Bailout Fever Poses Problems for the Baseline

by Sal on January 13, 2009

in Economy,Politics

A common element of proponents of the current bailout / stimulus fever is the fact that it is required to fix the economy, and temporary.  Thus, the estimated budget deficit of 2009 of $1 Trillion is seen as unfortunate, but necessary.

In an editorial at Bloomberg, Kevin Hassett of the American Enterprise Institute points out how this year’s bailout fever, with TARP, the stimulus, and other such programs, will lead to massive spending in years to come because of the principle of Baseline Budgeting (AOR has posted previously on the concept of baseline budgeting).  Says Hassett:

Each year, Congress passed pork-laden expenditure bills, which became part of the long-run baseline the minute they became law. Each time that the federal government wasted a billion dollars, it created budget space to waste $1 billion again and again, ad infinitum.

That’s perhaps the scariest fact about next year’s budget. The skyrocketing spending of 2009 will be the CBO baseline for every year after that. It will be easy to provide health care to everyone; the budget space will be blocked out. Indeed, Congress can spend with impunity in years to come, covered by the protective shroud of the CBO baseline that this year delivers.

Hassett goes on to point to two resulting scenarios, the collapse of the dollar or significantly higher income tax rates, neither of which are particularly good.

H/T: Jonah Goldberg at The Corner

{ 1 trackback }

Bailout, Part II | Axis of Right
January 16, 2009 at 12:31 pm

{ 0 comments… add one now }

Leave a Comment

You can use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Previous post:

Next post: