This Week's Herbert Hoover Award

There comes a time when leaders promising great change are elected, with the unspoken understanding that said leaders will make things stay the same. President Herbert Hoover was an excellent example of such a leader: as the U.S. economy crashed like a lead balloon during the 1929 Depression, he held innumerable (and pointless) meetings to help out the economy, and made vague promises for the return of "permanent prosperity."

In that particular spirit of President Hoover, we present this week's Herbert Hoover Award for wind-baggery and empty posturing. The prestigious award goes to (drumroll):

The President of the United States, Barack Obama

"Paying for what you spend is basic common sense," said the President on Tuesday, as he proposed the so-called "pay-as-you-go" spending policy on Federal outlays. "While short-term spending was necessary to get the economy moving again, our long-term fiscal problems became that much more urgent," commented Rep. Jim Cooper of Tennessee, a Blue Dog Democrat, in favour of this "PAYGO."

According to the CNN article, PAYGO would require that, if spending is to be increased in one part of the Budget, another part must be reduced that same amount. Additionally, if a tax is to be cut, tax revenue must be concurrently increased to offset the cut. The end result, as it seems to us, is intended to achieve a sort of steady-state of the Budget, as well as tax revenues. Some things, however, would be exempt under President Obama's plan, such as: estate and gift taxes, Medicare payments to doctors, and 2001/2002 tax cuts. For an overview of PAYGO, we recommend the Wikipedia article.

Upon pondering the part in the CNN article about taxes, we got a little confused. If tax revenue must be raised in correlation to a tax cut, does that not mean taxes would need to be increased to offset tax cuts? And isn't raising taxes during a Depression a really bad idea?

But leaving that all aside, let's take a hard look at what PAYGO would actually do for paying down the U.S. Government's deficit: absolutely nothing. PAYGO does not seem to have any mechanism that we can discover which would force the U.S. Congress to cease-and-desist on massive deficit spending. The Government simply couldn't increase the deficit beyond what it already is.

Problems arise even there, as it is difficult to discern exactly how big the Federal deficit really is. Is it around $11.3 trillion, as the Treasury Department suggests... or is it the vastly more monstrous $52.7 trillion that former Comptroller of the Currency David Walker revealed (see slide #17) in early 2008?

Even the exact figure is beyond the point, as we cannot seriously entertain the notion that the U.S. Congress would give itself iron-clad spending limits. If PAYGO is made the law of the land, it will do nothing to impede Congress' mad dash towards a quadrillion in debt, and probably beyond. So, we can only conclude that the PAYGO proposal from President Obama is yet another puff of hot air, floating up into the atmosphere and increasing global warming.

Congratulations, Mr. President. We guarantee your trophy will look great on your desk.