Dinesh D’Souza recently debated Michael Shermer at Oregon State University. The debate topic was, “Is Christianity Good for American Politics”. D’Souza is an author, educator and, most recently, the creator of the movie, “2016: Obama’s America”. Shermer is the founder and publisher of Skeptic Magazine.
This short clip conveys two very important points about morality and political philosophy. Dinesh has the same ability that Milton Friedman had to clearly explain complex ideas.
Compulsion removes the virtue from human interactions. Free choice is a pre-requisite of moral action.
Dinesh make good use of the wagon analogy. There are people pulling the wagon in this country and there are people sitting in the wagon. Our current wagonmaster is doing 3 things that are making our situation worse. He is whipping the horses that are pulling the wagon, rather than thanking them. He is filling the wagon with many more riders. And he is relentlessly teaching the people riding in the wagon to be angry and envious rather than grateful.
We should not be surprised. After all, generating anger and a sense of entitlement is what a community organizer does. That is the job description.
(Thanks to reader Rick Moulton for the video link.)
Peter Farrara’s recent column in Forbes is a superb expos’e of some of the major lies that comprise the bulk of Obama’s campaign rhetoric. It is a deceitful and divisive campaign that relies on the ignorance of his prospective voters. A case can be made that some of the lies are really a reflection of the economic ignorance of the President himself, and therefore not technically lies … though still not excusable. Read it and see what your think. Here is an excerpt:
But the Obama fallacy most harmful to the nation, perpetuated in the debate, is the fundamentally false narrative and conception regarding the American tax system: that the rich do not pay their fair share. The truth is that the rich pay more than their fair share, particularly in regard to federal income taxes, where upper income earners pay, in fact, essentially all of the federal income tax burden.
The CBO reported earlier this year that in 2009, the year Obama entered office, the top 1% of income earners paid 39% of all federal income taxes, while earning just 13% of the income. That was more than double the 17.6% of federal individual income taxes paid by the top 1% when President Reagan entered office in 1981.
CBO further reported that in 2009 the top 20% of income earners, those earning more than $74,000, paid 94% of federal individual income taxes. That was 85% more, almost double, the share of national income they earned.
In sharp contrast, in that same year, the middle 20% of income earners, the true middle class, paid 2.7% of total federal individual income taxes on net, while earning 15% of before-tax income. And the bottom 40% of income earners, instead of paying some income taxes to support the federal government, were paid by the IRS cash equal to 10% of federal individual income taxes on net.
That means altogether the bottom 60% of income earners, which includes the middle class, paid less than 0% of total federal individual income taxes as a group on net. Instead, as a group, they received cash payments from the IRS on net.
Given these indisputable facts, it is preposterous for President Obama to be promoting his false narrative regarding federal income tax burdens, not only during this campaign, but during his entire Presidency. He is misleading the country, and stirring up false resentments.
Even looking at all federal taxes, and not just the predominant income taxes, the story is the same…..
Here’s more proof of what happens when politicians make economic decisions rather than leaving investment decisions to free markets, with private money at risk. As with similar stories posted here, politicians first make grandiose claims, …..then reality is up to bat….
One by one, the wildly exaggerated claims about our glorious transition to ”green jobs” are making their rendezvous with reality. Hundreds of millions of dollars have been given to companies which would provide “the jobs of the future”. In many cases, owners of these companies had also provided ‘campaign cash for Obama’s future’. So the cronies got money and Obama got both money and a photo-op to talk about his green greatness.
Later, in bankruptcy after bankruptcy, reality has re-asserted itself. One of the latest such debacles is the bankruptcy of battery manufacturer, A123 systems. Taxpayers lost about $250,000,000. Think about what the taxpayers who made this money could have done with it if it had not been taken from them. This short video is a classic display of leftist economic delusions:
Kerry Pickett has a short must-read column in the Washington Times. There are so many lies about taxes that it is nice to see a concise statement of the facts. It is a fact that top earners in the U.S. pay a larger share of the tax burden than in any industrialized nation. It is a fact that cutting tax rates on the wealthy has often resulted in them paying more tax and a larger share of the tax burden.
From the article:
Consider what happened each time the U.S. reduced the tax rate significantly:
1920s: The top tax rate fell from 73 percent to 25 percent, yet the rich (in those days, those earning $50,000 and up) went from paying 44.2 percent of the tax burden in 1921 to paying more than 78 percent in 1928.
1960s: President John F. Kennedy slashed the top tax rate from 91 percent to 70 percent. In the ensuing three years, those making more than $50,000 annually saw their tax payments rise by 57 percent, and their share of the tax burden climbed from 11.6 percent to 15.1 percent.
1980s: The Reagan years saw the top rate fall from 70 percent in 1980 to 28 percent in 1988. What happened to the rich? The top 1 percent went from shouldering 17.6 percent of the income tax burden in 1981 to paying 27.5 percent of the total in 1988. The top 10 percent saw their share of the burden climb from 48 percent in 1981 to over 57 percent in 1988.
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In the Marxist world, power comes from stirring up class envy. No matter what share of the burden is carried by the most productive people, the Marxist cry will always be, “The rich are not paying their fair share. Stick with me and we will take more of their property”.
Obama made it clear that the important thing to him was to bring down the rich, when, in an interview, he was confronted with the fact that raising the capital gains tax may decrease the amount of revenue for the government. He said he would raise the tax burden anyway, “for purposes of fairness”.
Obama is much more ideological than practical. Even if he understood, as Kennedy and Reagan understood, that cutting taxes increases economic activity and increases government revenue, he would still propose punishing the evil rich.
The housing bubble, created primarily by government mandated easy loans for people who had little prospect of making payments, created the collapse. Actually, a community agitator in Chicago, named Obama, had worked to increase the number of these loans. Banks were threatened. Later, regulators for President Bush, made many attempts to rein in the insane lending practices, warning of the disaster ahead. They were rebuffed and even ridiculed by Democrats like Barney Frank. The party who now blames lack of regulation, actually fought the regulators.
Yes, they are shameless. And with the help of a media that never holds them to account, Mr. Frank and Mr. Dodd went on to create more economic damage with Dodd-Frank.
I wish Mr. Merline’s column had address one more big economic lie that is a regular part of Obama’s repertoire of lies. That is the lie that wealthy people have paid an ever-decreasing share of government, while the burden has been shifted by evil Republicans onto the backs of the poor. The facts clearly refute this absurd claim.
At a deeper level, there is a way that big spending politicians are increasing the burden on the poor and middle class. It’s just not very visible ….yet. Romney and Ryan should be talking about this hidden tax.
There are two parts to government spending, that which is paid for and that which is borrowed. The borrowed portion is more massive than the world has ever seen, and is growing fast. The debt problem is so enormous, and politicians are so unwilling to face it, that there are probably only two possible outcomes, both bad. One is to default on the debt and one is to pay the debt with inflated, relatively worthless money.
In the past, big-spending governments have chosen the inflationary route. They do pay their debts, but with worthless money. Think of this as the inflation tax. Your savings accounts, your investments, all of your dollar denominated assets will be worth less. You didn’t write the government a check for the inflation tax; they just took the value of your money. You may have a hundred-dollar bill in your pocket, but you may only be able to buy a loaf of bread with it. People with limited means will be harmed the most.
In September, the Federal Reserve, the European Central Bank and the Bank of Japan all announced plans to inflate their currencies. We should see this as a big announcement of the coming inflation tax. It’s full speed ahead on irresponsible printing of paper money. It is unavoidable that the money will be worth less. The Fed plans to expand our money supply by at least 85 billion per month, and they explicitly stated that they could do this indefinitely. They are kicking the can down the road. We know where the road leads, and so do they.
Perhaps the most studied aspect of economics is the “boom and bust” cycle of a free-market economy. The Left will claim that the unhealthy oscillation of the economy is due to an unpredictable market place where under-regulated speculators of various types (real estate, stocks, currency, etc) create a bubble of false wealth that eventually pops. The ensuing recession that occurs post-pop leads to unemployment and wide-spread misery disproportionately shouldered by the middle and lower classes. The Left claims that the only way to avoid such catastrophes is to regulate the irresponsible risk-takers and revive the economy with spending and stabilizing regulations.
The Right has a different take what causes the boom-bust cycle. As per the free-market crowd, economic booms and busts tend to be the result of government meddling in an otherwise rational system. Government regulation, federal reserve currency policies, and other market distortions create the bubbles and then retard the recoveries. From the Right’s perspective, recoveries can only happen when the market-distorting government interventions are removed and marginal tax rates are lowered.
So, who is correct? Both sides can line up impressive lists of Nobel Laureates to make their case. To say that the debates can get complicated and tedious to follow is an understatement. Rather than get mired in esoteric theory, let’s take a look at how each side fared in the history books. Below I have listed the three most interventionist presidents and the three most free-market presidents of the last 100 years. The measure interventionist vs free-market was determined by a mix of marginal tax adjustments and regulations enacted under their presidencies. The results would be surprising to any Republican or Democrat.
The Interventionists:
1. Herbert Hoover (Republican)
The single greatest act of revisionist history in the world of economics was to call President Hoover a symbol of laissez-faire capitalism. Hoover signed the notorious Smoot-Hawley tariff of 1930, which raised US tariffs on over 20,000 imported goods. The act and retaliation to it by other countries was said to have reduced US imports and exports by over half. Many argue that it is one of the primary causes of the great depression after the federal reserves wild expansion of money supply and credit (sound familiar?). To make up for the lost market, Hoover signed in massive subsidies to farms and business, increasing government’s share of GDP by over a third. Late in his first (and only) term, President Hoover enacted another interventionist policy: The Revenue Act of 1932. The act enacted the largest peacetime tax hike in US history. The income tax was raised from 24% to 63% in the upper bracket. The interventions of Hoover were so egregious, that then candidate Franklin Roosevelt criticized him for overspending, interfering with trade, and putting millions on the government dole. FDR’s running mate, John Garner said Hoover was, “leading the country down the road to socialism”. The supposed symbol of free market capitalism lost the election because he was pegged as a socialist by FDR.
2. Franklin D. Roosevelt (Democrat)
After running against Hoover’s failed interventionist policies, FDR would go on to use the crisis to enact many more interventions into the US economy. FDR had even given election promises including a balanced budget, return to the gold standard, and a 25% reduction in spending. In his first three years, government expenditures rose by over 80%. Over his tenure the income tax would climb from 63% to over 94% in the upper bracket. The corporate tax rate was raised from 13.5% to 40%, and the capital gains tax rose from 12.5% to 39% in 1937 and then was lowered to 25% by 1942. Quite possibly the most interventionist policy of his presidency was the National Industrial Recovery Act (NIRA) of 1933. The NIRA put most manufacturing industries under government control and regulated what prices goods and where they could be sold. It was fascism in its purest form (see definition of economic fascism here), and lasted until the Supreme Court struck it down as such in 1935 (the only reason FDR is in second place). FDR also enacted the National Labor Relations Board (NLRB) in 1935 with the Wagner act which took labor disputes out of the courts and put them under the federal government. Union membership skyrocketed on the heels of the act. There were many more acts and spending programs enacted throughout FDR’s four terms.
3. Barack Obama (Democrat)
President Obama has enacted sweeping regulations of the economy during and in the wake of the Great Recession. A combination of massive regulations and planned tax hikes put him in third place behind FDR & Hoover for most interventionist president of the last 100 years. In the wake of the credit-induced recession of 2008/9, president Obama promised to hike income taxes from 35% to 39.6% (+.9% medicare tax). The capital gains tax rate would be raised from 15% to 20% (+3.8% medicare tax) and the dividend tax will rise from 15% to 43.4%. Medical device companies will see a 2.3% tax on revenues, which translates to about a 15% tax increase on profits (35% corporate rate raising to approximately 50%). From a regulatory perspective, President Obama enacted the Dodd-Frank bill, which controls how credit is issued in the United States and gives new capital requirements. The act has effectively halted small business loans and slowed the non-subprime mortgage market as banks try to interpret the new mountain of red tape (see Economist article here). President Obama passed a massive intervention of 1/6th of the US economy with the Affordable Care Act of 2010 (AKA Obamacare). The bill will effectively control the health insurance industry and what services/technologies will be compensated by Medicare/Medicaid. In addition to sweeping regulations and tax hikes, Obama maintained the extremely high (and market distorting) spending pace of President George W. Bush’s last year throughout his presidency.
The Free-Market Presidents:
1. Ronald Reagan (Republican)
President Reagan presided over the largest tax cuts in US history and substantial de-regulation of the economy. Over his tenure, the top income tax rate decreased from 70% to 28%, the corporate tax rate decreased from 46% to 34%, and the capital gains rate fell from 28% to 20% (and then came back up to 28% by 1987). Reagan issued an executive order in 1981 that required that regulatory agencies had to prove that the potential benefits of their regulations would outweigh the potential costs before the regulation could be enacted. He would also go on to symbolically break the union stranglehold on American business by busting the air-traffic controller strike.
2. John F. Kennedy (Democrat)
President Kennedy, the father of trickle-down economics, gave a speech in 1963 to the Economic Club of New York extolling the virtues of a marginal tax cut. He claimed that his income tax cut from 91% to 70% (top bracket) would lead to economic growth and increase tax revenues in the long run. He also cut the corporate tax rate from 52% to 48%. Though he didn’t live to sign the bill, President Kennedy gets the credit.
3. William J. Clinton (Democrat)
Clinton may have raised the individual income tax rate from 31% to 39.6%, but he was also responsible for the one of the largest capital gains tax decreases, from 28% to 21%, in US history. Other contributions that earned him third on the list were not tax related retreats from government intervention. Under his presidency a landmark free trade agreement was signed (NAFTA), and a balanced budget amendment that would dramatically rein in government spending was enacted. The federal government under Clinton contracted enough to create budget surpluses by the time he left office.
The Results:
The interventionist presidencies are all characterized by abnormally long and deep periods of recession. President Hoover inherited a credit bubble collapse and chose to pile onto a weak economy with a trade-crushing tariff and almost tripled the tax rate. When FDR swept him out of office with promises of fiscal restraint, he went on to build on Hoover’s failed policies of higher taxations, spending, and created a partial fascist state level of industrial control. The economy was severely damaged with this one-two punch and the longest and deepest depression in our history resulted. President Obama has chosen to repeat the mistakes of the depression with his tax and regulatory legislation. The credit bubble recession created by the federal reserve and government housing policies was never allowed to correct itself with the Dodd-Frank bill and extreme Federal Reserve and Treasury department policies he enacted. In addition to the credit freeze in the country, health care regulation and massive tax increases have frozen business decision-making and held trillions of dollars of private capital on company books and overseas.
The three free-market presidents had a great deal of success with their policies. President Reagan inherited an extreme inflationary recession and turned it around to one of the strongest growth periods in our nation’s history. JFK’s tax cuts also led to strong growth rates and very low unemployment. President Clinton’s policies led to a balanced budget and a roaring economy in the late 1990′s.
The history of free-market vs interventionist presidencies is surprisingly non-partisan. Both lists are split between Republicans and Democrats. The one commonality is that free-market policies have yielded consistently higher growth rates no matter what economy was adopted by the president. Interventionist policies have consistently retarded growth and led to protracted recessions.
It is panic time for the Romney campaign. We are in the final stretch toward the most important election of our lifetimes, and Romney’s campaign still hasn’t left the starting blocks. The fact that he is as close as he is to an incumbent president in the polls is a powerful testament to the failure of our current leader, not shrewd tactics from Romney’s campaign team. By every measure, Obama’s policies have been an unmitigated disaster to the United States. Until this past month, Obama could claim to have some solid footing on foreign policy, but now even that part of his presidency is proving to be an epic fail. It would be hard for a cardboard cutout to poll any worse than Romney given the circumstances.
So, how do you lose what should be the easiest election against an incumbent president since Richard Nixon? The problems to date widely recognized by the pundits and a very confused electorate are the following:
No one has any clue what Romney’s positions are.
There is no sense of urgency.
The public only knows Obama’s lies as to why we are in a recession.
Romney has been defined entirely by the Obama campaign.
The public doesn’t know how to get out of the recession.
There is an easy way to answer all of these concerns and a way of giving the nation a secure understanding of how Romney will turn us around:
Three to Five 30-minute “Fireside Chats” discussing the most important topics of the day.
These fireside chats will accomplish the following things that state to state campaigning, 30-second commercial advertising, and media outlets cannot:
Provide a clear explanation of our current situation.
Debunk the left’s lies about what caused the Great Recession.
Give the sense of urgency of how important this election is.
Give a clear concise message of what Romney will do to save the economy.
Provide powerful sound bites and themes to carry through November.
Though important, Romney cannot depend on the debates to accomplish these objectives since they will largely be run by highly motivated liberal moderators who will keep the subjects to personal attacks and issues they know are republican losers like contraception and abortion. He needs to control the medium and content to correctly define his positions and explain how he will save the United States.
The “fireside chat” tradition was started by FDR early in his presidency, when he addressed the nation with radio speeches organized into what he considered to be the most important topics. The best candidate to have recent success with speaking to specific problems and solutions in a controlled 30 min format was Ross Perot. He attracted a huge audience (over 16 million) and used very simple charts and graphs to explain subjects in a way that resonated with the public. Though he was unable to ultimately capture votes from party loyalists, he had powerful support with the independents, that same 5-10% that Romney now so famously said were his focus at a fundraiser earlier this year. Most importantly, it will allow Romney to take control of the national narrative that has been dominated by the Obama camp to date.
Below are suggestions for subjects and the information that could be presented in each. The following proposal lists important topics and gives a synopsis of what has happened under the “Obama Record”. Some of the points should be illustrated in pictures, charts , and graphs that will show the magnitude of the problem. After the synopsis, there is a description of what “Romney’s Plan” would accomplish and why it will address the problems that have festered under Obama’s presidency.
Growth
Obama Record:
Labor force participation rate Jan, 2008 to Aug, 2012: 66.2% è 63.5% or about 3.7 million fewer jobs than the beginning of 2008.
8.1% unemployment only made possible because of those dropping out of the force.
5.2 million long-term unemployed.
7.3% decline in median household income ($4K per family).
15% poverty rate.
Over 46 million on food stamps as of Aug, 2012… up from 26 million in Jan, 2008.
Over $2 Trillion in cash sitting on company books.
Hundreds of billions sitting outside the country because of tax concerns.
Regulatory uncertainty freezing business activity.
Frank-Dodd freezing nearly all small business loans.
Obamacare driving medical innovation offshore.
Romney’s Plan:
Create an environment for business to invest and grow. North of $2 Trillion of money sitting on balance sheets and off shore that would go DIRECTLY to investment in R&D and hiring, not the favors and pension padding of Obama stimulus dollars. That money will go to where it gets the best return. Under Romney that is in the US, under Obama that is offshore.
Lower business taxes to 25% and cut out loopholes. Lower taxes will bring in offshore money and increase the returns for domestic dollars.
Repeal Frank Dodd, which will lift the freeze on banks to lend to small business. Business start-ups have to go to “mom and dad” because Obama destroyed their ability to get money from banks.
Repeal Obamacare. The device tax is a company killer and 1/6th of the economy is in lock down as companies try to figure out regulations that are still being written. Show examples of companies that are taking their innovation dollars overseas.
Reduce regulations that make US investment onerous. Name some of the bad ones.
Encourage energy production in the US. Give numbers to show our untapped reserves. Give numbers to show how many jobs can be created. Mention that the oil will either be refined in our “green” refineries or seriously pollute in unregulated Chinese facilities.
Grant work visas to any foreign national who gets a graduate degree in the US. Stop educating the world’s innovators and then sending them away.
Taxes
Obama’s Record:
Higher tax rates kill growth. Period. This has been shown by the likes of even liberal economists Christine Romer and John Maynard Keynes. It is something that scares business and has created uncertainty.
Outsourcing at an accelerated rate partly in anticipation to higher business taxes (and partly due to increased regulations). Even the head of Obama’s jobs council, GE’s CEO Jeffrey Immelt is shipping thousands of their jobs off-shore.
Money made in the global markets does not return to the US because of high business taxes.
Over 50% of companies in the US file as S-corps and will see large tax raises well ABOVE the Clinton levels. That directly drains from hiring.
Obama’s tax cuts were temporary, econ 101 shows that temporary cuts do nothing to spur the economy.
The tax code is horribly confusing, counterproductive, hurts the little guy, and allows the rich to hide their money. It needs to be completely reformed. Describe what simplification means. Give real world examples.
Romney’s Plan:
Make the Bush cuts permanent. It will send a signal that S-corps and investors will continue to get good returns on investments in the US.
Decrease the corporate tax rate to 25%. This will directly free up money for hiring & innovation and encourage companies to keep their facilities in the US.
Give a one-time tax break for repatriating the hundreds of billions from overseas. This will provide a real stimulus directed by those who actually make jobs: businesses
Cut out loopholes in the code and simplify. The lower rates with fewer loopholes will actually be a more progressive tax. Describe what the loopholes are going to be with examples!
Give examples of how much easier it will be for someone to fill out their taxes and not feel like the IRS is always out to get them.
Debt
Obama’s Record:
On the Road to Greece.
Taxpayer money was spent to create jobs in foreign countries.
Taxpayer money was spent to promote and fund gas drilling by Mexico and Brazil.
Debt looks benign because interest rates are low. As soon as rates go up it will crowd out other government spending and lead to economy crushing taxes, on everyone
Over $6 Trillion added with little to show for it. Cost per job created is an astonishing figure.
That equates to $55,000 of debt per household added under Obama. Do you feel better off now?
Stimulus didn’t stimulate anything but uncertainty about the future.
At current rate of spending (and Obama projected budgets), we will have to take a 750 billion annual haircut on government programs in 10y just to service interest.
Romney’s Plan:
Reagan, Keynes(!), JFK, and even Clinton (large capital gains tax cut) showed that the best way to raise revenues is growth-inspiring tax cuts.
Entitlement reform! Show how to bend the curve and preserve the social programs. Show what kind of cuts you have to do if the budget is left under current projections.
Show the Bain Chief’s abilities to identify and cut waste out of systems with examples.
Show example of states and how they beat their deficits: New Jersey, Wisconsin, Massachusetts (under Romney), Indiana and contrast it with Obama style states like California and Illinois that raised taxes and pandered to labor interests.
Other good stats to show: http://www.powerlineblog.com/archives/2012/09/obama-versus-economic-freedom.php
Sound Money
Obama’s Record:
Fed continues to benefit Wall Street at the expense of Main Street under Obama.
Show how much purchasing power has decreased in the past four years and who that hurts.
Show the increase of money supply and show what that means for future “poor taxing” inflation when banks start lending.
Adds uncertainty to the market.
Romney’s plan:
Replace Bernanke with someone who will protect the value of money
Give business the kind of long-term certainty they need to make decisions.
Mirror what Reagan did with Volcker to get us out of the Carter mess
Branding
Obama’s Record:
Everyone thinks Bain was some financial engineering group that hurt companies for shareholders
Convinced the public Romney is pitching the same toxic policies that got us here in the first place.
Romney’s Pitch:
Romney’s business history was to create a firm that engages distressed companies or divisions and turn them around. Banks and institutions lined up to lend to Bain’s companies because of Romney’s record returning the money and building enterprises with it.
It doesn’t makes sense that a corporate raider who would loan companies up with debt and fire everyone would be a called upon by the Olympic committee to rescue them from too much debt… or for the people of Massachusetts to vote in a REPUBLICAN to rescue them from crushing debt and the nation’s worst job creation rate.
Romney went into a debt-crushed state and came out with a surplus, tax cuts, and maximum theoretical unemployment. Obama went into a debt-crushed country and came out with double the debt, tax hikes, and 3.8 million fewer jobs…
A series of talks that illustrate the above points in clear simple language, using charts, graphs, and real world examples, would win over the undecided and elect Romney with a mandate to put us back on the track to free markets. If Romney doesn’t reveal a clear plan, we will have four more years of Obama and solidify a “new normal” of high permanent unemployment, low growth, and steady progress to a debt crisis that will inevitably remove our status as the international superpower.
The GDP was revised from an anemic 1.7% growth rate down to 1.3% growth through Q2 of this year (the half-way point). That officially puts us .5% behind Canada for the same period. Other great news included that the demand for long-term durable goods decreased 13% in August, about 10% worse than we had thought….
But who cares? Terrible economic news to Americans these days is like telling someone in Chicago that a kid got shot on the south side. People shrug and mutter a lackluster “bummer”, but no one seems to have an emotional response to bad news anymore.
Perhaps even more disturbing, it seems as if the worse things get economically, the higher Obama’s ratings go. People are starting to believe that being trapped in a government-induced recession is the new normal. There is a growing perception that the Obama administration masters are controlling our lives for the better and we should be content with the impossible hoops we have to jump through to get a small business loan now or that chasing investment capital off-shore is better for us… It can only be described as national Stockholm Syndrome. The problem with Stockholm Syndrome is that the victim no longer wants the cure…
Mr. Pinard, a good friend and small business owner in Texas, was talking to me recently about the frustration of having to watch the mud-slinging between the two presidential candidates. In the melee of gaffs, gotcha commercials, and character attacks, he noted that no one was talking about the worst threat to our future: the debt. Mr. Pinard has to make sure that his books are balanced 365 days a year. If he were to fail to bring in more revenue than he spends, he would have to slow the growth of his company and even fire people. If the problem were to persist, he would go out of business. The only difference between Mr. Pinard’s home health business and the US is the timeline. Mr. Pinard doesn’t have a Ben Bernanke there to bankroll poor management and pass judgement day to a future generation.
The delay between action and consequence is the only reason that democrats are still taken seriously today. Like a spoiled child gambling in Las Vegas, they have little concern or awareness of the bills they are racking up. Even the president of the United States couldn’t answer how much his country owes to lenders. When confronted, Obama and other democrats use a reliable excuse they’ve been using for decades ”the debt doesn’t pose a short-term problem”.
That is no longer the case. On Sunday, Bryce wrote a great article describing how the debt not only poses a threat to our economy, but also our national security. The threat is no longer a problem for our children and grandchildren. It is our problem now. Thanks to the rapidly accelerated spending started under Bush and carried on by Obama, our day of reckoning is only one or two presidential terms away. It begins as soon as the Fed raises interest rates:
The following graph is the federal budget in 2011 as per the CBO:
And the following are the tax reciepts for 2011:
When looking at the above graphs of the US balance sheet, two things stand out:
There is a gap of $1.295 trillion between the numbers. The wealthiest nation in the world was taxed at one of highest rates (in relation to GDP) in its history in 2011 and produced $2.303 TRILLION for our masters to do what they need to do. They ended up spending 156% of that amount. This has been the story since 2008 and isn’t giving any sign of letting up soon.
The graph doesn’t include Obamacare and the extra $500 billion of additional annual interest we’ll be paying by 2018, after the fed raises interest rates to more “normal” levels. Austerity anyone? Who and what are we cutting to make this happen? Social Security? Medicare? Infrastructure?
This isn’t a lofty discussion of politics or conjecture. It is simple math. By the time your kids entering college are out looking for a job, we will be facing Greece-like cuts. Your money will be going toward a return for Chinese debt holders, not updating the bridge you cross every day or hiring a teacher at your local school.
The two pies presented above should be in the back of our minds every time a politician speaks. This our balance sheet. Ask yourself how long we could survive spending 156% of what we make… because that is exactly what each and every one of us is doing right now.
