Follow the money

( – promoted by buhdydharma )

 

President-elect Barack Obama’s adminstration will inherit a $1.2 trillion budget deficit for 2009 according to the forecast by the Congressional Budget Office.

Unfortunately for the United States, despite owning more than $1 trillion of American debt, China has hinted that enough is enough. Rather than continuing to spend “as much as one-seventh of its entire economic output buying foreign debt”, Beijing now plans to pay for its own $600 billion economic stimulus plan.

China’s timing is unfortunate for the American economy, since the federal budget deficit is likely to swell past $2 trillion in 2009 when Congress passes a further economic stimulus measure. The CBO forecast also does not include the ongoing spending for the occupations of Iraq and Afghanistan.

Where is Obama going to find the money to restart the U.S. economy?

Year after year of budget shortfalls have nearly doubled the federal debt “under Bush’s watch, from $5.7 trillion to $10.6 trillion.” So the members of Congress concern about the federal deficits are fine, but a little late. Where have they been for the past eight years?

Plus “Bush’s tax cuts helped eliminate the surpluses of the Clinton years and helped drive the annual budget deficit to a record $413 billion in 2004.” Obama may let the Bush tax cuts expire at the end of 2010, rather than seek to eliminate them earlier through legislation.

Letting Bush tax policy dictate the first two years of the Obama administration may have an escalating negative impact on Obama’s ability to govern. The huge deficit could hamper his plans. Conservative Democrats and suddenly budget-concerned Republicans are balking at Obama’s $800 billion to $1 trillion stimulus plan. Obama is busy working “to assure taxpayers and skeptical members of Congress that he’ll work to rein in the deficits later, naming a new bureaucrat to streamline the federal bureaucracy.”

Last September, Peter Orszag, then head of the Congressional Budget Office and now Obama’s choice to head the Office of Management and Budget, said “The nation is on an unsustainable fiscal course.”

Obama needs to make significant changes in the way the federal government spends money to get the United States economy back on track and our government back living within its means.

The Republicans will be targeting social programs — Social Security, Medicaid, and Medicare — for cuts. Yesterday, Obama said his team is examining entitlement programs.

“We are beginning consultations with members of Congress around how we expect to approach the deficit,” Obama said. “We expect that discussion around entitlements will be a part, a central part, of those plans.”

But there are other ways to find revenue. One place to look for billions is at the Department of Defense. The CS Monitor reports “Almost 47 percent of all federal discretionary spending” is spent on the Pentagon.

“The Pentagon’s baseline budget for the current fiscal year is $514 billion, but with Secretary Gates’s $70 billion request, war funding will top $136 billion in additional defense costs for 2009.”

Each month the Iraq occupation has been wasting $10 billion. However, even if Obama redeploys U.S. forces from Iraq, experts predict that military spending will not decline.

Perhaps the biggest reason defense spending won’t fall anytime soon is that it would be too hard for congressional lawmakers to justify cuts to defense during a recession, and lawmakers will instead seek to retain and renew defense contracts – and keep thousands of people in their jobs.

Rightwing economists see military spending as the way to get out of a recession. Martin Feldstein, AIG board member and formerly the chairman of the Council of Economic Advisers under Ronald Reagan, wrote in an opinion piece for The Wall Street Journal in December that “a substantial short-term rise in spending on defense and intelligence would both stimulate our economy and strengthen our nation’s security.”

Feldstein proposes a 10 percent increase in defense procurement and 5 percent increase for operations and maintenance.

So the economy will be stimulated by buying more weaponry like the unworkable missile defense shield in Europe, or more F-22 fighters, or airborne refueling tankers from Boeing or Europe’s Airbus or more parts like the $7.5 billion worth of unneeded spare parts stored in Navy warehouses.

Feldstein predicts 300,000 jobs would be created by defense spending, but so would government spending rebuilding the nation’s schools, parks, and infrastructure. We could invest in such things as peaceful scientific research projects, renewable energy, highspeed rail, and universal healthcare.

Feldstein also advocates “raising the military’s annual recruitment goal by 15% would provide jobs for an additional 30,000 young men and women in the first year.”

I think a larger military may be an acceptable exchange if and only if the United States eliminates military outsourcing.

Despite the best efforts of the Bush administration, a second Cold War between the U.S. and the former-Soviet Union isn’t going to ‘click’. Despite the saber rattling, the Russian economy is in as bad of shape as the U.S. economy, and likely worse.  The world is in a global recession, so I suspect most countries other than the U.S. would be reluctant to engage in a costly military spending contest.

The U.S. already outspends al-Qaeda. Terrorism can be done on the cheap compared to what the U.S. spends on defense. Plus Osama bin Laden said back in 2004 his goal was to engage the U.S. in a long, protracted war in Afghanistan like the mujahedeen did in the 1980s with the Soviet Union as to “bleed America to the point of bankruptcy“. The U.S. cannot stop terrorist attacks by simply out spending terrorist organizations.

So ultimately, I think following the Reagan model of spending more on military procurement is not going to help the country emerge from the Bush recession. Reagan cut social programs and borrowed money to spend on the military, but his plan dismantled the social safety net Americans need today. He also left the U.S. vulnerable to climate change and oil price and supply fluctuations. Reagan also increased the federal debt from $74 billion in 1981 to $2.6 trillion by 1988.

Despite Dick Cheney’s insistence that “deficits don’t matter”. They do. The Reagan way does not work. Running up huge deficits hinders the government from helping fix the country when things go wrong in the private sector.

So when, as the CS Monitor reports “senior military officials, including Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, argue for maintaining a ‘floor’ of defense spending commensurate with about 4 percent of US gross domestic product”, remember that part of the GDP is government spending. The U.S. currently spends about 4.2 percent GDP on the Pentagon. The more the federal government spends on the Pentagon, the more the nation’s GDP grows and the more the federal government spends on the Pentagon.

Already the U.S. outspends the rest of the world on military expenditures, so I think we need to step back. Instead of looking first at entitlements and social programs, I believe Obama and Congress needs to look seriously at the Pentagon where the U.S. spends almost 47 percent of federal discretionary spending and make some deep cuts.

Obama ran on a ticket of Change. This year Obama needs to start dismantling the Military-Industrial(-Congressional-Academic) Complex. That is the change I think we need. That is where I believe he will find hundreds of billions of dollars to revive the U.S. economy and rebuild America.