Obama’s Budget

I am rather conflicted about the budget that Obama administration unveiled. On the one hand it has the right investment areas — Health Care reform, alternative energy (with revenue generated from carbon emission heavy industries), and education.

It  also focuses on some of the right areas for generation of revenues — like  roll-back of tax cuts for people earning greater than 250K, cut-back of subsidies to agribusinesses, pharmaceuticals and defense contractors.

However, where it fails, in my eyes, is the cut-back required on wasteful government spending — I don’t see much of that. Another troubling sign is that the deficit for the fiscal year 2009 (that ends in Sept) will be $1.75 trillion. That is staggering addition to the government deficit. He predicts that the deficit will fall to $533 billion in the last year of his term — 2013 — but that is far off in the future.

It is a bold new experiment in trying to level the playing field between the haves and the haves not. However, neither is it trim enough nor is it immediate in reducing deficit, and I fear that entropy will take over as time progresses with positive goals less pronounced and negative factors exaggerated when all of this becomes reality.

In a very perceptive article in Washington Post titled, “A Budget Process Hijacked By Selfish Interest,” Steven Pearlstein points out that it was the drive for self interest that resulted in a pluralist approach which forced competing self interests to be looked at collectively by decision makers and helped balance out the overall outcome. He writes, “It’s hard not to see the parallel between the magic of this political marketplace and the “invisible hand” of the economic marketplace as described centuries ago by Adam Smith. It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest,” he wrote famously in “An Inquiry Into the Nature and Causes of the Wealth of Nations.””

 However, it is clear that the system can be manipulated and short term narrow interests can take away the focus from the long term issues that are more potent and dangerous. Also, the politics of Washington ensures that such sweeping, radical bills have more angles to attack it from. And that, I am afraid, will be the undoing of the budget. For, immediate, short term gains are easy for the butcher, the brewer, or the baker and hence that is what they lobby for but long term abstract gains like a balanced federal budget, reformed health care and green energy are hard to visualize. Just like Wall Street, Congressmen will continue to focus on short term gains till uncontrolled upheaval makes long term short term and then, unfortunately, change will be impossible to implement.

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2 Responses

  1. Hate to be a stick in the mud but this isn’t going to work. Throwing money at the problem isn’t the answer. BUT, maybe I’m wrong, we’ll see.

    • Agreed that it is not “just” about the money — it is also about the correct goals as well as the “execution.” I trust the state and the local govts even less than the federal govt of doing a good job of delivering. We will have to wait and see if Obama administration can influence them and control them to stop the massive waste and truly deliver.

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