1.88 trillion in 2009. According to administration estimates, the deficit won't fall below a trillion dollars until 2013, then will begin rising again 2016.

Deficit projections of course depend on assumptions about economic growth. When the public is clamoring for action on the deficit, officials have an incentive be unrealistically optimistic.

Also, budget discussions overflow with opportunities for deceit. As we saw with the recent compromise over the 2011 continuing resolution, in Orwellian Washington a spending cut is really an increase.

Deficit spending has had a deep structural effect on America's political economy. In mid April the national debt was $14.3 trillion, about 98 percent of GDP. Last year the administration's Mid-Session Budget Review projected the debt would hit 100 percent of GDP by 2012, and would double by 2020, exceeding 100 percent of GDP for the rest of the decade.

To see the yearly budget impact of that, in 2010 the U.S. government paid more than $400 billion in interest, a little less than the Medicare budget -- the fourth largest budget item. This year the government is on track to exceed that amount. It is estimated that in 2019 the government will pay $700 billion in interest.

Obama's profligate spending should not lead us to think he succeeded a budget hawk in office. On the contrary, the eight years of George W. Bush saw outlays go from $1.9 trillion to nearly $3 trillion and the debt go from $5.7 trillion to $10.7 trillion.

Virtually everyone agrees that the current situation is unsustainable. It's easy to see why the ruling elite think so. They are concerned that if some control is not achieved over spending, by 2025 all revenues collected by the national government will be swallowed up by Medicare, Medicaid, Social Security, and interest on the debt. But then how will the politicians do all the other things they do: subsidizing pet projects (many of which are carried on by well-connected businesses); policing the globe for political and economic reasons (fighting overt and covert wars and channeling billions to the military-industrial complex); and generally centralizing power in Washington, D.C.?

The regime faces a double crisis. The first is fiscal: Unless it does something, it won't have the money to maintain the gravy train. The other is a crisis in legitimacy. People are catching on that the borrowing power hides the cost of government, imposing burdens on future generations. If politicians don't appear to fix things their careers are in jeopardy.

Hence, Budget Chairman Paul Ryan's House-backed meager "Path to Prosperity" and Obama's expression of support for modest budget cuts (plus tax increases on the wealthy). But both approaches, whatever their differences in detail and style, have one overriding feature in common: Both aim to preserve the corporatist warfare-welfare state. Neither represents a serious rethinking of the role of government. In the end, there will be little change, no matter who prevails.

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