Pay As You Go - A Blue Dog in Sheep's Clothing

Yesterday Obama and the Blue Dog Democrats came out in support of “Pay As You Go” legislation. The idea is to force Congress to live within their means. That is, only spend as much money as what is collected. To a fiscal conservative, like me, this sounded like a good idea. Then I started looking at the details and I realized that Obama and the Blue Dog Democrats are only changing their outward appearance. Like a wolf in sheep’s clothing. They are trying to appear like they are fiscally conservative, but underneath they are still big spenders.
The problem is, Pay As You Go plan has exceptions. These exceptions are Medicare, Medicaid, Social Security and Obama’s proposed healthcare plan. These programs combine to be a majority of the federal budget (see my 5/29/09 blog). It is like you saying you are going to create a household budget where you only spend what you earn every month, except for things like groceries, cars,and housing. Those items are not part of the budget, but everything else is. How successful would you expect to be on reducing your debt using this sort of household budget?
Obama also mentioned that Pay As You Go was in place during the Clinton years when we didn’t have a deficit (we ran a surplus). Two things are worth mentioning about this statement. First,government accounting is cash flow only. Thus when it comes to defining a surplus or a deficit, the calculation is strictly based on cash flow. Say you buy a new diamond ring with no payments until next year. On a cash flow basis, this will not be accounted for until next year. Thus, it does not affect this year’s deficit or surplus. Business’s are not allowed to use this type of accounting. As soon as they make a purchase, it shows up as a liability. Had government used the same accounting practices as private business, Clinton wouldn’t have had a surplus. The second point is the Clinton surplus was largely due to prosperous economic times that resulted in large tax revenues. Why was the economy doing so well during the Clinton years? Just like Obama inherited a bad economy from Bush, Clinton inherited a strong economy created by Reagan.