Obama's $100 million budget cut amounts to a cup of coffee
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One analogy could be in the movie Austin Powers (see video below). Remember when Dr. Evil announced he hijacked nuclear weapons and would destroy the world unless he received -- $1 million?
Rollicking laughter from Earth's leaders ensued because Evil didn't understand that $1 million in today's economy means nothing. So he quickly upped the ransom demand to $100 billion.
Although it is doubtful President Obama will immediately follow suit and announce much larger budget cuts on the way, he may want to. The sum of $100 million does sound paltry when you compare it against the nation's $3.5 trillion budget.
Reporters at yesterday's White House briefing seemed to be perplexed at the grand announcement.
"The $100 million target figure that the President talked about today with the Cabinet, can you explain why it's so small?" asked the AP's Jennifer Loven.
While White House press secretary Robert Gibbs began to tap dance. ABC's Jake Tapper chimed in recalling that the Obama administration ridiculed a figure 80 times larger than that -- $8 billion -- as being chump change when defending earmarks.
"You were talking about an appropriations bill a few weeks ago -- that at $8 billion -- being minuscule; a billion in earmarks. We were talking about that and you said that that a hundred million is a lot, but $8 billion is small?" he asked.
Gibbs then performed Act II in his tap dancing routine.
When you are dealing with millions, billions, and trillions, it is easy for your eyes to glaze over and tune out. But Harvard economist Greg Mankiw attempted to put the $100 million figure in perspective.
"One hundred million dollars represents .003 percent of $3.5 trillion. 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 to 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."
George Mason University economist Don Boudreaux went the coffee route as well.
"To put this budget 'cut' in perspective, suppose that the typical American family, earning $50,000 annually, plans this year to run a budget deficit proportionate to the deficit that Uncle Sam will run," he reasoned. "Such a family would plan to spend $75,000. Now suppose that this family, seeking to signal its faux-commitment to financial prudence, promises spending cuts equal, in proportion to its budget, to the cuts announced today by Mr. Obama. This family would declare -- surely with much fanfare -- that it will reduce its planned expenditures for the year by $2.08! Perhaps it might promise to survive the year with one less gallon of gasoline or with one less cup of coffee."