Naturally, Obama blames the need for such deficits on the Bush Administration. Obama did indeed inherit a deficit, though as a senator in a Democratic-controlled Congress, he voted with a majority of other Democrats for legislation that created the deficit, such as TARP. As President, however, Obama has only worsened the deficit situation, presiding over a $1.4 trillion deficit in 2010, now proposing a $1.56 trillion deficit for 2011, and projecting future deficits for the rest of his term.

There is also a great deal of grandstanding about the budget’s “freeze” on some discretionary programs. This proposal, which applies to only 17% of the budget for three years, conveniently occurs after large increases in appropriations to discretionary programs. Despite the fact that it will have a negligible effect on the projected deficits of the United States, Obama is peddling the gesture as evidence of his commitment to fiscal responsibility.

This budget is based on the mistaken economic theory that government expenditures – in this case, deficit-financed expenditures – have a beneficial macroeconomic effect by increasing “aggregate demand,” and thus output. Government spending, however, must be financed by taxes and borrowing, which undermines the net effect of any expenditure. For every dollar of spending, the government confiscates one dollar from the private sector, canceling out any supposed benefits.

Taxes and borrowing also distort the economic activity upon which they are levied, leading to microeconomic inefficiencies in the markets. This “efficiency cost” reduces economic activity, ultimately decreasing the economy’s output and the government’s tax revenues. To increase output and tax revenue simultaneously, the government should implement policies that promote economic activity, particularly supply-side incentives.

Obama’s 2011 budget is oblivious to the abject failure of the government’s stimulus efforts, and is a grave threat to future generations of Americans. Fortunately, for all their power, politicians cannot repeal the laws of economics.