Poorly Defending Government Spending

The Dow rose about 40 points yesterday. Gold fell a few bucks. The dollar spent the day treading water. Nothing much to report there…

But what’s this? It appears that a $787 billion stimulus package ain’t what it used to be, at least according to the Congressional Budget Office. The government’s spending watchdog (yes, such a thing exists) estimates that, all in, President Obama’s stimulus package will end up costing $862 billion, a $75 billion blowout. How did this accounting error come to pass, readers want to know? In painfully predictable fashion, the feds drastically underestimated the cost of unemployment compensation.

Who could have guessed? Well, anyone and everyone, really. This is the same government, remember, whose vice president warned that unemployment might breach the 9.6% mark if the stimulus program was not implemented, pronto. That was before the bill was passed…and before “official” unemployment went to 10.2% anyway. Including those workers categorized as “discouraged” and the millions who have taken cutbacks in hours, the real figure is closer to 22%, just 3% shy of the peak rate during the first depression.

Vice President Biden, who for some reason is allowed to continue squawking about the issue, defended the stimulus measures in an interview on CBS’s “Early Show” yesterday – the first anniversary of the bill.

“We’ve only been halfway through the act,” Biden assured citizens. “The job-creating portions are really loaded at the second half here.”

Lest Americans realize they’ve been sold a moonshine plan in a Pinot Noir package, President Obama weighed in to defend the spending. “Our work is far from over,” the president stated in his White House address, “but we have rescued this economy from the worst of this crisis.”

How does the president know this? In short, he doesn’t. It’s a guess. And probably a very bad one. Nobody can know what cometh tomorrow, nor can anybody know what might have been. Of all people, President Obama ought to know this better than most. Last year, for instance, he committed more than $3.5 billion of stimulus money to projects that he now wants to cut. How’s that for foresight?

According to a USA Today review of stimulus spending: “The president’s budget released this month recommends getting rid of Army Corps of Engineers’ drinking-water projects, which got $200 million in stimulus funds, and a US Department of Agriculture flood-prevention program, which received $290 million from the stimulus.”

Why give billions of somebody else’s dollars to moribund projects? Well, because they are somebody else’s dollars, of course. As long as public servants’ salaries keep rising and Beltway budgets continue bloating, who cares about the somebody elses of the world? The obvious problem with spending other people’s money is that, before it’s yours, it’s theirs. Politicians can extort money from their own voters through taxation at home, but where does the rest of it come from? With falling tax receipts (thanks to high unemployment levels), the government must increasingly rely on foreign investors’ contributions to the “somebody elses’ money pie.” The government calls these fundraising fêtes “Treasury auctions.” Unfortunately, foreign somebodies, particularly those in China and Japan, are becoming less and less excited about sending money abroad to finance American drinking water and flood prevention projects.

The Daily Reckoning