A Simple Government (7 page)

Old Ike would be a real party pooper in today’s Washington. For having the audacity to “pee in the punchbowl” during the never-ending frat party (otherwise known as a session of Congress), he’d be ushered off to the banks of the Potomac.

You probably know that I’ve struggled to lose weight and
keep
it off. Man, I’d love a world in which I could gorge on seven thousand calories a day without becoming overweight. But I can’t. When you think about it, that’s not so different from wanting to draw a billion-dollars-a-year paycheck while never having to show up for work, or from wanting to purchase any article or service that struck my fancy but not ever have to pay for it. Yes, that’s unrealistic, of course. It’s also just plain stupid. Let’s see . . . I’m beginning to understand the true nature of Congress now. We have purged our communities of the really stupid class and sent them to DC! That explains why their policies are as nonsensical as eating without regard to gaining weight or using unlimited spending accounts without regard to someday paying the piper.

As Sarah Palin might say, “You betcha!”

You might have seen the really great HBO series on John Adams back in 2010. Critics and the public alike loved it. But how many of us paid close attention to the specifics of what he believed and fought for? We’re willing to be entertained by a drama about his life, yet we have failed to heed his very perceptive warnings. Take this little jewel from his first State of the Union address in 1797:

Yet another killjoy! Adams would never get elected in today’s political climate! And I believe you know why.

Have you noticed that President Obama loves the word
unprecedented
? He has often spoken of the “unprecedented problems” he inherited from President George W. Bush. Then there are the “unprecedented opportunities” we Americans now have because
he
was elected to the White House (Sometimes when I hear President Obama speak I want to chant the Mighty Mouse theme song: “Here I come to save the day! That means Barack Obama is on the way!”) A lot’s going on that’s “unprecedented,” all right, but that is by no means a good thing. Take the
unprecedented
“greatness” of his plans to create jobs and simultaneously save the economy, the earth, and the American dream. Uh-oh. These policies actually entrenched our national debt, killed jobs, and secured a new level of power for the federal government at the expense of families and businesses. It’s only fair that someone else picked up Obama’s word and found a somewhat different meaning. Michael Boskin, professor of economics at Stanford and senior fellow at the Hoover Institution, wrote the following in the
Wall Street Journal
on February 12, 2010:

Congratulations, Mr. President, you’ve done it! You’ve taken the country to something “unprecedented,” all right. The word you’re looking for is
debt
. Enduring debt. Loads of it. (I don’t think he’s listening.)

Do you recall those two totals I gave you at the beginning of this chapter? They bear repeating: $3.8 trillion for the 2010 budget, $45 trillion for Obama’s ten-year budget. (I hope you’re not getting inured to those figures. Keep reaching for the antacid.)

Did you think that maybe cutting out a few government jobs could effectively trim those horrifying totals? Stop with the Kool-Aid. This should sober you up. About 60 percent of the budget is allocated to only three things: Social Security, health-care costs (Medicare, Medicaid, SCHIP [State Children’s Health Insurance Program], though mostly Medicare), and defense spending. Each makes up about 20 percent, making them roughly equal.

Then “safety net” programs—unemployment insurance, food stamps, school meals, child-care assistance, housing, welfare, et cetera—account for about 14 percent. (You can keep adding as we go along.)

Veterans’ and federal retirees’ benefits are around 7 percent, interest on the national debt is 6 percent, education is 3 percent, infrastructure is 3 percent, science/health research is 2 percent, nondefense international spending is 1 percent. So, if you’ve been paying attention, how much is left over? Something like 4 percent, which is assigned to a glob of miscellaneous expenses.

How much wiggle room is there in all this? Consider that back in 1970 the budget was designed so that a third of the total was mandatory, two-thirds discretionary. But in the early 1970s discretionary spending began growing at 5 percent annually, then jumped a whopping 27 percent from 2008 to 2009 because of increased spending on unemployment, food stamps, and the start of the various stimulus programs. In other words, the proportion of mandatory to discretionary outlays has pretty much reversed: now two-thirds mandatory, one-third discretionary.

Think about that astonishing switch: In only one generation, we’ve completely changed how the budget functions. In the 1970s, the largest part of the budget could be cut by Congress, because it was considered discretionary. Now only a third can be cut, because the rest is mandatory.

It gets worse. When President Obama talks about possibly freezing discretionary spending for three years, he’s not focusing on even that one-third. He has his eye on only
nonsecurity
discretionary spending, or only about 15 percent of the total budget. He does not want to touch Social Security, Medicare, Medicaid, veterans’ programs, defense, homeland security, or foreign aid. By that definition of
freeze
, the budget would be cut by only $250 billion over the next ten years—the proverbial drop in the bucket. Or, if you remember the illustration, the capacity of only 250 U-Haul trucks, or twenty-five a year.

There’s a simple answer to this nonsense: Define
all
spending as discretionary. When so many expenditures are essentially on autopilot, driven by inflexible formulas, we the people have given up our right to representation. Moreover, our senators and congressmen have abdicated their responsibility to represent us. What sense does this make? Just as it is wrong for us to spend so irresponsibly that we enslave future generations, it is wrong to allow ourselves to continue to be enslaved by decisions made in the past.

All of us—the representatives and the represented—should agree to stop considering entitlement programs the third rail of politics—necessary and fatal if touched! The more likely fatality will occur if the emergency brake is not applied to prevent the looming crash: To activate that brake, we have to reduce the growth rate of entitlement costs.

What’s going on with the deficit flies in the face of the title of this chapter: The federal government is spending so much more than it takes in that it will never be able to make up the difference. Cue smoke and mirrors! The deficit was $162 billion in FY 2007, then leapt to $459 billion in FY 2008 before soaring to a record $1.4 trillion in FY 2009.

Originally, the FY 2010 deficit was estimated to reach $1.6 trillion. Given better-than-anticipated revenues, if the books have not been cooked, the administration brags that the deficit could actually be only (!) $1.3 trillion, assuming that the trend continues to the end of the fiscal year.

President Obama’s ten-year budget, which runs through FY 2020, projects deficits that will total $10 trillion.

So what level of debt can the country afford? Put another away, what’s a reasonable deficit? Economists can agree, I believe, that it should be no more than 3 percent of our annual gross domestic product (GDP). Even as recently as FY 2007, it was only 1.2 percent of GDP.

Then the economy collapsed. Since then, we’ve been running deficits of around 10 percent of GDP, which are very dangerous levels. Only three times before in our entire history have deficits been so high: the Civil War, World War I, and World War II.

But by 2035, according to an estimate by the nonpartisan Congressional Budget Office (CBO), deficits will reach a historic (and terrifying) high: 15 percent of GDP. Not surprisingly, given this information, a survey by the Business Council found that American CEOs believe the deficit to be the most critical policy challenge now facing the country.

Unlike a gift that keeps on giving, President Obama’s misbegotten $787 billion addition to our deficit—the so-called stimulus package—is the mistake that keeps on costing. It’s a shame to throw away money, even if you can afford to do so; it’s dangerous when you truly, truly cannot afford it.

Nor was this response to economic crisis a sensibly targeted program to create jobs. Frankly, we could have accomplished more by just taking the $787 billion and dividing it up, like the loaves and fishes, among every American: a check in the amount of a little over $2,600 for every man, woman, and child, or over $10,000 for a family of four. Most Americans I know could certainly use $2,600 and would probably spend it. Eventually, of course, the same people who enjoyed spending it would, as taxpayers, have to pay it back. But at least they could choose how it was spent in their personal lives. Under the Obama plan, by contrast, we still have to pay it back, but the government got to decide how it would be spent. The cost of the stimulus, by the way, is not just the original outlay; you have to add the interest that we’ll be paying on it for years and years to come. The government didn’t find the kind of 0 percent interest deal that might still be available at your desperate local car dealer.

Of course, these annual national deficits add to our combined national debt, which is about $13 trillion now and growing at the rate of about $4 billion every single day! That’s even more than hedge fund managers make!

Our friends at the Congressional Budget Office have another grim estimate: The cost of interest on the debt will more than triple in just the next decade. In fact, President Obama is on track to add more to our national debt in his first two years than President George W. Bush did in his entire eight.

An accepted yardstick for a nation’s economic health is the ratio of national debt to GDP. Economists studying national debt levels over the past two hundred years have concluded that economic growth is sharply restricted when debt is 90 percent of GDP. President Obama’s projected budget will raise our debt level to 103 percent of GDP by 2015, which will be extremely threatening to our national prosperity. By comparison, both Reagan and Bush 43 left office with that ratio at 40 percent.

There are many related consequences, none of them good. For example, Moody’s rating agency warns that our Treasury bonds risk losing their triple-A rating. Other countries, watching us make irresponsible economic decisions, talk about abandoning the U.S. dollar as the world’s reserve currency.

As for interest rates, they are artificially low right now because of the downturn. They are predicted to go up soon, meaning that carrying our national debt is going to cost us more. And as the debt increases, the cost of interest will rise right along with it. The result: a lower GDP because of less investment.

Meanwhile, we are rightfully terrified that we now owe so much to the Chinese, but we’re just as terrified that they may stop lending to us. This is a security issue as much as an economic one: How hard can President Obama push them for sanctions on renegade Iran or fairness in international trade when our huge debt to them gives them so much leverage over us? I’m thinking about ordering the Rosetta Stone course in Mandarin Chinese so I’ll be prepared to talk with the bankers who will own all our currency!

Here’s a dirty little secret: Social Security was never intended to finance retirements lasting decades. When the legislation was passed in 1935, and the retirement age was set at sixty-five, life expectancy was in the late fifties for men, early sixties for women. See that? It was assumed that most people would be dead before they could qualify! No one imagined those legions of healthy, lithe retirees you see in TV ads playing golf, boating, running marathons. Today, life expectancy for average Americans has reached the late seventies, and many of us will live at least a decade or two longer. This is a blessing, especially if you’re healthy, but you can no longer expect the government to support you for twenty or thirty years. The original financial calculations didn’t allow for that eventuality. It’s that simple.

What can be done? Well, for those already retired or close to retirement age, it’s too late to change benefits. That door is closed. But it is fair to ask people in their twenties, thirties, and forties—in light of radically changed life expectancy—to plan for a different kind of future, including the responsibility to provide more for their eventual retirement. For one thing, the retirement age has to be raised. For another, the benefits will have to be adjusted downward.

There’s another dirty little secret in all this (actually, most people know it but pretend otherwise). Your Social Security benefits are not funded by what you actually contributed to the system over your working years. That dissipates very quickly. No, your monthly checks come from the payroll taxes paid by younger folks still in the workforce. Back in 1950, when there were sixteen workers for every retiree, the cost was spread widely. Today, there are three workers for every retiree. There will be only two in 2025.

Even as these changes were becoming crystal clear to everyone involved, it was predicted that the Social Security system would not begin paying out more than it took in until 2016. Wrong. This happened in 2010. The unanticipated shortfall was caused by the downturn: It caused some people to choose to take early retirement, and payroll taxes fell because of widespread job losses.