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Cato Dispatch for February 5, 2010

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(Links to outside sources were active as of the date of this dispatch; however, not all news sources maintain links to current stories indefinitely. Some links also may require registration.)

Obama's New Budget and the $1 Trillion Mistake

President Obama sent his budget to Congress this week, with the proposal that the government spend $3.83 trillion in fiscal 2011. The pricetag is $1.1 trillion more than the federal budget nine years ago had promised, a 41-percent forecasting error. Writing in National Review Online Cato scholar Chris Edwards argues, "The lesson from all this is that an administration's promised spending beyond the first year is meaningless. ...It scares the hell out of me that federal spending down the road could be 41 percent higher than even the huge increases projected by Obama."

In the statement released with the budget, President Obama repeatedly blamed the Bush administration for leaving him in a position where he had "no choice" but to send the nation deeper into debt. He blamed "irresponsible risk-taking and debt-fueled speculation—unchecked by sound oversight" for a deep recession that he claimed his administration's massive spending prevented from becoming a depression. But, as Cato Budget Analyst Tad DeHaven notes, Obama can blame Bush all he wants, but his budget is merely an extension of that bad policy:

Not once does the president acknowledge the role the government played in fomenting the recession. Instead, the president promises to move away from "business as usual" even though more spending, deficits, and debt are precisely that: business as usual. In this regard, the Obama administration's first term is looking more like George W. Bush's third term. Bush left the president with a $1.4 trillion deficit in FY2009; the deficit under Obama's first year is set to rise to $1.6 trillion and would still be $1.3 trillion in FY2011.

Obama's 'Small Business Fund' Likely a Bust

President Obama announced this week his intention to use $30 billion in TARP funds to create a new small business lending fund. The fund would offer what CNN calls "super-cheap capital to community banks that boost their small business lending this year."

Mark Calabria, director of financial regulation studies, calls the move "somewhat disingenuous":

The problem facing small business, outside of the massive uncertainty being created by Washington, is one of credit availability, not cost. For those who can get credit, its quite cheap, arguably too cheap. So if the president doesn't intend to lower the cost of credit, the plan must be to lower the quality; using the $30 billion to cover expected credit losses. Of course, we tried throwing lots of taxpayer money at unsustainable homeownership, is there any reason to believe throwing taxpayer money at unsustainable businesses is going to work any better? If the president truly wants to help small business, then the first thing to do is ask Congress to repeal the credit card bill and then just get out of the way.

In a recent Cato Daily Podcast, Calabria explained how Obama plans to use TARP to bail out companies and a regular and perhaps even permanent basis.

Cato Quick Hits

-What we can learn from Hugo Chavez: "The lesson for all of us, north and south of the border, is watch our presidents closely, and check them when they try to slip their constitutional bonds."

-How to tell when the government health care overhaul is dead.

-Globalization: A curse or a cure?

-Why remaining in Afghanistan and creating a stable government there is not a precondition to keeping America safe.

-Looking for a primer on the causes of the financial crisis? The new Cato Policy Report has answers.

Chris Moody, editor, cmoody@cato.org