NEW YORK, December 11, 2012 – In the heat of national elections, campaign songs and slogans seem amusing and harmless. In 1988, George H.W. Bush warmed his partisan crowds with the tune “Don’t Worry-be Happy”.
In 2008, those who did not faint, chanted “Yes, We Can”. And on November 6, 2012, the nation decided to march “Forward”.
What is America’s likely national destiny now?
The holidays are upon us and lawmakers seem poised to embrace “what-me-worry” economics and a quick bi-partisan “deal” in order to announce yet another “rescue” success that certainly will not survive rigorous analysis when we return to work in the New Year.
Progress has been maddeningly slow towards solutions that cry out for all to see. Perhaps old fault lines are set too hard.
President Roosevelt may have fairly described a conservative “as a man with two perfectly good legs who, however, has never learned to walk forward”. His pal, Winston Churchill had more insightful perspective then and into our modern set of perils—“the farther backward you can look, the farther forward you will see”.
Across the political divide, all actors should heed facts and choice lessons from history. Assessing the fate of one prominent state that did not learn enough, fast enough, Edward Gibbon observed:
“In the end, more than freedom, they wanted security. They wanted a comfortable life and they lost it all—security, comfort and freedom. When the Athenians finally wanted not to give to society but for society to give to them, when the freedom they wished for most was freedom from responsibility, then Athens ceased to be free and was never free again.”
As the chief executive officer of Segway, Inc. discovered in 2010, danger befalls those who move forward in the wrong direction near a cliff.
Will America escape the fate of ancient Greece or that of Gibbon’s England?
The post-election, reality play absorbing Washington D.C. in these moments is now in its final act. Fancy words, partisan taunts, and tart ripostes fill the airwaves. However, numbers tell the true tale.
By our calculations[i], federal spending has grown to become an ever more substantial share of national economic output (“Gross Domestic Product” or “GDP”), while federal receipts have lagged consistently behind spending. (Click to enlarge)
The persistent gap between high federal spending and lower federal receipts is an affliction shared across the aisle. Perhaps fiscal fortitude is no match for blood-sucking mosquitoes firmly lodged in swampy waters that surround our storied capitol. What is worse, the federal picture does not tell the complete deficit tale.
Since 1945, federal initiatives and the innate tendency of politicians everywhere to spend with abandon have caused total government spending to soar much faster than total government receipts.
What is remarkable about Figure 2 is that no set of elected politicians in any year since 1945 has managed to turn in a result where total spending was actually less than total receipts.
Should sensible, inquisitive Americans remain under the spell of co-conspirators, Democrats and Republicans, who feign concern but evidently share responsibility for unchecked and reckless erosion in our nation’s finances?
Or, is it finally time that we and the comatose, conflicted mainstream Fourth Estate shake ourselves and our compatriots out of blissful reverie?
President Obama has become a modern champion of a “balanced” approach to solve our nation’s fiscal ills. With regard to spending, he and we must learn to eat “heart healthy”. But where to trim?
Though we remain locked in dread conflicts, our military consumes a much smaller share of national economic output than it did from 1945 to 1992. Our interest burden is surprisingly light. Together, the cost of sustaining our military and of servicing our debt has managed to shrink decisively.
In contrast, all other costs of federal, state and local government combined have climbed year after year as a percentage of GDP. These costs in 2000 were just 24.7 % of GDP compared to 31.0 % in 2011.
America does not have enough rich uncles left who will continue painlessly to fund our bi-partisan spending impulses. The reach of our good intentions clearly exceeds the grasp of our collective purse.
Where then shall we cut? And how much more time do we have?
Watching ominous developments in the Mid-East, rising tensions in Asia, moves by Russia and civil unrest in Europe, Americans have strong grounds to wonder just how safe we can be at home if we savage our military footprint and “Retreat from in Front”. And, even if we shrink the military still further, the effort will yield miniscule savings in the context of our much larger spending challenges.
As for our interest bill and the decades that have passed where all sectors in the American economy have gleefully piled on more and more debt—how much more time can we expect to borrow more while paying less?
Was the final year of Bill Clinton’s second term a straightjacket of fiscal austerity? Certainly not. But who in Washington D.C. is thinking in terms of annual spending cuts anywhere near the level required to match the heroism achieved from 1992 to 2000 by the man from Hope?
Where is the bill of particulars and the set of realistic, grounded projections that will call off the circling pack of bond vigilantes and financial predators who must sense evident weakness as the clock ticks down during this final quarter?
Does President Obama now intend to replace Treasury Secretary Geithner with Merlin the Magician or some other and more modern alchemist?
Does the President really believe that Chairman Ben Bernanke holds unlimited capacity, forever, to fund deficits with dollar bills printed on behalf of the Federal Reserve System?
Since 1945, America has reaped the benefits that generations before sowed. We remember the heroic sacrifices of those lost and wounded but we seem to forget that America, at War’s end, was far less constrained financially than we are now.
Our staggering fiscal plight is compounded today not simply by a government-borrowing problem, but by a far more tenacious set of debt obligations.
Starting in 1980, Americans across the full spectrum of our economy (households, corporations, governments, financial institutions, and foreign controlled entities) embraced borrowing on a scale never before seen in history. As we start to consider how to right our fiscal wrongs and how also to bring our combined debts into balance, we cannot simply blame one President, one Party, one social program or one war for the fact the debt collectors soon will be baying outside all of our doors.
Are there any giants still standing on either side of the aisle in Washington D.C. who will recognize our national addiction to spending and to borrowing? Will these men and women join to herd colleagues to forge a credible near-term solution to our vexing woes?
John Adams is famous, among other things, for touting the virtues of noting “stubborn facts”. Were he alive now, he would certainly care about the precarious state of our nation’s finances. But Adams was also a keen student of history and a remarkably prescient visionary. In 1814, he warned:
“Remember, democracy never lasts long. It soon wastes, exhausts and murders itself. There never was a democracy yet that did not commit suicide”.
For how much longer can Americans follow pied pipers in both parties towards chasms that swallowed previous empires?
Politicians in both parties and an electorate that does not seem to care enough to dig in and understand economic realities have led the nation that faced down the ghosts of Hitler, Stalin, Mao, and Marx into a boxed canyon of uncontrolled government spending and soaring national debt.
History proves, without doubt, that the likely ending for a global system powered by an American dollar and a reckless cabal of politicians, bankers and other cronies will likely be an unhappy one.
To be truly happy, we must worry and act soon. For Aristotle was definitely correct when he warned:
“To the size of the state there is a limit, as there is in plants, animals and implements, for none of these retain their facility when they are too large”.
[i] Please see www.bea.gov. NIPA Table 3.2 Federal Government Current Receipts and Expenditures is our primary source for information concerning Federal Spending and Receipts. We use total expenditures before “Consumption of Fixed Capital” (depreciation). NIPA Table 1.1.5 Gross Domestic Product, shown in nominal dollars, is our source for all GDP data.
[ii] NIPA Table 3.1 Government Current Receipts and Expenditures is our source concerning Total Government Spending and Receipts. Here, we also use total expenditures before “Consumption of Fixed Capital” (depreciation).
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