Pretense of Fiscal Responsibility

The Washington Post reported that “President Obama plans to convene his Cabinet for the first time today, and he will order its members to identify a combined $100 million in budget cuts over the next 90 days”.  It should be recalled that these cuts are being sought in the context of a $3.5 trillion federal budget.

Greg Mankiw clarified exactly what that represents in his blog post “Fiscal Responsibility”:

“Just to be clear: $100 million represents .003 percent of $3.5 trillion.

To put those numbers in perspective, imagine that the head of a household with annual spending of $100,000 called everyone in the family together to deal with a $34,000 budget shortfall. How much would he or she announce that spending had be cut? By $3 over the course of the year–approximately the cost of one latte at Starbucks. The other $33,997? We can put that on the family credit card and worry about it next year.”

One has to wonder at the showmanship of such a gesture at a time when federal budgets, deficits and debts are growing so dramatically.  While any effort to cut down on waste is clearly welcome, setting the bar so very low on reduction of waste as a percentage of overall spending, can hardly be considered a serious or credible effort toward fiscal responsibility.

What is perhaps more interesting in Mankiw’s analogy is how clearly it points out what a truly staggering sum $3.5 trillion in spending really is.  I still  think of $100 million as a lot of money. But in comparison to the money being thrown around casually by our government lately, it isn’t even close to a meaningful rounding error.

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1 Comment

Filed under Economic Policy

One response to “Pretense of Fiscal Responsibility

  1. Michael Barrow

    We’re back to the message of one of your recent posts. Until the “big boys” are forced to take their medicine with real, honest-to-goodness restructuring of insolvent entities, we’re in for a really long haul of economic malaise, and the longer our federal government has to make up the difference, the more pathetic the analogy numbers will become. Obama is still disappointing me, dancing around the real areas that need leadership and bold political energy. He hasn’t made a hard decision yet. How sad for us.

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