The Magazine

Obama's Fuzzy Math

A trillion here, a trillion there . . .

Apr 6, 2009, Vol. 14, No. 28 • By STEPHEN MOORE
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Finally, there is the crown jewel of the Obama-Pelosi-Reid domestic agenda: universal health care. This is at the top of the "to do" list of the Obama administration and is unlikely to get pulled back or postponed, as the president made clear in his press conference. Obama has not been specific about what plan he favors or about how much a national health care system will cost, but his budget allocates a $634 billion "placeholder" for that purpose. The consensus opinion, though, is that the lowest possible cost of universal health care is $1.2 trillion, with many estimating closer to $1.5 trillion. So team Obama is off by roughly $600 billion over ten years to cover all of America's uninsured. Obama says he will find ways to reduce health care costs at the same time, and I wish him well, but this is a promise that every president since Jimmy Carter has made and failed to keep.

Incidentally, almost all analysts also believe that the Obama price tag for his global warming program is too low. Jason Furman, the deputy director of the president's National Economic Council, says the cost is likely to be "two to three times higher" than the $646 billion estimate in the president's budget. Most independent analyses agree with Furman's figure. But we will leave this out of our calculations for now, because the debt and spending numbers are ruinous enough without them.

Here are the unhappy totals: the debt is $6 trillion higher from 2010 to 2019 than Obama's forecast. In no single year over the next decade, even when counting the Social Security trust fund surpluses, does the budget deficit fall below $800 billion. The interest on the national debt rises to $850 billion a year by the middle of the next decade, which will be the largest single expenditure item in the budget--eight times more than we now spend on education and four times more than we spend on homeland security. Federal spending remains well over 25 percent of GDP and in some years creeps closer to 28 percent of GDP under the Obama budget, which ironically enough is entitled "A New Era of Responsibility."

We are closing in on stagnant Western European levels of government intrusion into the economy. That economic model, by the way, which the left in the United States openly wants to emulate, has created half the jobs that the United States has over the past two decades and generated half the growth rates. Is it any wonder that the Chinese want an extra guarantee on U.S. Treasury debt and say it might be time for a new reserve currency?

I have never been a fear monger when it comes to deficits and debt. If the economy grows faster than the debt, as occurred in the 1980s and 1990s then the nation's burden of financing government borrowing becomes smaller over time. Incurring debt is legitimate, moreover, if the borrowing is paying for future prosperity. The 1980s deficits were probably one of the highest-return investments in American history. We bought a victory over the Evil Empire in the Cold War and borrowed to finance reductions in tax rates that launched America's greatest ever period of wealth and prosperity: 1982-2007. The national debt grew by about $6 trillion while U.S. net wealth grew by $40 trillion. A pretty good trade.

This debt we are now incurring is paying for windmills, unemployment benefits, new cars for federal employees, weatherizing homes, high-speed trains to nowhere, and the like. It buys almost nothing of long-term economic benefit. Most of the money that has been borrowed since September 2008 has been used to bail out irresponsible borrowers, failed financial institutions and car companies, and for expansions of welfare programs. The three biggest areas of government expenditure increases sought by the Obama budget are education, energy, and health care. Any unbiased assessment of the return on investment--to use an Obama term--for these programs would find dismally low payoffs for taxpayers. Government programs are the only things in the world that when they yield failing results, we reward them with more money.

Some five years ago Tom -Daschle and many other leading liberals cursed George W. Bush as "the most fiscally irresponsible president in history." He may have been. But he isn't anymore.

Stephen Moore is senior economics writer for the Wall Street Journal editorial page and coauthor of The End of Prosperity.