There is a tremendous amount of uncertainty today in the U.S. and the world. Our politicians have negotiated a debt ceiling extension and will try to agree upon another amount of deficit improvement before the end of this year. We've been hearing much from the politicians about the need to get our U.S. financial house in order, and we will be hearing much more of such political talk for the foreseeable future.
In addition, we are barraged continuously with news that the economy is teetering between slow and no growth, and that unemployment remains unacceptably high. Both are true statements about the ways things are, and there's a high likelihood that we will have a soft economy and high unemployment for several more years to come.
Politically, we're hearing the various candidates for the presidency talk about what they'll do to make things right in America. In the rest of the world, similar conversations are taking place.
So we're hearing lots and lots of general chatter, talk show hosts included, about our problems, but the chatter is far too general. Somebody needs to step forward and begin to talk specifics in order for the talking to be actionable. That way we the people can decide the proper way forward for America.
We all know that we have big problems, and that the status quo can't continue indefinitely. Yet nobody is proposing genuinely specific solutions about growth, jobs, debt, deficits and what all this means for future spending for entitlements and education. Also not discussed specifically are what corresponding levels of taxes and borrowings will be required to support those future expenditures.
Here's what I know about our past, present and future America.
More freedom means less government, resulting in greater economic growth and higher employment for our citizens.
More government means more taxes and government borrowing, resulting in less economic growth, less freedom and higher unemployment for our citizens.
More taxes and government borrowing means bigger government and fewer individual freedoms.
So today let's talk about what the politicians are not talking about - the longer term. Because that's the real story that matters most.
Do Congress and the White House Deserve an AA+ Rating? is an article by a Professor of Economics at Princeton that reviews the rationale behind our nation's first ever debt downgrading last week. The downgrading simply confirms that our country's financial condition is no longer the envy of the world.
But that's not why I invite you to take the time to read the referenced article and its conclusions about our disappointing style of governance today. We need to focus on the failings of our national governance and how as a result we've gone astray with respect to living within our means.
In part the article reads as follows: " ..... one manifestation of the decay in the federal style of governance has been the discovery that the American voters can be pleased by providing them with a growing array of government services and financial transfers and by underwriting these with deferred taxes -- that is, current deficits. The deferred taxes are to paid off by generations not yet born or still too young to vote."
It then goes on, "In the words of Doug Elmendorf, current director of the Congressional Budget Office, in a presentation last year, 'The United States faces a fundamental disconnect between the services that people expect the government to provide, particularly the benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services.' "
A revealing and straightforward chart titled "Total Revenues and Outlays" is taken directly from a financial report by the Congressional Budget Office. The chart highlights what our political leaders have projected in the way of receipts and expenditures at the federal level through 2021. It's not a pretty picture. If everything goes as predicted, we still won't bring the budget into balance during the next ten years.
And that projected result in 2021 assumes that our nation will return to its historical rate of economic growth, which is at least unlikely. Unfortunately, that economic growth assumption is by far the single biggest factor in the receipts and expenditures prediction.
In other words, the government optimistically forecasts that expenditures each year will run much higher than, but in parallel with, receipts for the entire ten period. The receipts and expenditure lines won't intersect even once.
Here's my take.
If a private business (or family) predicted it would lose money for the next ten years, management would be fired immediately or the company's shareholders and suppliers would remove their money from supporting the enterprise. And that would be absolutely the right thing for them to do.
But in our government's case and the public arguments of its politicians, we ignore fiscal prudence. My guess is that we probably won't hear much, if anything, about balancing the budget with respect to SPECIFICALLY HOW it will be done. Or even SPECIFICALLY WHEN it will be done.
Oh, the politicians will tell us that that they feel our pain and that we must deal with our financial problems sometime and in some way. And that America will always take care of the old, the young, the sick, the poor, farmers and small businesses, among others. But they won't venture to tell us how this will happen. The plain fact is that it won't happen unless and until we get serious about fiscal sanity, economic growth and private sector job creation.
Basic economics is simply about making choices with respect to scarce resources. We can't have everything. It's as simple as that. We have to choose.
So if the oldsters want to continue the current level of social security, medicare, nursing home care and such to be provided by the government, will the money come from their kids or their kid's kids or elsewhere? And if elsewhere, where's that?
And if the progressives want government to spend more on schools, health care and such, will the money come from the oldsters, tax increases on everybody, or where? And how much will everybody pay, since the rich can't foot the bill by themselves?
We need one political party to make a credible plan and communicate that plan to the people. If the people vote for the plan, then let's follow that path.
And the other party should put forth a competing and credible plan. If the people endorse that plan, so be it. But as it is, there is no plan to get the parallel lines of revenues and spending by government to intersect in any specific way.
We the people need to insist upon credible and competing alternative choices from the politicians. That's only fair. No more sound bites, demonizing, sermonizing and such. Just tell us specifically what they propose to be done. In numbers as well as programs. And with a timeline that can be monitored by we the people during the implementation stage. That's phase #1.
Then when they don't deliver as promised, we can throw the bums out and try again in phase #2. And so on until we get it right.
Accordingly, and unlike the article's conclusion of awarding a B grade, I vote to give Congress and the President an F grade. That's because there isn't, and likely won't be anytime soon, a specific, credible and well communicated plan to bring our financial house in order.
And if we the people don't force the discussion to occur, we will deserve an F as well.
How will the future generations vote for the job we've done, are doing and will do? That's the real question that matters most.
Short termism and "vote buying giveaways" are on their way out, and that's good. The only question is when. It can't happen soon enough.