In a Box

Posted by By at 22 March, at 14 : 08 PM Print

In many ways, I can “feel” for President Obama; this was by no means the Presidency he wanted when he ran for office. Just like President Bush discovered on that clear blue morning in September a decade ago, more often than not events dictate what choices we have available. Presidencies are not defined by how a President handles a known quantity – they are defined for good or bad based on his leadership (or lack thereof) in the moment of crisis.

President Obama is facing several crisis at once – from rising domestic food and fuel prices to increasing hostility to his signature Obamacare legislation to a brewing world conflagration that could re-define our needs and objectives for us. These are dangerous times for the Administration and the country.

Because of the size and scope of these issues, I am going to tackle them in two parts. This piece focuses on the easier of the two problems (by comparison to each other only, I assure you): the domestic budgetary issues.

But both of these parts will rely on a central underlying fact: over the past 15 months, President Obama has appeared to lack decisive leadership in the moment of crisis, instead displaying a near paralyzing unwillingness to make a necessary decision that might, as a consequence, compromise his ability to fund his priorities. The frustration with the course of events is evident – this is a President who wanted a downsized international presidency in order to spend his (and our) capitol on domestic issues and wants.

But that is not the hand he was dealt. The world is wildly more unstable than when he took office 26 months ago, and – check the record, it’s true – unemployment is over 20% higher than it was on January 20, 2009.

While that trend is improving, it may be short lived. The last month showed the first true flicker of a recovery for the US economy – a faint one that really needs more oxygen to get going (at the current rate of job creation we still will not hit 2007 employment levels for another 10+ years). In the next few weeks, that flicker is going to be overwhelmed by rising gas and food prices. The pressures these two increases will create will hit the middle and lower income levels in a dramatic fashion.

The effect will cascade through all manner of negatives. Two that stand out are potentially devastating: higher gas prices will reduce summer travel and tourism spending and higher food prices will crowd out discretionary spending. These will whack the retail sector, just as it was getting its feet underneath it again.

The impact of rising food and fuel costs on states like Pennsylvania could be even more dramatic because of our tax structure. Every dollar that moves from a discretionary expenditure like entertainment or consumer commodities to food or higher fuel costs reduces state tax revenues. Its obvious – with no tax on food, increased consumer dollars spent there do not fill the state’s coffers, and in fact, deprives the state of the revenue that would have been generated had those dollars been spent at Wal Mart on TVs.

Likewise, with gas taxes based on volume of gas – not percentage of sale price – the amount of tax revenue generated actually declines as prices rise; higher prices means less consumption, which means less gas sold by volume, ergo lower tax revenues.

These are hard facts that only get exponentially worse as food and fuel prices continue to climb. The next pressure will be inflationary, as nothing drives up inflation faster than food prices – literally the last thing anyone cuts from their budget.

The cycle gets more vicious: as inflation rises so will interest rates, making borrowing money an ever more expensive proposition. The increased cost of borrowing will continue to “crowd out” other government spending, both now and into the future.

The pressures we are about to have bearing down on us at all levels – from Federal issues down to each and every one of Pennsylvania’s 501 school districts – are likely to be more severe than any we have experienced in recent memory, if not since the 1930s. Think the 1970s without all the disco fun and swinging.

Now comes the killer: entitlements. Like their name accurately implies, these are benefits to which one is “entitled” as soon as one is eligible. There is no limit on how much these items can consume once the eligibility standards are set – the only way to control costs is to make the eligibility standards more restrictive or benefits less generous. That is it – there is NO other mechanism for cost containment.

Even without Obamacare and its new and attendant costs, entitlements were on pace to crowd out almost all other spending. In Pennsylvania, medical assistance is 22% of the budget and climbing, a number that will explode if Obamacare is allowed to take effect in its current form.

The effect will be to create even more cost pressures at a time when we can ill afford the ones we already have whacking us daily.

The underlying reality for the Obama administration is that the conditions we face are not suited for an expansive view on government expenditures. These so called “investments” have to be weighed against the very real need to do some basic things first.

And that fact – the fact that we simply have too little money and too many needs – is the source of the President’s evident frustration.

This is not, as I stated at the beginning, the Presidency he wanted. It’s the one he got, and he needs to embrace that and make the tough calls, even when they go against his previously stated desires.

The President needs to look at the costs he is asking the states to absorb in the form of Obamacare and other initiatives and accept that the timing simply is not right to try these ideas – we just don’t have the money.

Fundamentally, the President needs to re-assess what the conditions around us will allow and then make tough tradeoffs – decisions his enormously inflated budget prove he avoided.

The time for hollow campaign rhetoric about “hope, “change” and “investments” must be replaced by a pragmatic acceptance of the limits of our resources and the trade offs that necessitates. And, bluntly Mr. President, you need to do it now – not wait tentatively for others to “climb in the boat” with you.

Leadership – and the office – demands nothing less.

More on that tomorrow.


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This post was written by:
- who has written 77 posts for Rock The Capital
Scott Paterno is an accomplished policy analyst and political consultant based in Hershey, PA. Mr. Paterno, never one to sit still, has practiced law, run for a house seat, and worked as lobbyist in Harrisburg and Washington. Paterno is Vice Chairman of the Sustainable Energy Fund and is currently pursuing a master’s degree in Political Science. He is happily married with three children. - Email scottp

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