Transformational Obama Budget
by Donald Devine
Issue 128 - March 25, 2009

“The nine most terrifying words in the English language: I’m from the government and I’m here to help” will be multiplied by at least 100,000 additional bureaucratic voices if President Barack Obama’s first budget has its way; and it probably will considering that Congress cannot wait to “help” even more.

Now we know why Mr. Obama admired Ronald Reagan for being a “transformational” figure. He wants to transform Reagan’s transformation. During President Reagan’s first term, inspired by his quotation that leads this editorial and an existing economic downturn that was in many ways worse than today’s (certainly so far in terms of unemployment and interest rates), he decreased non-defense employment by 100,000, cut (discretionary) domestic spending rather than increased it, and (with the help of tax cuts) let the economy hit bottom so that it could bounce back—which it did—rather than prop up failing firms. Facing a worse stock drop in 1987, he again let the market fall—and it came right back, in weeks rather than months or years.

President Obama is doing exactly the opposite. He is spending like a drunken sailor, micro-managing the economy, hiking taxes on potential new investors and increasing the number of government experts “here to help.” So far, the results have been opposite too. Instead of recovering, markets keep trending lower, only declining by more during the Great Depression. Looming behind are trillions in liquidity dollars created by the Fed which no one knows how to drain even if recovery should take place. It is early but clear that the president is trying to skate uphill against the history of the past century. That began with unbridled optimism that the government experts could manage markets but ended with a decades-long depression cured only by World War II, the collapse of central planning in fascist, communist and socialist nations, and stagflation and imminent bankruptcy of entitlements in the U.S.

Americans remain as skeptical of government expert help and spending as ever. But the president insists that 100,000 more bureaucrats will restore confidence by making everything work efficiently. Actually, The Heritage Foundation’s Center for Data Analysis estimates the actual increase will be between 230,000 and 260,000. Even progressive New York University professor Paul Light, who was the source of the 100,000 figure, admits “I think that is just a start” of the number needed. Whatever; President Obama wants an incredibly large number of new bureaucrats to make the trains run on time. But will they, considering he has just nominated the person recommended by the largest Federal government union to lead the civil service? John Berry, fresh from the National Zoo, can hardly be expected to push efficiencies against the obstructionist unions. Indeed, he is reportedly ready to expand employee health benefits - to unmarried partners of employees, fulfilling a union demand.

An older civil service head could tell him and the president that it will take multiple months if not years to hire and train hundreds of thousands of expert regulators and spenders. The nation will be well into two years of economic crisis and the 2010 election before they can even begin to “help.” The Administration is already light on executive leadership. Of the top 400 senior positions, 65 have been cleared for confirmation, 31 have been sent to the Senate and only 22 have been approved. They cannot do it alone or even only with the White House staff (which is full to overflowing). Someone actually has to do the work.

The much larger problem is that even one hundred billion more expert bureaucrats could not possibly understand much less explain the programs. Every expert media conference explaining the programs sinks market confidence further and stocks, banks and corporations drop like flies. Listening to the secretary of the Treasury (whether Henry Paulson or Timothy Geithner, who can tell the difference?) and Federal Reserve chairman Ben Bernanke discuss banks and bailouts worked once or twice with only mild negative reactions but the more they offer, the more it is clear they do not have a clue. The bank officers, stockholders and investors freeze and the markets keep hitting record lows.

Listening to Mr. Geithner and housing Secretary Shaun Donovan on the mortgage rescue plan was even more humorous. It was clear that neither understood or could explain the process, with the treasury secretary constantly passing the ball to Mr. Donovan, who went over reporter’s heads with expert bureaucratize, leading to still further confusion, less confidence and worse markets. If reporters who cover the subject did not understand, how could normal people possibly know who is eligible and who not, especially as the details constantly are changed or added to? Even Bank of America, the largest, had to move to bigger quarters with more personnel to handle the inquiries but callers were soon frustrated by jammed phones—and the staff was not sure about their answers.

Office of Management and Budget Director Peter Orszag and Council of Economic Advisers Chair Christina Romer were an even more deadly duo in introducing the first Obama budget. Reporters were dumbfounded when told that a $634 billion “down payment” for health spending (with trillions more later) plus scores of billions additionally spent on energy and education actually were the “three key areas to promote long term economic health.” Economic health? Director Orszag constantly referred to the “evidence” from studies that prove that spending will actually “pay off over time.” That is, more spending means more savings!

For one thing, boosting primary care physicians seems to be effective based on the evidence. A lot of the variation across the country (referring to the Dartmouth report) without corresponding benefit is related to the ratio of primary care to specialists. One thing we could be doing, though we don't want to pretend we're going to reduce primary physician benefits by 20% this year which is what the previous budget assumed, we are looking to reform the payment system to encourage quality.

Got that? The evidence shows that primary care saves money on health although the Dartmouth study does not but that is because of the ratio of primary care to specialist care. Still following? The “evidence” also shows that community health centers are effective so there is more spending there too, saving even more money in the long run. Hey, budgeting is easy in the Obama years. Just keep spending more to save more.

When asked by a reporter about the administration’s energy cap-and-trade proposal to tax carbon emissions by businesses, Mr. Orszag responded,

We're trying to address global climate change and reduce dependence on foreign oil and do it in a fiscally responsible way. It will have an impact on households but that's why we're linking cap-and-trade to "Making Work Pay," the tax credit for working families, to provide them relief in their budgets.

Got that? It will have “an impact” on households. How about the majority who do not qualify for enough of or any of (or even know about) the tax credit? Translation: the energy policy will cost people money. He failed to mention that this proposal will “impact” people using energy (which, of course, is everyone) right down to the very poorest in the nation, grossly violating the president’s pledge to only increase taxes for people earning over $250,000 per year. Apparently, “impacts” do not count as taxes.

Ms. Romer’s contribution was the admission that all the calculations of receipts and deficits were based on a 3.2 percent annual growth rate in 2010, one fifth higher than the long term average growth of only 2.6 percent - and even higher expansion estimates between 2011 through 2013. One reporter was moved to respond: “We've been hearing denunciations of the Bush Administration for dishonesty in the way they presented numbers and hid expenditures. Isn't your optimism dishonest also, aren't you trying to gild the lily?” At least someone got it.

But forget about the budget. When asked about their projected $23 trillion (double the total national income of the U.S. today) deficit over the next ten years the budget director replied: “More important than what happens over the next 5-10 years with the budget is the rate at which health care costs grow.” So health costs must decline for the sake of the whole budget. But trillions more will be spent to cover the uninsured and increase efficiency. How can this be? It sounds like he thinks it is necessary to squeeze the whole deficit trillions from the health system – “efficiencies” from the hides of doctors, nurses, technicians, hospitals and patients by deciding who gets what and when, administered by bureaucrats rather than physicians, and that will not downgrade quality. Certainly, the health professionals will become more efficient by having their income reduced, no? Just look at the quality under Medicaid, the program for the poor. We are expected to believe that spending trillions of dollars more on health will cost less! This is going to be even more fun than Hillarycare!

Why would anyone put the Federal Government in charge of such things anyway? Its employees are nice folks but they are almost the only ones in the country with little or no incentive to halt inflation or economic declines. The three richest counties in the U.S. are in the Washington, D.C. area and they do better in downturns since stimulus spending certainly works there. Federal job tenure is the nation’s securest and pay cuts are unheard of. Their very generous pensions are tied to the cost of living so no matter how low the value of the dollar, they are protected. Their health plan is top-rated and follows them into retirement - and one can bet it will not be folded into Obama’s cost-controlled plan since Congress is covered by it too.

President Obama certainly will be a transformational president. The only question is whether he and his assistants will leave anything still standing in the rest of America when his successor has to pick up the pieces.

Donald Devine, the editor of Conservative Battleline Online, was the director of the U.S. Office of Personnel Management from 1981 to 1985 and is the director of the Federalist Leadership Center at Bellevue University . The details of the marvelous OMB press conference may be accessed at http://www.fivethirtyeight.com/2009/02/omb-director-orszag-budget-press.html