"The most significant threat to our national security is our debt," Admiral Michael Mullen, Chairman, Joint Chiefs of Staff, August 27,2010


Tuesday, June 29, 2010

Spend, Baby Spend

A few weeks ago, TheFundamentals wrote an essay entitled, “The Debt Report.” It was posted on June 9, 2010 and included an active link to the key document that was the basis for the essay. We repeat the link here:

http://camp.house.gov/webreturn/?url=http://republicans.waysandmeans.house.gov/UploadedFiles/Debt_letter_to_Camp.pdf

The Debt Report was issued by the Department of the Treasury and it is actually done because it is required by US law. At TheFundamentals we would liken this report to any one of several important historical documents that have generally been ignored by politicians, bureaucrats and much of the public until it is too late. We don’t know why people behave that way. Why do people who know that something is wrong; something needs to be corrected; actually even get reports and essays describing the problem and outlining remedial action, still not do anything about it? We don’t know. We do know that history is replete with ignored warnings and postponed corrective action. We also know that individual humans can do the same thing. We let our weight rise or we drink too much and we know there are warning signs and we do nothing. Or, we detect some change in our body and we don’t have it checked out. Or we just don’t feel quite up to our regular selves but we adjust and make do and live with it. It goes on in mundane ways and serious ways. We ignore the warning signs of a troubled child or coworker or friend. We know that something in our home needs maintenance and we let it go. The tires on our car have little tread left; we keep on driving.

There are more serious situations. The debt of this country is at the level of the GDP of the country. This is a warning sign. If that level rises much more there can be “dire consequences.” We apparently don’t think there will be any or we just hope there won’t be any or we don’t care. Best to wait and see what happens. No one has the interest, the will, the discipline to take preemptive action. No one knows how to do anything. To balance the budget; to pay down some of the debt.

The source of the rising debt is a voracious appetite for government spending. You name it; the government of the United States is somewhere, somehow and, most likely, for some time, been spending money on “it.” “It” could be almost anything. We would like to say that “it” was well intentioned and for a good purpose or reason but, at this time, after all this spending and debt accumulation and so little to show for “it”, it is pretty difficult to muster the enthusiasm to describe borrowing and spending for the sake of good intentions to have much of a serious motivation or purpose. Our public revenues are inadequate because we don’t follow our “spend, baby spend” policies with “tax, baby tax” funding. Instead, we “borrow, baby borrow” and we need to borrow from outside our country to meet this “spend, baby spend” mission we are on. That combination is destined for trouble. The early troubles are already upon us; the real troubles are about to be.

America’s previous four congresses – the 107th – 110th oversaw the largest growth in debt in the history of the land. The debt increases dwarfed the levels reached during WW II which were pretty terrific debt increases. What did we get for the debt increases of the years 2000 – 2008? Well, we got a meandering stock market so it wasn’t much impressed. We got a lot of military activity in the Middle Eastern Muslim countries which continues to this day. We got social security increases and lots of government programs and record levels of government employment and the highest per capita costs for health care anywhere in the galaxy. At least the part of the galaxy we can observe. Is it worth it? Is it worth losing everything so that we can “spend, baby spend”?

We now have a new president and his answer to that question is a clear and emphatic, YES. He not only thinks we should “spend, baby spend”, he thinks everyone should “spend, baby spend”. He had the audacity to write a letter to the top 19 economic countries in the world prior to meeting with them over the past weekend and tell them exactly that – “spend, baby spend”. Keep on truckin’. We see the Promised Land. Hallelujah. Not many of the 19 are much impressed with this “spend, baby spend” fellow of ours.

His congress, dominated by very patient “spend, baby spend” experts; the current congress; the 111th congress, which ends late this year or early next year, has spent more money in their not quite two years in power than any congress in the history of the galaxy as defined above. What did we get for that? Well, wars in the Muslim countries, lots of government employees earning substantially more than private sector employees and a crappy stock market, no interest earnings on our CD’s and money market accounts and big funding for the Transportation Security Administration to examine your private parts as you go to visit Grandma. Oh, we also have more lawyers per capita than anywhere else.  Now this is progress we can measure.

To be fair, we are getting many other goodies. We are well liked around the globe now because we are treating the world with respect and we have a really good plans for our Muslim country adventures and a lot more people are about to get health insurance but your taxes may go up but, so what, we are no longer on the path of destruction that the congress and past president led us on for the prior eight years. You are getting a lot of jobs according to the president and exports are going to double in five years and we are going to deal with deficits soon. That’s what the "spend, baby spend" experts are saying so it must be true.

But, somewhere in the back of the brain there is this feeling that it is kinda like driving that car with bald tires, no oil change for 7800 miles and a squeaking fan belt under the hood. Drive, baby drive. Us fundamentals folk call this, “Whistlin’ past the graveyard.”

One more time. Here is the link to the debt report. Just in case you’re interested:

http://camp.house.gov/webreturn/?url=http://republicans.waysandmeans.house.gov/UploadedFiles/Debt_letter_to_Camp.pdf

It may be of interest to some of you that we are unable to locate this report on the Treasury Department’s website. We’ve picked it up from Congressman Camp’s website. It may be at Treasury’s but a search by its title does not locate it. Why would they not put this report on the front page, the home page, of the website? Next time you attend a meeting with one of your elected officials, and assuming you have read the report, ask the official a question or two about the numbers in the report. Gee, maybe PBS will even do some reports on it. After all, they only get about $400 million in federal funding plus another big chunk from the states.

What does it all mean? “Delusion, baby delusion!”

1 comment:

NDDillon said...

I think it is far more delusional to talk about reducing debt during the current depression. While no one wants to say it. We are in the midst of a depression.

While I have long agreed with the idea that we need to address the growth of the federal and state deficits, such an ideal made sense in times of prosperity. During the warm months heading into the winter, it would have been wise to gather food for the long winter. Unfortunately, we are in the winter.

In my job, I am acutely aware of how business activity is progressing. There is no evidence of growth let alone significant growth. We are suffering an alarming level of unemployment. Some pundits are discussing a systemic rate of 8.0% unemployment. There is zero evidence that the private sector is willing to invest money in the current emergency. If government were to shed programs, the impact on the deficit would likely be to see it rise. The most significant expenditures are the military, social security and medicare. The states have to fund pensions and medicaid. There is no quick fix in cutting those programs. We are at war, so reducing military spending is not a real option. Any cuts in social security could only be made in the long run. No one currently receiving payments will see a reduction. Reducing spending on health care for the old and indigent will result in more unfunded costs for medical providers and hospitals. State pensions are contractual matters. Similar to social security, any change will only bear fruit decades down the line.

The only other way to cut the deficit is to raise taxes. Placing an additional burden on taxpayers is not going to create jobs.

It is difficult to imagine that anyone seriously argues that cutting taxes will increase revenues. Even in good (great) times,studies have shown that the idea of cutting taxes does not increase revenue to the state. Even if the idea worked in times of a robust economy, tax cuts would not increase investment. There is far too much uncertainty in the economy.

It seems as if the Fundamentalist invites a redux of the policies of the late 1930's in which the government turns to fiscal conservativism and causes the economy to spiral into greater difficulty.

There is a time to tame the deficit, but it is not now. Moreover, I highly doubt that there is no willingness on the part of Americans to sacrifice. For instance, are you willing to give up your social security payments now or in future for the good of the young?