A Simple Lesson in Economics

Posted: Apr 20, 2009 3:42 PM
Today, President Obama made his best attempt to date at espousing fiscal responsibility by requesting that his Cabinet secretaries cut $100 million total – that’s government-wide – from their respective agencies. While $100 million is by no means a small number in and of itself, when considering it in relation to President Obama's $3.5 trillion budget outline for 2010 passed by both Chambers of Congress, that number represents a cut of just 0.003%.

While it's certainly a laudable move, it's akin to shooting a giant hole in the side of a cruise ship and then bailing the sinking ship out with a dixie cup. Moreover, trimming millions of dollars means absolutely nothing if Congress and the President continue to add billions to the national debt.

Greg Mankiw, Harvard University professor of economics, broke it down this way:

“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.”

What’s more, according to Associated Press reports,

“Even among budget cuts cited in a newly released White House summary, a considerable proportion of the savings would occur over a period of years.”

When you hear the President talk about cuts to spending and fiscal responsibility, always remember to examine the long-term picture. Saving money today means nothing if your future plans and goals require spending more than you have. It's that simple, and I’m pretty sure the American people understand the difference between real cuts and political sleight of hand.