Original Source:  Campaign For Liberty

President Obama's Budget for FY 2010 - A Continuation of the Bush Era 

President Obama's Budget for fiscal year 2010 (for some reason titled "A New Era of Responsibility") in a nutshell:

- Department of Defense and international expenses (spending on wars and occupations) will go up from $666 billion to $673 billion (under President Bush it grew from $316 billion to $666 billion)

- Other appropriated programs will go up from $613 billion to $695 billion (under President Bush it grew from $298 billion to $613 billion)

- Social Security expenses will go up $662 from billion to $695 billion (under President Bush it grew from $406 billion to $662 billion)

- Medicare expenses will go up from $425 billion to $453 billion (under President Bush it grew from $216 billion to $425 billion)

- Medicaid expenses will go up from $259 billion to $290 billion (under President Bush it grew from $117.9 billion to $259 billion)

- Other mandatory program expenses will drop from $673 billion to $571 billion (under President Bush it grew from $290 billion to $673 billion)

- Net interest will go up from $139 billion to $164 billion (under President Bush it dropped from $222.9 billion to $139 billion)

- Disaster cost will go up from $4 billion to $11 billion (under President Bush it went from $0 billion to $4 billion)

Federal tax receipts will fall to $2.25 trillion in 2009, to $2 trillion in 2010, to $1.75 trillion in 2011, and to $1.5 trillion in 2012.

Meanwhile there is no indication that government expenses will fall. Even with the current, now completely obsolete, budget estimates for government expenses, the Federal deficit would develop as follows:

- $850 billion for 2009
- $1 trillion for 2010
- $1.3 trillion for 2011
- $1.7 trillion for 2012

These are very optimistic figures. It wouldn't be surprising if actual figures turned out to be around double or triple those numbers, unless a true change in policy were to occur.

Now that we have updated figures on coming expenses it's time to update the deficit predictions:

- $1.65 trillion for 2009
- $1.6 trillion for 2010
- $1.95 trillion for 2011
- $2.2 trillion for 2012

If President Obama keeps spending like this, and really wants to cut the deficit in half by 2013, he will at one point be faced with no other choice but to raise taxes on all Americans, rich, middle class, and poor. This is of course nothing new. Taxes have been rising in the US for the past century.

It is certainly disappointing that Obama has now undoubtedly expressed his intention of continuing the irresponsible policies of the Bush era. But it is not really surprising. Obama has alreadypromised us more of the same during his campaign and before taking office. 


The End of Consumerism

In a free society where individuals are allowed to make choices by themselves so long as they don't infringe upon their fellow men's life, health, and property, entrepreneurs use natural resources, transform them and/or combine them with previously produced factors of production, and turn them into either consumer goods or other factors of production. They employ workers in the process who provide the production factor labor.

They exchange consumer goods on the market against money obtained from consumers. They exchange factors of production against money obtained from other entrepreneurs.

Factors of production, once completed at some point in the future, enable entrepreneurs to produce more consumer goods during the same amount of time. But while factors of production are being built, workers and natural resources are being used in processes that don't turn out any consumer goods. It is thus necessary to only employ workers and resources in the production of factors of production to the extent that individuals in society are willing to not consume the full output of their labor, and hence generate savings.

On top of that, it is necessary to maintain the existing stock of productive factors, lest their wear and tear cause a decline in the output of consumer products. Thus a continuous level of savings needs to be maintained by individuals in society.

Interest rates on the market give entrepreneurs an indication of the market participants' time preference, meaning how much immediate consumption people are willing to forgo in exchange for the prospect of more future consumption. In other words, interest rates give an indication as to how much people are ready to save and thus contribute to the maintenance and new developments of factors of production.

If the the government pursues a policy of credit expansion, the interest rate indicator is manipulated by force, as opposed to voluntary individual time preferences. The interest rate drops below the level that represents those actual preferences. Now entrepreneurs think that consumers are ready to sacrifice more immediate consumption than they actually are. Credit becomes cheap. On the other side, consumers think that fewer savings are needed than is actually the case. Savings pay little interest. They begin consuming more and hence save less. The Business Cycle ensues.

This creates a double mismatch, from the consumers' and from the entrepreneurs' end. Entrepreneurs employ more workers in longer term and in riskier projects than they normally would have. The prices of factors of production and thus of the common stock of businesses go up significantly. Fewer consumer goods are produced, more resources are allocated to longer term projects. At the same time those workers consume even more than they have been consuming before and logically save less. Since fewer and fewer savings are available, the maintenance of existing factors of production falls behind. The capital stock in the country becomes less effective, its output drops, capital consumption ensues. Thus prices for consumer products, such as gasoline, houses, food, etc. rise.

At one point they rise to a level that indicates to all market participants that the current allocation of resources is unsustainable. Consumers can't afford to consume goods at current prices. Entrepreneurs realize that they have employed resources in projects that yield goods that are not as demanded as previously existing consumer goods.

Consumers realize that they need to cut down on their lavish consumption and once again begin saving more. Entrepreneurs realize that they have to abandon their current projects and release workers for employment in projects that yield more demanded, simple consumer goods. If the government lets this process occur without any intervention whatsoever, balance is restored quickly, and resources will be employed in more demanded projects once again. If the government tries to do the opposite, and get people to consume and borrow more again, the correction will take a very long time.

This is what is currently happening in the United States. The end of conumerism really means the end of capital consumption. It means that people realize that they need to save more and consume less, so as to provide for economic progress and more efficiency in the future, and to restore balance to the economy as a whole. It means that people have understood that too much of the existing capital stock has been consumed and has deteriorated.

This is the causality that the majority of pundits and economics professors that one can hear talk every evening on the news simply don't understand. All their theories and policies are ignoring this one crucial fact: That Americans are done consuming for the time being. The end of consumerism isn't just a temporary ditch. It is a one in a lifetime occurence. This is why it is so hard to grasp and to accept. But it is very simple to understand when one approaches it with sane common sense. How many more Starbucks branches do we need in the streets of New York? How many more gas guzzling cars should each family posess? Three, four, ten . . . ? How many more different brands of detergents, shampoos, toothpastes, and consumer electronics products do we really need?

It is time to cut back and restore sanity and balance. Individuals have realized this and are doing the right thing. The government has not understood this fact at all. It is trying to keep alive failed businesses that should release resources for more demanded projects. It is trying to make up for the "lack of consumption" in the private sector. All these attempts will fail miserably. All they will accomplish is to slow down the corrective phase and turn it into a decade of agony.

About Nima Mahdjour

Nima Mahdjour maintains the blog,EconomicsJunkie.com. He is also a partner of SWB Consulting and is the founder and CEO ofProjectsCenter.com, which offers an affordable web based project management tool, suitable for small and mid size businesses.