Robert Samuelson has a realistic discussion of the deficit/debt in his column today along with spending and debt projections for the next eight years if things go according to Obama’s plan. He concludes:
At best, the rising cost of the debt would intensify pressures to increase taxes, cut spending — or create bigger, unsustainable deficits. By the CBO’s estimates, interest on the debt as a share of federal spending will double between 2008 and 2019, to 16 percent. Huge budget deficits could also weaken economic growth by “crowding out” private investment.
At worst, the burgeoning debt could trigger a future financial crisis. The danger is that “we won’t be able to sell [Treasury debt] at reasonable interest rates,” says economist Rudy Penner, head of the CBO from 1983 to 1987. In today’s anxious climate, this hasn’t happened. American and foreign investors have favored “safe” U.S. Treasurys. But a glut of bonds, fears of inflation — or something else — might one day shatter confidence. Bond prices might fall sharply; interest rates would rise. The consequences could be worldwide because foreigners own half of U.S. Treasury debt.
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The wonder is that these issues have been so ignored. Imagine hypothetically that a President McCain had submitted a budget plan identical to Obama’s. There would almost certainly have been a loud outcry: “McCain’s Mortgaging Our Future.” Obama should be held to no less exacting a standard.
I fear that we do not have the political will or political leadership to accept the responsibility for getting our spending down and taxation up to manageable levels. The mechanisms that Samuelson discusses — higher interest rates required for continued deficit spending, interest payments taking greater and greater control of the national budget, inflation as a means of “managing” the debt, etc. — will inevitably work to the detriment of the economy and the health of the country down the road. Obama will be no more responsible than the Bushites who squandered a marvelous opportunity, but if he continues in this way, he is in danger of being no less.
I think the solution to our problem lies in the way of rebuilding our energy infrastructure along the lines that the Obama administration has suggested (the details could use some massaging, of course). In the end the solution will also involve adjusting our “defense” priorities — military spending must be reduced significantly. Spending as it is, is largely justified as high tech public works projects for individual senators and congresspersons, and not by military necessity. And the military necessity consists of defending American “interests” which are largely a function of the desires of the moneyed class.
True energy independence, which will only come about when we move to an electrified economy that is based on sources other than fossil fuels, will render obsolete the (current anyway) excuses for the obese military we field today.
This is an evolutionary path that we will follow either by choice sooner or by necessity later. The shape of the American democracy will probably be much different depending on the timing, however.