President Obama’s fiscal year 2010 budget released last Thursday is a reckless attempt to plot a new course of government dependency for America. The title of his budget is “A New Era of Responsibility". This is an attempt to obscure the budget’s weakness rather than to highlight its strength. Liberal policies are not known to cultivate personal responsibility but rather attempt to reassure their constituents with financial security. Their message is roughly, if you fail you will not suffer. It is the message of conservatives that one should be responsible for one’s actions through and through. So with a budget that is the greatest expansion of government in over seventy years, it seems out of place that it would brand itself one of responsibility instead of security. The title is thus not one of truth in labeling; it is playing defense against an expected response. This is not only a budget that feeds an irresponsible government. It is a budget that cultivates an irresponsible nation.

While there is much to disagree with on the budget specifics, let’s look at what the President says in his opening message:

This crisis is neither the result of a normal turn of the business cycle nor an accident of history. We arrived at this point as a result of an era of profound irresponsibility that engulfed both private and public institutions from some of our largest companies’ executive suites to the seats of power in Washington, D.C. For decades, too many on Wall Street threw caution to the wind, chased profits with blind optimism and little regard for serious risks—and with even less regard for the public good. Lenders made loans without concern for whether borrowers could repay them. Inadequately informed of the risks and overwhelmed by fine print, many borrowers took on debt they could not really afford. And those in authority turned a blind eye to this risk-taking; they forgot that markets work best when there is transparency and accountability and when the rules of the road are both fair and vigorously enforced. For years, a lack of transparency created a situation in which serious economic dangers were visible to all too few.

First, let us make a distinction between being foolish and being irresponsible. Being foolish is making decisions that turn out badly because the fool chose unwisely or did not adequately assess the risks. Being irresponsible is not being accountable and fully absorbing the outcome of one’s decisions, or making foolish decisions because one is not accountable. The foolish hurts himself. The irresponsible hurts others. In a world where we take personal responsibiilty for our actions, no one is irresponsible, only foolish.

In Obama’s account of what happened, he blames the crisis on “private and public institutions", including “some of our largest companies’ executive suites” and “the seats of power in Washington, D.C."; “Wall Street"; lenders “without concern"; and “inadequately informed” and “overwhelmed” borrowers. Let’s examine. Wall Street acted foolishly, no doubt, by buying subprime debt from mortgage issuers. But it was not, at first, irresponsible: when the bad loans surfaced, Wall Street banks and their investors lost hundreds of billions of dollars. Only when the federal government stepped in with TARP and promised to buy the debt from them did Wall Street become not responsible. But as there was no precedent for TARP, that is not a willful irresponsibility, only a de facto lack of responsibility for the loans.

Mortgage lenders and borrowers, on the other hand, were both foolish and irresponsible. They were foolish to enter into loan agreements with loan amounts or terms that were risky given the unsustainability of low interest rates and the rise of home prices. The borrowers were irresponsible to the extent that they falsified income, asset, and liability statements and incurred unknown risks to the lenders. The lenders were irresponsible to the extent that they were complicit in this activity and passed these loans to Wall Street bankers (who repackaged them).

Now that we see who were the irresponsible agents of the current crisis, let us ask: Are the policies of this administration, as embodied in this budget, conducive to more or less responsibility than the previous “era"? Reviewing the active ingredients in the Obama medicine, we see that they will, in fact, induce less:

• Bank bailouts. The $700 billion TARP program passed by the Bush administration and continued under the Obama administration, along with further planned buyouts of bad loans and failing banks, give Wall Street a pass when they could have been held accountable for their foolish behavior.
• Mortgage renegotiation. Obama’s $275 billion program that assists lenders and borrowers by rewriting loans favorable to both (at the expense of the taxpayer) are a moral hazard that takes away disincentives for future borrowers and lenders to embark on risky loans.
• Home buyers tax credit. Expanding the one-time home buyers tax credit, from $7,500 to $8,000, means more people buying homes that they can not afford.
• Mortgage guarantees. The Bush administration made the mortgage loan guarantees of Fannie Mae (FNMA) and Freddie Mac (FHLMC) explicit. The Obama administration shows no sign of reversing this. For such mortgage loans, all players involved can act irresponsibly since the government is the guarantor. This is the mother of all moral hazards.
• Low interest rates. Though not part of the budget or directly controlled by the administration, the White House speaks very favorably of the easy money monetary policy currently followed by the Federal Reserve. Low interest rates encourage risky borrowing and discourage even risk-free lending. As a major, if not primary, cause of the current crisis, they are an irresponsible policy.

If the government is advancing or maintaining policies that encourage irresponsible behavior in banks, lenders, and borrowers, who becomes responsible? The taxpayer. In one sense this means that this really is a new era of responsibility: instead of each individual being responsible for their actions, taxpayers hold responsibility for everyone else. We stil have responsibility, it is just shifted.

A truly new era of responsibility would be characterized by homeowners who paid what they promised, consumers who lived within their means, businesses which paid their own way, and governments that did not try to obstruct all of these. A new era of irresponsibiity would be characterized by what President Obama has set forth in his policies and his budget.