Friday, January 9, 2009

I Have a Fiscal Dream

Genesis, Chapter 41, tells the story of Joseph and Pharaoh’s dream. In his dream, seven fat cows emerged from the Nile River which were eaten by seven gaunt cows that later came up out of the Nile. Then Pharaoh woke up.

Pharaoh sent for Joseph, then in jail, to interpret his dream. Joseph told Pharaoh that Egypt would enjoy seven years of bountiful harvests, followed by seven years of famine. The solution? Pharaoh appointed Joseph to oversee the collection of a portion of the grain during the seven years of abundance to be held in reserve for the seven years of famine. And so it was done.

Fast forward several millenniums. Joseph advised Clinton to run budget surpluses in his second term, which were years of abundance. During fiscal years 1998-2001 the budget was consecutively in surplus $69.3 billion, $125.6 billion, $236.2 billion, and $128.2 billion, a total of $559.3 billion (Economic Report of the President, Table B-78).

Federal deficits resumed immediately in the first Bush administration. A portion was due to the Iraq and Afghanistan military operations, but most was due to a combination of higher domestic spending and revenue cuts. For the eight fiscal years overlapping two Bush terms, cumulative deficits will exceed $3 trillion. Four fat cows were barely an appetizer for eight gaunt cows.

As if that were not bad enough, there is no grain (money) stored in the government’s granaries (vaults) to offset any of these deficits. Rather, the new debt will have to be underwritten with much larger borrowing from the private granaries of Americans and foreigners. Sadly, one day this debt will have to be repaid. The upshot will be higher taxes and lower living standards.

Unless, that is, President Obama can find a better interpreter of dreams.


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