For many inside and outside the U.S., it’s been a glorious past six months or so. A new administration has presided over the largest expansion of government in history. And the Obama administration, and most importantly the Nancy Pelosi-led House, has moved forward aggressively at an amazing pace. However, there are ample signs that despite significant majorities the political environment may be changing.
As economists warned, the stimulus package has contained very little stimulus – in fact, most of it won’t be spent for years – but the expected recovery has been slow and weak at best. Constituents are putting up “whoa” signs and their elected officials are starting to listen.
Federal spending this year will come in at around 28% of gross domestic product. To put this figure in context, this will have only been exceeded at one time in our history and that was during World War II. According to the Congressional Budget Office, we will have doubled our debt in 10 years; at that point, our debt will reach 82% of the entire economy.
It even gets worse when one looks out further and considers the unfunded liabilities. The proposed health care package is expected to be cash positive through the first 10 years but result in an additional $2 trillion in unfunded liabilities going forward.
During the first six months of this administration, everything was sold as a necessity to address the economic crisis. Yet, the trillions in spending haven’t resulted in jobs or economic strength. And it’s a pretty hard sell that expanding the health entitlements or cap and trade will do anything but add to the financial and economic problems we are experiencing.
History shows that an increase in government regulations has rarely led to efficiency or innovation. The reality is we have debt levels that are not sustainable. When California started issuing IOU’s last week, it signaled to all that even in California reality has to be embraced at some point.
More taxes and more spending won’t fly in this environment, and that means the honeymoon is likely to come to a screeching halt. Terms like “revenue neutral” or “tax neutral” are popping up; that means the agenda is going to become a lot less about hope and more about dealing with harsh realities.