The Washington Post – generally not considered to be either conservative or tea party friendly – puts the hard truth bluntly in the lede to a front page story in a Hartford paper:
“Economists generally offer three theories for what’s hampering the still-sluggish U.S. economy: the Keynesian theory, which would like to see lower taxes or more government spending; the spending/debt theory, which would like to see both of those reined in; and the uncertainty theory. Under none of them can the White House-Congress deal to avert the ‘fiscal cliff’ be considered an economic success.”
And then, of course, there is your mother’s theory: “Don’t spend more than you take in, and try to tuck away a little savings for the inevitable rainy day.”
By every reasonable measure, the Obama-Congress “deal” to avert the fiscal cliff is simply an admission of failure to avert an alarmingly more dangerous real cliff waiting patiently for all of us around the next bend.
The real cliff – the yawning unfunded liabilities abyss the last few presidents and congresses have been energetically deepening over the years – is a measure of the difference between revenues and expenditures according to your Mom’s more reliable arithmetic.
Much of Europe already has taken the plunge. For the past few years, we’ve seen one after another European country drop into the deepening ditch it’s dug over a period of decades, and we’ve been flattering ourselves all the while that we are not Europe. The only European country that has not presently been hit by a double-dip recession is Germany: Greece, now in the hands of unforgiving Euro-technocrats, has toppled; Ireland has already received bailouts; Italy, Portugal and Spain are teetering on the brink; French courts have just rejected a measure by Socialist President Francois Hollande to confiscate the wealth of whatever millionaires have not yet fled the country; sovereign credit ratings throughout Europe have been slashed; and the whole of Europe – the cradle, as we used to say, of Western civilization – is quickly sinking into a mire of debt, fueled mostly by unsustainable unfunded liabilities. Here in the United States, the nation’s unfunded liabilities -- Medicare, Social Security and other outsized and menacing obligations -- do not even appear on the federal balance sheet.
The spook on a stick utilized by Mr. Obama and his fellow progressives in the U.S. Congress to stampede congressmen into voting in favor of the so-called fiscal cliff bill is a rising national debt of $15.96 trillion, more than 100% of the nation’s Gross Domestic Product (GDP), the value of everything produced in the United States during a corresponding fiscal year. These numbers, large and imposing, are but the tip of a debt iceberg. The real liabilities of the federal government, the real fiscal cliff -- including Social Security, Medicare, and federal employees' future retirement benefits—already exceed $86.8 trillion, or 550% of GDP.
And the small bore “deal” struck between Congress and the president is but the tip of the iceberg bearing down upon us. To reduce such figures, as Mom strongly would advise, federal income must exceed federal expenditures for a long, long space of time.
When Social Security was first launched, the number of people paying into the program exceeded by a ratio of about 160 to 1 the number of people making withdrawals from the so called “trust fund,” which has entirely disappeared. In 1940, the ratio of covered workers to beneficiaries was 35,390 to 222 or 159.4; the ratio of covered workers to beneficiaries by 2010 was 156,725 to 53,398 or 2.9. Medicaid and Medicare are in much worse shape. In the long run – unless these programs are reformed -- none of them will be sustainable.
The United States finances its debt through borrowing. Since 1960, a rough consensus among both the Republican and Democratic Parties has led to a de facto fiscal policy according to which current unsustainable consumption is financed by continuous government borrowing. Profligate spending and borrowing to pay debt has hollowed out our economy. The so called fiscal cliff bill increases taxes $44 for every dollar saved in spending cuts and deepens the trench of a fiscal abyss far more precipitous and dangerous to the economy than the puny cliff surmounted by current legislation.
This is not a rational way, Mom would say, for the country to make its way back to sane solvency. Alan Simpson and Erskine Bowles, co-chairs of The National Commission on Fiscal Responsibility and Reform, former President Bill Clinton, if caught in a non-campaign mode and – this will surprise some -- John Maynard Keynes very likely would agree with Mom, who is not running for presidential office or the U .S. Congress any time soon.