Creative Commons

If the national debt was divided evenly among everyone in the U.S., we could each buy a new SUV -- a nice SUV -- instead of paying the money back. And in recent years, that's just what the national government has decided to do.

To rectify the $12 trillion damage that two wars, skyrocketing healthcare costs and a boatload of bailouts have caused the budget, last week President Obama proposed a "freeze" on non-defense discretionary spending for the next three years, and he left all of Washington grumbling in his wake.

Liberals say cutting spending on public programs in a time when people are already hurting could end in an even greater disaster. And besides, what's with not including defense spending? It's a hefty chunk ($738 billion) of next year's proposed $3.69 trillion budget, and certainly the Pentagon is no stranger to pork.

Conservatives, on the other hand, say it's entitlement spending -- Social Security, Medicare and Medicaid -- that's dragging us down.

And looking at the budget the Obama administration released this week, it's pretty clear that the freeze is more of a chill, and a small one at that. The FDA, for example, could grow by more than 23 percent if the proposal is approved.

Granted, according to the Obama definition of "freeze," increases in some programs can be offset by savings in others. So that extra layer of food and drug safety will only cost us some unemployment insurance, veterans' benefits and family support programs. Sure, that's bound to go over well.

The idea was to rein in the deficit and, in keeping with our national affinity for "belt-tightening" in tough times, usher in a new era of fiscal responsibility. But as a nation, we've long avoided tightening our belts in favor of just buying new pants, and now some economists think only a massive resuscitation effort can stabilize the economy.

Bill Frenzel represented Minnesota's third district from 1971 to 1991 in the House of Representatives as a republican, where he served on the House Budget and Ways and Means committees. He's been an economic policy expert at the Brookings Institute in Washington since then.

I called him to find out what the proposed "freeze" really means, and what the president could try instead.

OK: Will the freeze go forward?

BF: In my judgement, it's quite unlikely that congress will agree to that freeze because the freeze is where Congress lives. It's the earmarks, the ramps, the bridges, the highways, the public buildings named after them. Congress won't give them much of that. [Obama] won't have the weapon of the veto, because they'll roll all the earmarks into one continuing resolution.

OK: What would the consequences be if the freeze didn't pass and discretionary spending levels stayed at 2010 levels?

BF: They would be miniscule. The Obama phrase "freeze" actually only means $20 billion in FY2011 - it would only apply to about 13 percent of the budget. I don't think the freeze is meaningful except that it means the president and his advisors understand that there is a problem out there. At least he has made a small step forward.

OK: If other areas are being cut, why should defense be categorically spared?

BF: I think he may be anticipating the Congress on that one and deciding that he probably can't freeze defense. We always have to take care of the boys -- and girls -- in blue and khaki -- and whatever else they wear now. If we don't do our best for them, we're not keeping faith with the sacrifices they're making. It would be hard for him to ask for a freeze on military after he's decided to ask for 30,000 more troops in Afghanistan.

OK: What could Obama do instead of a spending freeze?

BF: You can't peck away at the deficit. Freezes aren't going to help. You can't do either cutting spending or raising taxes -- you have to do both, and have to have a good economy.

What I think he should have done is get on the bandwagon for that statutory deficit commission, which was defeated in the Senate -- if he would have gotten on that a little earlier, the commission could have put together a package that really made sense.

The president may have appointed a presidential deficit commission, but those traditionally have not worked at all.

I served on three commissions for Bush 43, and as soon as they're reported, the interests find spots they don't like. Once you start picking them apart, you change a tax deduction to a tax credit, and the real estate people and the economists beat each other to death.

The secret is that the [commission's recommendations] shouldn't be amendable. 

OK: So what can Obama do at this point?

BF: He could ask them to redo a statutory commission. He has some trouble there because more Republicans voted against it than Democrats, and they're probably pretty hard to persuade. And some of the good old-fashioned lib-dems don't want to see programs reduced.

He has to try to sustain the freeze that he recommended and start working on a real budget for next year that presents real choices to the Congress rather than touch football stuff.

He might want to ad the military to the freeze -- that would more than double it and start to make it a little interesting.

And instead of the freeze, you might start some zero-based budgeting that might clean out some programs, even if they may be worthy programs.

He's got to work with Republicans as well, saying, "as a consequence of cutting these programs, I'm going to put in this little tax increase."

He's obviously a really talented person, just bristling with energy and brain power. He needs to sit down and figure out how to work with both parties in Congress and both parties to really have a fiscal program that works.

OK: What are we facing if spending continues to increase, or if Congress won't work with Obama?

BF: If you take this budget, he gets us up to 70 percent [debt to GDP ratio] over 10 years -- and that's optimistic.

There are countries operating with that ratio, but they're not ones we'd like to emulate -- Spain, Greece, and the like -- countries that have a real difficulty selling their debt.

Chinese investors might withdraw their dollar debt holdings and buy euros or yen, and once that happens, then we have to loan money to ourselves, interest rates go up and inflation follows.

Before World War II, the Germans had terrible inflation. They were taking their money to the butcher shop in wheelbarrows, and out of that dissatisfaction the Nazi movement was founded.

I don't know when we become the Weimar Republic, but it is not inconceivable that the U.S. could default.

That's why we have to get going now. If we wait eight more years to make those adjustments, they'll be really painful.