A New Political Term: Debt Reduction
I’m officially creating a new political term today: Debt Reduction.
Yeah, I know it’s not original. But we need to start saying it, and meaning it.
The President is calling for a Spending Freeze, in a manner that nearly everybody recognizes as a meaningless facade. Rasmussen’s latest poll indicates that fewer than 10% of Americans believe that the spending freeze called for in the President’s State of the Union address will actually reduce the deficit a significant amount. I don’t think I’ve ever seen a poll showing greater disbelief from the American people on any topic.
But the act of actually calling for the freeze indicates that the President’s focus group watchers know that the people want somehow to reduce these deficits dramatically.
Notice that last phrase: “reduce these deficits.” The Obama administration claims to be pursuing the goal of reducing the deficits to only 3% of Gross Domestic Product by 2015. Is that a suitable goal? Not at all: with the US GDP hovering a bit over $14 trillion, what it means is that when the administration reaches its goal, we’ll only be adding another $420 billion in new debt every year. I’ll repeat that: when Obama reaches the place where he considers the US to be acting responsibly, we will be adding another $420 billion to the national debt — every year.
Meanwhile, the current budget, assuming the President is not being overly optimistic about tax revenues (which we all know he is,) calls for a deficit equal to 10.6% of GDP. Again, let me repeat that: the amount that the government will be spending beyond what the government will receive in revenue is greater than 10% of what the entire nation will produce this year.
Who says spending is out of control?
It’s time to revisit the difference between a deficit and a debt. Because we can’t afford to aim at deficit reduction sometime in the future. If the US economy is to survive as a first world economy, we have to aim for debt reduction, and that right soon.
A deficit occurs when you spend more money than you make in a given year. I earn $50,000 a year (hypothetically): I actually spend $52,000 in that year. Where does the extra $2,000 come from? Well, I put it on a credit card. At the end of the year, I owe the credit card company $2,000. The deficit is $2,000, the debt is also $2,000.
Then I do it again: the next year, I earn $50,000, but spend $52,000. I borrow another $2,000 from the same credit card company. The deficit is $2,000, but now (because I have not paid off the debt from last year) the total debt is $4,000. “Deficit” refers to yearly budget figures; “debt” refers to what we owe overall.
Every year I do this again, I maintain a deficit of $2,000, but my debt keeps getting deeper and deeper. And because we all know from experience that debt is not free, the amount of my $50,000 that I have to spend just to keep the credit card company from hounding me with collection calls keeps getting larger.
This is the current state of the US federal government, the reason why the Chinese are starting to bail on Treasury bills, and why interest rates are starting to climb. I wrote about it back in December, noting that we’re quickly approaching the point where the interest to service the national debt will exceed all discretionary, non-military spending. That’s the built-in, annual deficit. Meanwhile, the Senate has just raised the debt ceiling for the US another $2 trillion, to $14.3 trillion. Our total debt is approaching the nation’s total production, and we’re now adding nearly $2 trillion in new debt every year.
If my hypothetical family had been spending so irresponsibly that I was approaching credit card debt equal to my annual income, the solution would be plain and dramatic: I would need to stop spending immediately, and go into a radical program of debt reduction. I would have to set up a budget on which I was living on considerably less than my $50,000 annual income — making lifestyle choices that made that possible, like cutting out all entertainment expenditures, eating beans and rice instead of steak and shrimp, and patching clothes when they wore out — and aggressively pay down the credit card debt until it reached zero.
To speak of shaving the size of the federal deficit at this moment would be like my hypothetical family agreeing to put only $1,750 dollars onto the credit card this year, instead of $2,000 . (To speak of subsuming 1/7 of the US economy for health care at this moment is like that family trying to purchase a five-million-dollar yacht. It’s criminal.) We do not need to gradually reduce the deficit. We need to dramatically and immediately move to reduce the debt.
This means moving immediately to solve Medicaid, Medicare, Social Security, and federal pensions in such a way as to move all four onto actuarially sound financial footing. This means cutting benefits. Sorry, that’s a fact.
I detested President Clinton for his routine flouting of the law and his narcissism; but the greatest crime of the Clinton administration was not undermining citizens’ legitimate lawsuits, nor was it putting US policy up for sale. His greatest crime was squandering an opportunity to solve the approaching fiscal bomb of Social Security, Medicare, and Medicaid. He had a good economy, and he was popular; the political times were ripe for making Social Security partly private (as all European socialist nations have done) and trimming Medicare and Medicaid to conform to the real world. Instead, he chose to play accounting tricks to make the good economic times seem better than they were and secure his legacy in the history books.
But the problem is not just Clinton’s: Medicare and Medicaid date from Johnson’s Great Society, Social Security from the New Deal, and no administration since, Democrat or Republican, has addressed the obvious actuarial imbalance in those programs. It was plain that these programs could not continue as they were, but nobody did anything about them. George W. Bush made a half-hearted wave in the direction of solving Social Security, but surrendered without a fight in the face of a Democratic party public relations onslaught, even though he was a second-term President with nothing to lose. And today, with the Democrats playing Russian Roulette with $2 trillion annual deficits, Republicans are merely squawking about possible tax increases.
I’ve got bad news: if the US is ever going to return to fiscal sanity, some tax increases will have to happen. I’m sorry, but it’s a fact.
But saying so is not enough, not by 1/10. The first, second, third, sixteenth, and three hundredth steps have to be hard, unyielding, persistent cutting of federal spending — and that means persistent reduction in federal power. We must declare full-out war against government spending. Everything has to be cut. Everything. Every program you like has to be reduced. Unnecessary departments have to be eliminated. Mandates have to be dismantled. Projects spanning multiple presidential administrations need to be established to seek out, examine, and ultimate eliminate 9/10 of the nonsense currently performed by the federal government. We have to agree to give up the big items. Including reductions in the military. There, I said it.
Beans and rice instead of steak and shrimp — for the rest of our lives, and then some. We’ve got $12 trillion to pay back. That’s reality. There is no other way.
And fellow Boomers, we’ve had a nice run, but it’s time to pay the piper. Our ancestors paid hard prices to rescue the nation from danger in the past, fought wars and suffered depressions and so forth. It’s our turn. If the Obama administration forced us to accept health care rationing while pretending to serve us, that would be tyranny. But we can choose to cut our own benefits willingly, for the benefit of our children. Maybe we didn’t break it, but we enjoyed it, it’s our job to fix it — and if we do it willingly, it’s not tyranny.
If the Tea Party movement, currently more popular than either Democrats or Republicans, is to produce anything of value, it will have to be this: elect one Representative after another, and one Senator after another, who pledges to cut into government spending enough to reduce the debt, not just the deficit. And then, hold them accountable for doing so, and — this part is crucial — not go berserk and hand the government over to tax-and-spend Democrats every time a Congress acts responsibly and cuts some program we like. Let’s be adults.
It’s either that, or get used to living in Argentina. ‘Cause that’s what the US is going to become if we don’t start reducing the debt.
The original article can be seen at http://www.plumbbobblog.com/?p=6601.