Friday night, the media was in a frenzy about how two Republican senators, Olympia Snow of Maine and Arlen Specter of Pennsylvania had cut a deal to answer President Obama's call for bipartisan support of his economic recovery package. The two Republicans agreed on $800 billion of spending and limited tax breaks instead of $900 billion. Add the interest on the debt incurred and its still a trillion dollars.
If that is not disturbing enough, Senator Judd Gregg, President Obama's Secretary of Commerce nominee, requested a study of the Obama package by the non partisan Congressional Budget Office. For years, Democrats have quoted the CBO as much as pastors quote the Bible in a sermon. That is probably about to change.
The CBO's response to Senator Gregg's questions indicated that their numbers and analysis concluded that the Obama package would stimulate the economy for two or three years, but end up hurting the economy more over the next ten years than if the government did nothing.
The growing cost of debt service on the national debt would hamstring the long term economy of the United States. It makes sense. Throughout history, large public debt spent inefficiently has always created a crunch on private capital. Simply put, if money is being spent to service the national debt, it can not be spent on investment.
Think of it on a personal level. If you ran up a huge credit card and had to pay a larger and larger percentage of your income just to pay the interest payments, you could not go out and buy things or otherwise spend your money. Suppose you are hurting, and someone offers you a $100,000 line of credit. In the next couple of years, you could sustain yourself nicely. However, when it came time to pay back the debt, or at least service it with interest payments, your economic well being would be worse off if the costs of servicing your debt leaves you with less money to spend than you had before you incurred the debt, especially if you spent the money on things that did not generate more income for you.
Such an example happens to people all the time. So, why should we expect it not to happen to us as a people? Further, it is in crisis when people do not make rational economic choices. Again, why should we expect us a people not to have leaders who make the same irrational choices?
There are times when it necessary to borrow money to make things work. Perhaps the United States is at that point. If it is, it must spend that borrowed money wisely, on things like payroll tax cuts, investment incentives and infrastructure spending that makes the nation more competitive. The hodgepodge of political wish lists included in the Obama package is not that.
One would think the Congress and the people would learn from the TARP mistake. President Bush urged immediate action, and now no one seems to know where $350 billion went while the stock values of the institutions TARP was supposed to help continue to struggle.
The American economy is like a deep cut. Sure, a bandage, however expensive, might stop the bleeding for the moment. However, without stitches and antibiotics, the wound will not heal and will fester, causing long term harm. All the President and the Democrats offer the American economy now is a very expensive band-aid, with no stitches or antibiotics. In essence, the American economy is getting first aid for the cost of advanced medical treatment. As one crackerjack staff member of VUI put it, Obama's package is "like giving everything you have for an aspirin to treat a headache caused by a brain tumor."