As the threat of a government shutdown looms in less than thirty-four hours from now, it is important to put the whole impasse in perspective. When confronted by the sheer weight of the country’s budget and budget deficit, a difference of $28 billion is a drop in the bucket.
Putting the Numbers in Perspective
So far, both sides have tentatively agreed to a cut of $33 billion. However, the Republican plan calls for a reduction of $61 billion. Given the state of the economy and the $28 billion gap between the two sides, the Republicans seem like they are overreaching.
However, if one puts these numbers in the context of the overall FY2011 budget and deficit, both sides are fighting over scraps. The President’s 2011 budget is $3.8 trillion with a projected deficit of $1.6 trillion. The Republican’s more aggressive proposal of $61 billion represents a paltry 1.6% cut, while the Democratic proposal is less than 1.0%! Furthermore, the Republican proposal would only reduce the 2011 deficit by 3.7%, while the Democratic proposal would reduce it by 2.0%.
Yet, both sides are willing to shut the government down over a difference that represents just 0.7% of the 2011 budget!
The greater problem is raising more debt to fund the government’s spending binge. One way out of this problem is by printing money. However, the market is already voting with its feet. PIMCO, the world’s largest bond fund, recently sold all its U.S. Treasury holdings on expectations that the Fed will have to make a second round of debt purchases (which is the Fed’s equivalent of printing money).
The bottom line is that the U.S. government is fighting over scraps, while it continues to build up an avanlanche of debt.
What Do Americans Think?
It is still unclear whom most Americans would blame for a government shutdown. An April 5th Gallup poll suggests that 58% of Americans want their elected leaders to compromise on the budget to avert a government shutdown. A recent poll by Pew suggests that 39% of Americans would blame Republicans for a shutdown, while 36% would blame the Obama administration. However, a recent NBC News/Wall Street Journal Survey suggests that 37% of Americans would blame Republicans, but 42% would blame the President, Democrats in Congress, or both.
I find it hard to believe that both sides cannot find an additional 0.7% of the budget to cut. The concept seems ridiculous to me.