The Troubling Numbers in the Obama Budget

I think the key item Galston brings up is that in the past much Federal spending contributed to infrastructure improves – these provided a real multiplier impact. Spending on consumption.. not at all.
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When he was governor of New York, Mario Cuomo famously remarked that “You campaign in poetry; you govern in prose.” To which he might well have added, “And you budget in numbers.” Although President Obama’s fiscal 2015 budget is professedly aspirational, its numbers reveal—as its prose does not—the path on which our country is now embarked. Americans of every persuasion should ask themselves whether this is the path they want.

In the decade between 2014 and 2024, if the president’s budget became law, spending for defense and nondefense “discretionary” programs—the outlays subject to annual appropriations—would barely budge. By contrast, Social Security spending would rise by $644 billion, Medicare by $350 billion, and Medicaid by $243 billion. During that same period, interest on the government’s debt would nearly quadruple to $812 billion, from $223 billion, becoming the third-largest line item in the budget.

Corrected for inflation, the differences are even more dramatic. While discretionary spending would fall by more than 20%, Social Security, Medicare, and Medicaid would increase by more than 20%, and debt payments would nearly triple.

Here’s the third, perhaps most revealing, view of what’s happening. The president’s budget projects that federal spending in 2014 will be 21.5% of GDP, not much different from today’s share. But the composition of that spending changes radically. In the fiscal year ending October 2013, in the aggregate we spent 10.8% of gross domestic product on Social Security, Medicare, Medicaid and interest payments combined. By 2024, that total would rise to 13.5%. In contrast, we spent 3.8% of GDP on defense in 2013, with that spending projected to drop to 2.3% in 2024. Meanwhile, nondefense discretionary spending would fall to 2.2%, from 3.2%. Even with these reductions, the debt stabilizes as a share of GDP only because revenues rise by 2.6 percentage points of GDP over the next decade.

This trajectory is not peculiar to Mr. Obama’s budget. The Congressional Budget Office’s baseline projections, which reflect current policy, show a very similar pattern over the next decade. Even if the president’s proposals were accepted in full, they would change the country’s path only marginally.

So what? Maybe that trajectory is right for us, or at least better than the feasible alternatives. I doubt it, and here’s one big reason why. As many analysts (including the president’s own representatives) have pointed out, discretionary spending is slated to fall to its lowest share of GDP in more than half a century. If that were to happen, we would put at risk both national security and the economy.

Early signs of these problems are already emerging. Given the realities of personnel costs in the all-volunteer armed forces, tough budget targets can be met only by reducing troop levels significantly. Given the importance of cutting-edge technology to the military, qualitative superiority can be maintained only by reducing the number of weapons systems procured.

Worse, local considerations and the quest for short-term political advantage give members of Congress perverse incentives to resist the least-damaging cuts, such as closing redundant military bases. Defense Secretary Chuck Hagel’s recent force-reduction proposals are the harbinger of even deeper and less popular cuts in the future. Forget about the two-war doctrine. The question a decade hence is whether we’ll be able to wage even one.

As for the president’s 2015 budget provisions for investment, the fine print tells the story. The document trumpets Mr. Obama’s commitment to research and development, but the numbers don’t back it up. Corrected for inflation, overall spending for R&D is flat, while funding for basic research actually declines by 2%.

That last figure is especially troubling because basic research doesn’t lend itself to being precisely targeted: By definition, we don’t know where the next big breakthrough in medicine, information, energy or other sectors will occur. We might get lucky, of course. But history suggests that if we want to increase the pace of path-breaking innovation, boosting the overall level of investment is essential. And history confirms what economic theory predicts. Without vigorous public participation, the private market will not produce an adequate amount of basic research—especially in a hypercompetitive global market.

Short-term thinking in the service of political advantage is hardly a new phenomenon. In the past, however, the U.S. has been able to balance such thinking with programs that helped build a better future for everyone—the long list includes land-grant colleges, interstate highways and the postwar explosion of publicly funded scientific research that has transformed the world.

If we want to move from today’s slow growth and wage stagnation to a path of vigorous growth and job creation, there’s no choice. We must embark on a new generation of public investment that responds not to the demands of today but to the needs of tomorrow. The challenge is stark. If we cannot summon the will to mobilize new resources for investment, we condemn ourselves to decline at home and abroad.

William A. Galston: The Troubling Numbers in the Obama Budget – WSJ.com.

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