Another day, another mediocre to poor economic report is released. Did you ever notice that whenever one of these disappointing data reports is released, the main-stream-media prefaces it with the word “unexpectedly”? Could be me, call me crazy but “unexpectedly” seems to be a default key on their computer keyboards. This keyboard button is to be used under Democratic administrations to preface bad news, and the inverse under Republican leadership. None of the ongoing malaise should be unexpected to anyone with the most basic knowledge of economics, gravity or happens to own a business.
Did they really think that consumer confidence, private sector jobs, gross domestic product, and innovation were going to take off with a witch’s brew of higher taxes, uncertain health care liabilities, and more regulation coming soon to a theater near you?
President Obama recently stepped up to the podium (Note: Without teleprompter.) and stated that the U.S. economy was “strengthening” despite the perpetual flow of terrible data. The president stated that market turmoil was due to “headwinds and some skittishness and nervousness” due to worries over the European debt crisis which according to him overshadowed “positive trends” in some other sectors. In other news VP Joe Biden stated that “there is no possibility to restore 8 million jobs lost in the Great Recession.” He then proceeded to visit a local custard shop and decided to call the manager a “jackass” for asking the VP to lower their taxes. Remember… “Nobody messes with Joe!”
Our $14 trillion debt, which shows up on our national ledger is an incredible number. Kevin Williamson writes in National Review that “Fourteen trillion seconds ago, Greenland was covered by lush and verdant forests, and the Neanderthals had not yet been outwitted and driven into extinction by Homo Sapiens, because we did not yet exist. Big number, 14 trillion, and yet it doesn’t even begin to cover the real indebtedness of American governments at the federal, state and local levels.”
I live in, and the rest of America lives in, a world according to GAAP (Generally Accepted Accounting Principles.) Our government does not. If they did play by the same rules our debt situation would be bit more depressing.
Here are the numbers: $2.5 trillion in state and local debt, State pension liabilities $3 trillion, Social Security and Medicare, $106 trillion, State health care liabilities, $1 trillion, Fannie Mae and Freddie Mac guarantees, $1 trillion. FOR A GRAND TOTAL OF $127.5 TRILLION.
The excuse given for not accounting for Social Security is the fact that benefits are not guaranteed. In two major cases, Helvering v. Davis (1937) and Flemming v. Nestor (1960), the Supreme Court ruled that individuals have no legal claim to Social Security. As a result, Congress can reduce benefits at any time. Workers have no projected right in Social Security simply because they have paid their FICA taxes.
The co-chairman of President Obama’s debt and deficit commission, former Republican senator Alan Simpson and Erskine Bowles, White House chief of staff under President Bill Clinton (aka The Legion of Impending Doom) offered up their assessment of our nation’s fiscal future.
The oracles called our current budgetary trends a “cancer that will destroy the country from within” unless tough measures are taken to alleviate it. Bowles stated, “Unlike the current economic crisis, which was largely unforeseen before it hit in fall 2008, the coming fiscal calamity is staring the country in the face. This one is as clear as a bell. This debt is like a cancer.”
We have discussed the trillion-plus pound gorilla in the room at length over the years, and it finally seems that politicians on both sides of the aisle are willing to recognize that our entitlement programs are unsustainable. Alan Simpson stated, “Federal revenue is fully consumed by three programs: Social Security, Medicare and Medicaid. The rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, veterans, the whole rest of the discretionary budget is being financed by China and other countries.” Erskine Bowles went on to say, “We can’t grow our way out of this. We could have decades of double-digit growth and not grow our way out of this enormous debt problem. We can’t tax our way out.”
In my March 2005 column “Social Insecurity” I addressed Social Security, the so-called third rail of American politics.
In that article I cited a conversation between former Senator/Governor/College President Bob Kerry and the late Senator Patrick Moynihan, “Why are liberals so reluctant to consider changing Social Security so that it guaranteed wealth as well as income?” Moynihan replied, “It’s because they worry that wealth will turn Democrats into Republicans.”
It looks as if the politicization surrounding entitlements could be coming to an abrupt end.
Both the majority and minority leaders of the House of Representatives, Steny Hoyer and John Boehner have alluded that the retirement age under Social Security should be raised. President George W. Bush proposed some prudent reforms for Social Security during his second term. The political capital that he stated he had earned by winning a second term was completely decimated with ongoing problems in Iraq and government failure with hurricane Katrina; and the AARP (in my opinion one of the most dangerous organizations in the country) and the Democrats kicked his rear-end. At the time I wrote the column the report issued by Social Security system’s Board of Trustees stated that in 2018 the system would begin to run a deficit. They were wrong. The deficit is here. Ironically for some unknown and unprecedented reason the Trustees latest report has been delayed indefinitely.
I understand the desire to reign in ridiculous pork barrel projects that our shameless leaders from both parties use to keep themselves in power. After passage of our latest entitlement package, ObamaCare, about 90 cents of every dollar spent by Uncle Sam will be for: Interest on our debt, Medicare, Medicaid, student loans, farm subsidies, Social Security. These expenditures are growing at about 8% a year. Pork spending was $16.5 billion for 2010 and has been dropping over the past five years. Medicare spending is going to increase from $516 billion this year to $932 billion in 2018. Social Security is forecast to grow from $581 billion to $966 in 2018. In a 2006 column Return of the Blob, we noted that if we were to borrow to pay for all of our spending, U.S. Treasury bills would take on junk status in about 20 years. If we raised taxes to pay for the spending, personal income tax rates would have to double or the payroll tax would have to rise to 25%. This was before President Bush’s $300 billion prescription drug bill and $1 trillion ObamaCare plan.
We can try to achieve the impossible…spending cutbacks, terminating redundant programs and root out all government waste. Even if we succeed in this mission impossible, it will not matter until we deal with our entitlement debt bomb. This debt bomb and the public’s acknowledgement that it exists, (Americans have been living in denial) is hampering growth and job creation. Business owners are aware that unless this burden is dealt with they are going to be footing the bill. What they don’t know is what their future liabilities will be. In the movie Animal House, Dean Vernon Wormer suggested to Kent Dorfman (Flounder) that “fat, drunk, and stupid is no way to go through life.” I would suggest to our fearless leaders that, “invasive, profligate, and economically illiterate is no way to run a country.”
We have some tough choices and serious sacrifices that need to be made. Recent polls state that Americans biggest concerns are our debt and job creation. It would obviously be politically expedient to deal with these issues. However, with the exception of a couple of congressmen, most notably Paul Ryan of Wisconsin, leadership on both sides has been fairly quiet. It is time that we demand not only leadership, but action on these issues. If your representation is failing to deal with our dire fiscal scenario and our minefield-like business climate, they need to be replaced. See you in November.
Williamson, Kevin The Other National Debt National Review 04/14/10
Editors Obama: US Economy ‘Strengthening’ Despite Weak Data Associated Foreign Press 06/29/10
Condon, Stephanie Biden: We Can’t Recover All the Jobs Lost CBS News 06/25/10
Hill, Patrice Both Parties Mull Raising Retirement Age The Washington Times 06/13/10
Markowski, Christopher Social Insecurity Markowski Quarterly 03/05
Gillespie, Nick News Flash: Entitlement Spending Grows Like Giant Cancer on U.S. Economy USA Today 06/25/10
Markowski, Christopher Return Of The Blob Markowski Quarterly 03/06
Birnbaum, Jeffery Social Security On The Chopping Block The Washington Times 06/06/10
Balz, Dan Obama’s Debt Commission Warns Of Fiscal Cancer The Washington Post 06/12/10