Election Winner May Welcome Early Exit in 2013: Caroline Baum

Commentary by Caroline Baum

Oct. 24 (Bloomberg) — The 2008 presidential campaign has been notable for many things: its interminable length, its lack of substance and its sheer nastiness, to name just three.

What has been notably absent is a serious discussion of the challenges facing the country — those that pre-date the credit crisis and will be with us long after it abates — and the candidates’ ideas for addressing them.

Did you hear anything pithy about the future of Social Security and Medicare? Neither did I. The moderators of the three presidential debates clearly didn’t think the U.S.’s entitlement programs, which are on automatic pilot and have the potential to bankrupt the country in the 21st century, were worthy of discussion.

The candidates touted green fuels — wind, solar, biomass, geothermal, cellulosic ethanol — until they were blue in the face. They talked about better, more affordable health care that achieves cost savings and belongs to the fuzzy-math school of budgeting. (In the candidates’ defense, my guess is that every health-care initiative has exceeded cost estimates by a long shot.) And they enumerated plans for lots of job-creating new spending while glossing over the issue of how to pay for it.

In short, the 2008 presidential campaign has been short on substance and long on slogans. Call it, Change meets the Mavericks.

Democratic candidate Barack Obama and Republican candidate John McCain have made noises about fiscal responsibility that don’t pass the most basic smell test.

Wrong Rock

Obama has pledged to go through the federal budget “line by line, page by page,” cutting programs that don’t work and making necessary ones work better.

John McCain has promised to balance the budget by the end of his first term and is targeting earmarks, or pork-barrel spending, toward that end.

Both candidates are looking under the wrong rocks. Excluding defense, discretionary spending (those expenditures that go through an annual appropriation process) amounted to 17.5 percent of all federal spending in fiscal 2008, according to the Congressional Budget Office.

Even if Obama used a thick, charcoal pencil, it would be hard to find enough savings in non-defense discretionary spending to change the long-term outlook.

As for John McCain’s jihad on earmarks, “Congress stuffed 11,610 projects into the 12 appropriations bills worth $17.2 billion” in 2008, according to Citizens Against Government Waste, a Washington non-profit organization committed to eliminating inefficiency in federal government. That represents a 337 percent increase from fiscal 2007. It also represents about 0.6 percent of the 2008 budget.

Going Broke

The ticking time bomb for the federal government is entitlement spending: Medicare and Social Security. Social Security’s costs will exceed tax income in 2017, according to the 2008 annual report from the Trustees of the Social Security and Medicare trust funds. By 2041, the “trust funds” — there are no assets compounding in the trust fund — will be exhausted and unable to pay full benefits.

Medicare’s financial status is even worse, according to the Trustees. The Hospital Insurance Fund is already paying out more than it’s taking in on an annual basis. The HI fund will be kaput in 2019.

The 2008 Medicare Report triggered a “funding warning” for the second consecutive year as required by law when Medicare outlays are projected to be 45 percent greater than revenue from payroll taxes and premiums.

Congrats and Regrets

Outside of entitlements, budget trends are nothing to write home about. The federal budget deficit hit a record $455 billion, or 3.2 percent of gross domestic product, in fiscal year 2008. The $250 billion the Treasury will use to buy preferred stock in U.S. banks will be scored as an expenditure in the 2009 budget, according to the White House budget office.

Now that cyclical forces (a recession) are compounding deteriorating secular trends — fewer workers to support a greater number of retirees — one wonders how either candidate is going to be able to do anything more than keep spending, which rose 9.1 percent this year, to single-digit gains.

I feel sorry for whoever wins the presidential election on Nov. 4. He faces a colossal mess. The housing bubble is still deflating, with no end in sight. The unemployment rate is rising, making consumer loans of all descriptions — mortgage, auto, credit card — vulnerable to rising delinquencies.

U.S. banks have already reported writedowns and credit losses of $411 billion ($662 billion worldwide), a financial hole that is certain to grow as more loan categories are affected by recession.

Playing Defense

Neither candidate has offered much of a vision for addressing the credit crunch sinking an economy that was already taking on water.

McCain wants the government to buy $300 billion of home mortgages to help homeowners facing foreclosure, which sounds like an incentive for homeowners who are current on their mortgage payments to find a way to qualify for relief.

Obama wants to give a tax cut to some people who don’t pay any taxes, which sounds like government spending by any other name.

For the next 11 days, the two candidates will regale us with their vision for the future. They will promise, if elected, to work hard each and every day for the American people. They will inspire us with their rhetoric and scare us with distortions about the other guy.

Whether they know it or not, they won’t be fulfilling many of those promises come Jan. 20. The next president of the U.S. will be handcuffed by events and constrained by deficits. He’ll be playing defense. And he won’t have a deep bench to work with.

The only bright spot is the prospect of escape in four years if things get worse before they get better.

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