Complete and Utter Failure

Congress is getting ready to vote on the raising the debt ceiling after Obama and leaders in Congress agreed on a deal that will cut the deficit by $1 trillion over the next ten years. This would be laughable if it weren't so sad.

First, the trillion dollar figure depends on a rosy picture of economic growth. If we have a recession in the next ten years, which is very likely, the trillion will be reduced to billions. If interest rates rise, the cuts will be reduced even more.

Second, even if all of the government's optimistic projections come true, they are only cutting the deficit by $100 billion a year. This year's budget deficit is estimated at $1.5 trillion. Next year's budget deficit is estimated at $1.1 trillion. So, if they start cutting the deficit right away by $100 billion per year, the national debt will increase by $2.4 trillion by 2013 instead of $2.6 trillion. Wow! Congress is saving us a lot of money! Not. Why do they even bother?

Third, it is important not to confuse cutting the deficit with lowering the national debt. On a lot of message boards I see people making this mistake. They think that the $1 trillion in cuts means that in ten years the national debt, which is $14.5 trillion at the time of writing, will decrease by a trillion to $13.5 trillion. No! That is wrong. By 2020, America's national debt is projected to be from $20 trillion to $26 trillion. So if everything goes according to plan, America's national debt will be $19 trillion to $25 trillion by 2020.

Obama is happy, because the next debt ceiling debate will be in 2013 if the latest plan passes. That's after the election, which is all he cares about. If he and congressional leaders had a spine they would address the incredible waste. For example, I read recently in Fortune that the government spends around $80 billion a year on internet servers, 93% of which are idle. No one uses them. There are hundreds if not thousands of government programs that are just as wasteful. They have to be eliminated.

If they had spines, our leaders would address the incentive structure. Departments that go over budget are given bigger budgets the following year. Departments that spend less have their budgets reduced. Our leaders should put an end to the incentive to spend more.

Everyone would be better off if 2/3 or more of government workers were told not to come back to work. We could even pay them their full salary. Just stay home and don't cause any trouble. Think of the money that would be saved on electricity, furniture, fuel, and equipment. Since most of these people don't do anything all day, government output would remain essentially the same.

None of this will ever happen. We'll hear the same empty slogans and promises for change until the ship finally sinks. Have your own lifeboat ready. Don't rely on the government to give you one.