Obama's Spending Masquerades As Investment
As every politician knows, if you define spending as "investment" it sounds less extravagant. Take that new car you’ve always wanted. The $40,000 price tag is high. But hey, if it’s an investment in the future, it may last longer and save money on repairs, and so, you tell yourself, maybe it pays for itself.
On Tuesday, in his second formal press conference, an assertive President Obama put forward the same argument with respect to his proposed spending on energy, education, and health care: Higher spending is an “investment” that will pay for itself.
“We invest in the renewable sources of energy that will lead to new jobs, new businesses, and less dependence on foreign oil,” Mr. Obama declared. “We invest in our schools and our teachers, so that our children have the skills they need to compete with any workers in the world. We invest in reform that will bring down the cost of health care for families, businesses, and our government.”
Such “investments,” he argued, will in the long run make the economy operate more efficiently and bring down government spending.
Mr. Obama, as is the wont of presidents, was optimistic about how his policy recommendations, if enacted by Congress, would play out. But the Congressional Budget Office took a more restrained view. It estimated that government spending and the deficit would grow steadily from 2012 through 2019.
After “bottoming out” at $658 billion in 2012—a level more than 40 percent above the highest deficit under the presidency of George W. Bush— CBO projects the deficit to increase to $1.2 trillion in 2019, or 6 percent of GDP. By 2019 government spending would take up nearly a quarter of GDP, far higher than at the peak of Iraq war spending, and the highest, excepting 2009 and 2010, since World War II. And, as the UK government’s failed bond auction showed yesterday, investors are not always ready to finance the debt.
Mr. Obama’s stimulus plan and budget are not one-time investments followed by years of reduced spending. Instead, they form patterns of increased spending that continue into the indefinite future. The vast majority of this spending is not what a well-run business or the Internal Revenue Service would count as investment—plant, equipment, and other tangible assets. Most of the Obama spending would be for services whose lasting value is difficult to measure.
Take energy. Mr. Obama proposes to “invest” in wind, solar power, and other renewables. They now produce about 3 percent of U.S. energy, and, if doubled, no mean achievement, would yield 6 percent. If the president wants to diminish our dependence on foreign oil, the government needs to enlarge use of our conventional sources of energy—domestic oil, nuclear power, or coal.
Unwisely, Mr. Obama does not propose oil production or nuclear power, and his cap-and-trade carbon tax, meant to address global warming concerns, would fall most heavily on coal, which we have in abundance. Until all countries agree to reduce carbon emissions to combat climate change, America is only hurting itself by going it alone, with no reduction in global warming.
In addition, Mr. Obama announced last week in California that he wants to spend—oops, invest—another $2.4 billion in development of plug-in hybrid electric cars. These expensive vehicles have a short range, making them useful only for local driving. Batteries may be prone to catching fire, a safety hazard, and many motorists must park on the street, where charging is impractical. In any case, electricity needed to charge the batteries would come from power plants, reducing energy savings.
Let’s look at health care. It’s true that encouraging or requiring doctors and hospitals to use electronic health records could save billions of dollars a year from avoided medical error. The stimulus bill allocates $20 billion to this effort. But this sum is a small fraction of the president’s “down payment” of $634 billion on a fund for universal health care, so-called because it leaves open the possibility that the number will grow over time.
Mr. Obama in the 2008 campaign spoke of setting up a new health insurance plan, similar to the Federal Employees Health Benefits Program, open to all, with “affordable” premiums and co-payments. The Federal plan is of a higher quality and more costly than typical private-sector coverage. The government’s making it available to the public would bump up federal spending, year after year.
In the campaign, Mr. Obama suggested that employers who don’t offer health insurance to employees would be required to pay into the new plan, a new tax. A new National Health Insurance Exchange would set standards and regulate private insurance underwriters and those who could not meet the standards would close, potentially raising the costs of care and driving people to the new, expensive public plan.
On Tuesday, Mr. Obama said that “this budget is inseparable from recovery, because it lays the foundation for secure and lasting prosperity.” In fact, what it does is lay the foundation for unprecedented levels of peacetime deficits and government spending. That’s not an "investment" that the American people need to make.