Wednesday, August 18, 2010

We're Broke. Now What?

By Alan Caruba

“Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.” So said Laurence Kotlikoff, a professor of economics at Boston University, in a commentary on, August 10.

His solution was to “radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess.” Unmentioned is the fact that it has taken since 1913 when the income tax was introduced to reach this point.

Social security and Medicare are “social justice” programs which, like Fannie Mae and Freddie Mac, were created to protect people against themselves, encouraging dependency on the federal government instead of expecting personal responsibility. They have managed to drain the national treasury.

Social justice is one of those terms like “progressive” designed to hide the implementation of programs that can literally be found in the Communist Manifesto along with the abolition of property rights and other nasty “solutions” to the fact that life is not fair.

I recommend you get a subscription to The Heartland Institute’s Budget & Tax News monthly publication because it is one of the best ways I know to gain a quick insight to the real state of the economy. The August edition has some revealing headlines.

“Report Fuels Effort to Double Michigan’s Gas Tax”
“Proposed Washington State Income Tax Not Deductible, Attorney General Says”
“Oregon Raises Taxes, But Budget Situation Worsens”
“Illinois Lawmakers OK Budget Billions Out of Balance”
“Is the Pensions Bill Just a Bailout?”
“North Carolina Doubles Tax Reviews of Large Families”

One article, however, explains why most, but not all States are broke. “In Indiana, as Revenue Drops, So Does Spending.” What a novel idea. If you don’t take in enough money, you cut government spending.

Its author, Steve Stanek, a research fellow at The Heartland Institute, is the editor of Budget & Tax News. “Gov. Mitch Daniels (R) who took office in 2005, insists on fiscal discipline” and his enforcer is Christopher Ruhl, the Indiana Budget Director.”

While President Obama has complained from the day he took office that it’s all Bush’s fault, when Gov. Daniels took office he inherited a $800 million deficit. By dramatically reducing spending, the State turned a deficit into a $1.8 billion surplus. Unfortunately, Congress, even under the Bush administration, have not followed suit.

The Keynesian notion that a government can spend its way out of a deficit is, one hopes, now dead. The Roosevelt administration embraced Keynes, a British economist, throughout the 1930s and the result was the Great Depression.

One reason Governor Chris Christie of New Jersey (R) is now a rock star is because, on taking office, he confronted the state’s power teacher’s union and began to cut the budget to reduce an $8 billion deficit. What many Americans are only now realizing is that it has been the civil service unions that have been draining state and local budgets thanks to unrealistic salaries along with healthcare and pension benefits.

The Democrat Party has successfully portrayed the Republican Party as wanting nothing more than to put widows, orphans, and all others out on the street. It is pure demagoguery and it reflects the torrent of lies President Obama told throughout his campaign and since his election.

Kotlikoff explained why most Americans have been unaware of how bad the situation was. “Based on the Congressional Budget Office’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt.“

“This gargantuan discrepancy between our ‘official’ debt and our actual net indebtedness isn’t surprising. It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities ‘unofficial’ to keep them off the books and far into the future.”

Well, guess what? The future has arrived and, for a generation or two of Americans, unless the debt is dramatically reduced, they will be little more than slaves of the federal government who exist to pay off all the borrowing and all the imploding social justice programs such as Social Security and Medicare.

I frankly have zero faith that either the Democrats or Republicans, whoever is in Congress after the midterm elections, will do much more than nibble around the edges of the fiscal crisis.

As for the States, they are more likely to take some action, but even then you will have to cross your fingers. A good start would be the forced renegotiation of civil service contracts.

© Alan Caruba, 2010


Rich Kozlovich said...


We here in Ohio keep losing companies because of the very issues you address regarding teachers, civil servants, and an unwillingness to make the hard decisions. We have balanced budget requirement in our state constitution...and yet we have an 8 billion dollar deficit that hasn't been addressed. We lost the Hoover vacuum cleaner company and 400 jobs a couple of years ago. Where did they go? China? Taiwan? Mexico? NO! Indiana! They get it there, and after November we will most likely start getting it here because we will have a governor that has actually balanced a budget. In this case it was the Federal budget. And no…it wasn’t Clinton or Gingrich that did it. It was Kasich…he was the chairman of the budget committee in the House. I can't imagine that balancing Ohio’s budget would be harder.

Rich K.

LarryOldtimer said...

What legislators in about every state don't seem to realize is almost every piece of legislation that is proposed or passed requires administration by state employees, and the same is true of the federal government and county and city government regarding this: Added legislation, even contemplated legislation, requires more public employees. Even if that administration is contracted out, it still adds to budget cost.

There are a good many government programs, Federal, state and local, which in reality have no useful purpose, many times costing businesses small and large enormous bookkeeping costs, requiring many public employees to administer, even if the government administration is no more than collecting data and filing it away.

Passing new legislation doing away with all of these useless and costly to administer requirements would not only cut the cost of governments and reduce the number of public employees needed, but would eliminate great costs to businesses large and small. No loss of essential services would be required in eliminating completely all of these useless data collection requirements, and ending accomplish-nothing but expensive to administer existing legislation would be of great benefit to our economy.

I worked for state and local government for a good many years. Data upon data is collected each month, only to be stored away and never looked at again.

This data collection mania of governments is going to have to come to a halt if our economy is ever going to get better.

Ronbo said...

I think the Obama Regime hopes their policies cause hyper-inflation as a means to terminate the federal debt.

This would end private wealth for most Americans and reduce the country to near total joblessness, poverty, hunger and hopelessness - but, hey! The national debt would be retired.