Washington budget only exists in fantasyland 

‘Blue smoke and mirrors” is a particularly apt phrase to describe the way Washington politicians in both major parties create annual budgets. “Rosy scenario” is another. Call it what you will, healthy public policy cannot be based on fantasy foundations.

To be sure, multiple assumptions about future economic and fiscal conditions must be made in constructing a forward-looking budget, but in doing so many opportunities are created for public policy mischief. Since professional politicians are at the helm, said mischief is almost always in the direction of creating a misleadingly positive outlook about the future as a tool for gaining support for more spending and debt in the present. Consider President Barack Obama’s 2012 federal budget proposal in this context.

Rosy scenario certainly applies to the Obama budget’s assumptions about economic growth, unemployment, and inflation between now and 2013. The president’s proposal assumes real gross domestic product growth of 3.1 percent this year, four percent next year and 4.5 percent the year after.

To grasp the unreality of that projection, recall that in only four of the past 30 years  has the economy grown four percent or more. Two of those years, 1983 (4.52 percent) and 1984 (7.19 percent), were at the outset of the economic boom sparked by President Ronald Reagan’s tax cuts. The other two years, 1997 (4.46 percent) and 1999 (4.83 percent), both followed on compromises between President Bill Clinton and Republican congressional majorities that restrained federal spending and debt and cut taxes. White House assertions to the contrary notwithstanding, the proposed Obama budget raises taxes, adds more debt and hikes federal spending.

In other words, the chief executive and his economic policymakers are assuming the most positive possible rate of economic growth for the next three years. Their optimism is also seen in their inflation projection of 1.3 percent this year, 1.8 percent in 2012 and 1.9 percent in 2013. Ditto on Obama’s assumption that unemployment will dip from 9.3 percent this year to 8.6 percent next year and 7.5 percent the following year.

Thanks to the president’s energy policies, the inflation assumption may be the most tenuous. Drilling in the Gulf of Mexico, which accounts for about a third of the country’s natural gas and oil, has been all but shut down since the Deepwater Horizon disaster. That means more foreign oil coming to America and billions more of dollars going to OPEC.

Then there is Lisa Jackson, Obama’s Environment Protection Agency administrator, who is moving forward with a regulatory version of the cap-and-trade program rejected last year by Congress. Far more jobs would be lost in the energy sector than would be created, according to the Congressional Budget Office.

Add in the $60 billion in new oil and gas taxes and fees proposed by the president and the scene is set: Just as Obama promised during the 2008 presidential campaign, energy costs will “necessarily skyrocket.” Unemployment will remain high, too, and economic growth will be sluggish at best, leaving Obama’s economic projections behind as a bad joke.

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