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.
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