US: fiscal mess

Congress this week will begin debating President George Bush's proposed 3.1 trillion dollar budget for the 2009 fiscal year; and Democrats and Republicans will seek to outdo each other with grandiose pronouncements of fiscal prudence. But absolutely no one -- even the most credulous media and party hacks -- believes them.  During election years, the nation's elected representatives are famously generous with cash.

Bush has led the rhetorical charge in favour of fiscal belt-tightening.  His budget seeks major curbs on Medicare and Medicaid spending -- the increasingly expensive government healthcare programmes for the elderly and poor -- and major cuts in funding at the Department of Education.  He claims that these measures will put the nation on track towards a balanced budget by 2012.

Yet the president's reputation as a 'big government conservative' is well earned.  He has proposed a massive increase in defence spending (pushing the Pentagon's budget above half a trillion dollars), and intends to retain both the huge increase in the Medicare prescription drug benefit that he helped enact and his tax cuts.  Even the White House expects the fiscal year 2009 deficit to surpass 400 billion dollars.  That is probably an underestimate.

One of the Democratic party's main campaign promises, prior to its recapture of majority control in Congress in the November 2006 election, was to restore spending discipline.  The party pledged to reinstitute 'pay-go' appropriations rules, which require new spending legislation to be offset by cuts in other programmes or tax rises.  But while the new rules are in place, it has not stopped the party leadership from proposing massive spending increases on social programmes.  The chances that Democrats will enact Bush’s proposed Medicare and Medicaid spending restraints are nil.

Some of this bipartisan fiscal profligacy is due to the forthcoming economic stimulus package, which is intended temporarily to boost outlays and jump-start faltering growth.  But it is mostly attributable to electoral considerations -- nobody wants to halt the gravy train during an election year.  Indeed, the national leadership has become so irresponsible that Moody's recently speculated that US government debt could lose its AAA rating within a decade unless more sober heads prevail.