Obama: California Dreamin’

This is an older story, but what the heck I was on vaction (New Orleans is quite nice this time of year, btw). Here is the main point of the article,

President Obama plans to convene his Cabinet for the first time today, and he will order its members to identify a combined $100 million in budget cuts over the next 90 days, according to a senior administration official….Earlier this month, both chambers of Congress passed Obama’s $3.5 trillion budget outline for 2010, which includes unprecedented new investments in health care, education and energy. But the huge budget, which contemplates a $1.2 trillion deficit, has drawn the ire of small-government conservatives, who say that such high deficits jeopardize the nation’s economic future.

Here is Greg Mankiw’s take on the above,

Just to be clear: $100 million represents .003 percent of $3.5 trillion.

To put those numbers in perspective, imagine that the head of a household with annual spending of $100,000 called everyone in the family together to deal with a $34,000 budget shortfall. How much would he or she announce that spending had to be cut? By $3 over the course of the year–approximately the cost of one latte at Starbucks. The other $33,997? We can put that on the family credit card and worry about it next year.

This is quite right, but it also struck that this is pretty much how California has been handling its budget crisis. Kick the can down the road and hope for…I don’t know a miracle? California is a state that has epitomized fiscal irresponsibility. Spending has grown faster than the rate of inflation and population growth to such an extent that we are going to be seeing significant increases in taxes across the board. Increases in the sales tax, car registration fees, income taxes and so forth. Everyone will be hit, at precisely the time when raising taxes will likely have a negative impact on the state’s economy. Fortunately for the rest of the country though the United States does not have a balanced budget requirement.

FILED UNDER: Economics and Business, Government, Humor, ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Partisanship aside, given the magnitude of federal spending, the federal deficit, the Stimulus package, and especially the earmarks in the Stimulus package, trumpeting an order for budget savings of $100M from his cabinet secretaries does make me wonder just how far in over his head President Obama is right now, and not just him but his advisors and handlers as well.

    Do they really think people are this stupid?

  2. Dave Schuler says:

    The problem doesn’t occur when expenditures rise faster than inflation or the population. The great problem is when expenditures rise faster than incomes, retail sales, and property values. That means that the state needs to take a potentially ever-increasing chunk out of income streams that are themselves dwindling. Not only is this politically difficult, it’s economically damaging.

    In California as in most state and local governments most of the increase is coming in the form of increases in the total compensation of state employees. As painful as it may I think the only solution is to limit what is paid to public employees based on the ebbing and flowing of the revenue streams on which state revenues depend.

  3. Zelsdorf Ragshaft III says:

    Yes, Charles, yes they do. One has to wonder what the real agenda is.

  4. Bithead says:

    Yes, Charles, unquestionably.
    I’ll tell you what this is… Obama looked at the Tea Party protests and recognized that $13 a month of ‘tax breaks’ wasn’t going to cut it. He also recognized that spending and runaway government, not taxes directly, is the issue. So, he responds with a big show about cutting spending by a “Dr. Evil” sounding $100 Million Dollars.

    It’s all for show. Sorta like jetting across the country buring 18,000 gallons of fuel so he can make a speech in front of a windmill to tell us all how we oughta be green, on ‘Earth day”.

    The trends are there for thow who can actually see.

  5. just me says:

    I am generally in favor of any budget cuts and trying to spend the money that is allocated more efficiently, so on one hand I think asking them to make the cuts is a good thing. I think the disconnect comes when you consider the budget as a whole and the spending that is proposed.

    I actually hadn’t seen the family budget analogy, and I think in this case it is apt. Cutting $3 for the Starbucks coffee is $3 saved, but it isn’t going to do much to make a difference in the actual budget.

  6. sam says:

    @Bit

    Obama looked at the Tea Party protests and recognized

    Stop it. You made me blow Pepsi through my nose.

  7. odograph says:

    You can’t do cuts without a workable political process to do cuts. They are forming a system, taking it for a run … and “conservatives” complain. Go figure.

    What you’d be happier if they just didn’t try?

    Because if your attitude is that they should go further, than you rational position should be “Fine, thanks, what’s next?”

  8. odograph says:

    I am generally in favor of any budget cuts and trying to spend the money that is allocated more efficiently, so on one hand I think asking them to make the cuts is a good thing. I think the disconnect comes when you consider the budget as a whole and the spending that is proposed.

    The budget needs, to borrow a term from the computer science domain, to be refactored.

    If they are serious they’ll do this $100M, and then keep going. Given the complex nature of spending, with congressional micromanagement down to which part of which plane is built in which state … there’s the possibility that this kind of thing needs to be a permanent ongoing process.

  9. odograph says:

    BTW, you understand that we are now in a world-wide contraction?

    IMF sees steepest drop in global activity in 60 years

    At least try to put “spending” in that context.

  10. Smurfyhoser says:

    Yeah, $100 million is about the same as Jindal’s volcano monitoring he complained about.

    And Obama’s only, what, 3 months in? So at this rate perhaps he’ll continue to find new ways to cut spending at about $400 million a year = $1.6 billion over term 1. Slacker. You should see how much GWB cut when he was in office!

  11. odograph, seriously now, President Obama got his $870B deficit spending spree — that’s billion with a b — and now wants to find ways to save $100M — that’s million with an m — and expects to be taken seriously? If his cabinet found $100M every single day for the next year rather than once in the next ninety days that would constitute 4.2% of the so-called Stimulus package — which (did I mention this before?) is necessarily all deficit spending, so the true bill with interest is much, much higher.

    It’s a bad, bad joke and if you want to be taken seriously you might want to think how much effort you want to put into trying to defend it. If you think $100M is a good test case for saving money before trying something more meaningful, why not rescind the so-called Stimulus package and instead pass one of about $8B or so and let’s see how it works before deciding to bet the farm… and the factory… and the finanical system… and the schools… and our future…?

  12. smurfyhoser, you do realize that some of us that didn’t vote for President Obama despised Bush’s spending sprees as well, right? Maybe we aren’t just being hostile to it because it is President Obama advocating it.

  13. odograph says:

    Charles, you said “so-called Stimulus” twice.

    Explain to me the other path, the one no politician of either party was willing to take, without “called or not” Stimulus, and how it would work?

    Would you just tough it out through 10 big bank failures and 15% unemployment?

  14. Wow odograph, the IMF’s projections put us all the way back to where we were in late 2007. I guess that justifies anything President Obama wants to do, is that it?

  15. odograph, I concur that we are screwed because neither party has the courage to let the market correct itself. I believe the word you are looking for is hubris. Sadly, before things get much better you may be wishing for only ten big bank failures and 15% unemployment.

  16. Oh, and I meant to say it twice. Does that make me a double-plus ungood person?

  17. odograph says:

    Sadly, before things get much better you may be wishing for only ten big bank failures and 15% unemployment.

    And yet, at the same time, you oppose spending. Is there any economic logic for withholding spending in this kind of downturn?

    It seems to me you are saying you choose the hard bottom, with no counter-cyclical brakes applied.

  18. Yes, I absolutely oppose spending to prop up failed enterprises. It is throwing good money after bad. You want to extend unemployment benefits? Good idea, go for it. You want to throw money at bad banks and manufacturers. Really bad idea. It isn’t going to make matters better, but worse.

    And don’t conflate arguments about deficits with arguments about spending, they aren’t the same thing.

  19. odograph says:

    And don’t conflate arguments about deficits with arguments about spending, they aren’t the same thing.

    I’m a believer in counter-cyclical spending, which does imply higher deficits during the down-cycles in the economy. Your expanded unemployment benefits are a form of automatic spending that produces that effect, and less spending and reduced deficit in the up-cycle.

    Now, how much to spend in the down-cycle is a harder question, but I think it is at least reasonable to think that it will be more in harder down-cycles, and less in milder ones.

    I think the hopes that this might be a mild, or even a typical, recession have been dashed.

    (If we want to go back to the errors of the Bush administration, one would be that they pushed strong deficit spending during a (mild) recovery. They never produced that counter-cyclical surplus. That’s the reason we ride into this Great Recession with our pockets empty.)