Budget: It Ain’t 1995

The Obama administration released its budget proposal yesterday.

To reprise an expression from the Reagan years that Democrats routinely used to greet every one of his budgets: DOA.

This is not a remotely serious proposal.   I don’t know what color the sky is on the planet where this was formulated, but it ain’t the same as what I see out my window.  There is no recognition whatsoever of the existential fiscal situation the country now faces.  ”What, me worry?” doesn’t even come close to describing this.  No spending restraint whatsoever.  Projections of large tax increases and large revenue increases that will never–never–be realized.

The budget is chock-full of silliness, like a vast increase in funding for the Department of Education.  (Motto: “There’s No Problem We Can’t Make Worse With More Money!”)  Or especially the high speed rail boondoggle.  ”High” is right.  The only thing that is missing in the administration salesmanship of this turkey is Robert Preston returning from the dead to perform a reprise of his role as the Music Man.  This is a con of the first order.

Apparently, the administration is attempting to reincarnate the budget showdown of 1995, in which Clinton regained his political balance by forcing a budget battle with the Gingrich-led Republicans.

If that’s indeed the case, it is typical Bourbon learned nothing-forgotten nothing reasoning.  The situation now is so different from from 1995.  So different.  Economically–not even close.  Orders of magnitude different–literally, when it comes to the deficit and debt.  Politically–again, not close.  Yes, there was a firestorm in 1994, but this pales in comparison to 2010, and what is happening now.  Clinton could do a passable imitation of a fiscal conservative–Obama isn’t even trying.  Clinton was blessed in the enemy lottery; Gingrich’s bombast, egotism and overreaching the election mandate played right into the President’s hands.  Today’s Republicans seem to have learned from Gingrich’s mistakes, and are not tied to a figure with historical pretensions and delusions of grandeur.  Fighting the last war is seldom a good idea, especially when conditions are so radically different.

Moreover, it is disappointing in the extreme that Obama is responding to such a serious situation by playing small-ball (but mega-dollar) politics, rather than exhibiting  real leadership.  Not that I’m surprised, but even given my very low expectations it is rather discouraging to see a good swathe of the political class–with Obama at its head–proceed as if this is just about their political fortunes, rather than about the nation’s future.  Many Republicans in the House and especially the Senate are not much better, but even there the business-as-usual types are getting some pushback and are responding.  And you should never expect leadership from the legislature in any event.  All Presidents–including this one–talk about leadership.  Not all of them exhibit it–this one most conspicuously, and most conspicuously now.

The contrast between the atmosphere in Washington, and in the White House in particular, and many of the states is stark and telling.  Newly elected governors like Ron Johnson in Wisconsin are manning up.  Texas is proceeding with dramatic, not to say draconian, budget cuts to close the fiscal gap.  And it’s not just Republicans.  Andrew Cuomo in New York is grabbing the bull by the horns.  Hell, even Jerry Brown in California is acting more like an adult than Obama.  When Jerry Brown appears more tethered to reality, you are truly out there.

Obama’s unrealism and Bourbonism means that he is unlikely to prevail in this budget battle, and that he will not be able to leverage it into a political gain.  But that’s cold comfort, for the time lost in this pointless contest is extremely costly.  The time for action is now, but time’s a wasting.  Rome is afire, and Obama is fiddling.  I needn’t tell you who is going to get burned.

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About Craig Pirrong 238 Articles

Affiliation: University of Houston

Dr Pirrong is Professor of Finance, and Energy Markets Director for the Global Energy Management Institute at the Bauer College of Business of the University of Houston. He was previously Watson Family Professor of Commodity and Financial Risk Management at Oklahoma State University, and a faculty member at the University of Michigan, the University of Chicago, and Washington University.

Professor Pirrong's research focuses on the organization of financial exchanges, derivatives clearing, competition between exchanges, commodity markets, derivatives market manipulation, the relation between market fundamentals and commodity price dynamics, and the implications of this relation for the pricing of commodity derivatives. He has published 30 articles in professional publications, is the author of three books, and has consulted widely, primarily on commodity and market manipulation-related issues.

He holds a Ph.D. in business economics from the University of Chicago.

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