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Responding to the Obama State

By now almost everyone agrees the numbers are staggering. Since Barack Obama took his oath of office around 11 weeks ago, he has proposed a $3.6 trillion budget, which will create a deficit this year of almost $1.8 trillion. This amounts to 12.3 percent of the GDP, up from 3.2 percent in 2008 and 1.2 percent in 2007. The President’s budget was submitted in conjunction with a $410 billion omnibus spending bill, complete with some 8,500 earmarks. This legislation, in turn, came in the aftermath of a $787 billion stimulus package.

On top of this almost $5 trillion figure we need to add the $250 billion the Obama administration has already signaled is likely to be needed for the second installment of the Troubled Asset Relief Program (TARP). More is sure to follow. Obama has also established a 10-year fund for health care which will cost more than $630 billion. Because of Obama’s plans, we will need to borrow anywhere from $3 — $4 trillion over the next three years and, based on the Congressional Budget Office’s figures, the President will add around $9.3 trillion to our debt from 2009 to 2019. To put it another way: Obama will double the national debt in five years and nearly triple the national debt in ten years. And for good measure, the President wants to impose a tax increase of well over a trillion dollars over 10 years.

Enormous economic and political consequences are likely to flow from Obama’s actions.

On the economic front, it’s quite likely that the combination of massive deficits, higher marginal tax rates, and a much larger role by the public sector in the economy (especially in health care and energy, if Obama gets his way) will be injurious: penalizing and discouraging the investor class and the creation of small businesses; hampering innovation; increasing dependency on the state; and piling up an unprecedented debt burden. The government will need to print vast sums of money in order to finance our debt, generating a huge increase in the money supply, making high inflation and interest rates a real possibility. President Obama is pursuing policies that have historically led to distortions and disruptions in the economy, the subsidization of programs and industries that are inefficient, and severing the link between reward and effort.

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