Sunday, October 7, 2012

Is More Government the Answer? ... Economic Growth, Creating Jobs and the National Debt ... Another Year, Another $1 Trillion Deficit

After the latest jobs report Friday, President Obama told the American people that we must stay the course. In his view, we've come too far to turn back now. Really? Where are we headed?

Will the road we're following lead to leaving behind a legacy of a wonderful and prosperous future American society for our kids and grandkids? Just like the one we were given.

Or are we instead on the equivalent of the European economic road to perdition, aka economic hell, which eventually will end in double digit rates of unemployment, bankruptcy, high inflation, depression or what? Similar to the one many of our parents experienced.

Are we in fact on the right road, as Obama says? Or does a closer look at the facts suggest that his "progressive" way is the road to ruin? Is he leading us down the European road instead of following the path of individual freedom and self reliance chosen long ago by our own Founding Fathers?

Let's see how this road we're following works and where it goes. Let's discuss economic growth versus government growth, a vibrant and growing private sector versus a growing and interventionist public sector, a road to private sector productivity and personal responsibility versus the road to bigger government and the European social democratic approach.

Each year of the Obama administration we've experienced $1 trillion fiscal deficits, thereby creating additional heavy debt servicing burdens for both ourselves and future generations of Americans.

Th Federal Reserve has minimized the immediate impact of these deficits by fostering unsustainably low interest rates. But for too many Americans depending on fixed income investments in their old age to help meet their income requirements, they're simply out of luck.

And for future Americans who will be forced to pay higher interest rates and taxes on all this existing and soon-to-be newly created debt, they'll be in for a very unpleasant surprise.

Yes, Mr. President, deficits do matter a great deal and so does the level of interest rates. As the old Fram Filter commercial said, "You can pay me now or pay me later."

$1 trillion deficits lead to excessive debt and excessive debt leads to high interest rates, leading to higher taxation, leading to lower economic growth, leading to recession, leading to fewer jobs, leading to less income, leading to higher taxes to service those debts, and so on down the drain the country will go, assuming we keep following the road we're on now.

Turning back, cleaning up our act and living within our means is a very good idea, and the sooner the better, too. Even if that means laying off Big Bird, not "investing" in Solyndra, and cleaning up the losses at the post office and other government entities, too.

Does President Obama have a serious plan to stop the deficits? Not that I've noticed. And certainly not one he's discussing.

And how exactly does Mitt Romney suggest that we would be able to stop the deficits? By growing the private sector, of course. And by shrinking the public sector at the same time. Growth by shrinking, in other words. And it does work.

We'd be able to grow our economy and create wealth, jobs and taxes by drilling for more oil and gas and extracting more coal, as examples. And by encouraging rather than vilifying private sector job creators, such as Bain Capital, as another example. And by our President and other politicians communicating clearly to a largely underinformed American public the different economic effects of creating public sector and private sector jobs.

Here's a simple explanation of how the process of risk taking investment works in the private sector. New private sector investment (as opposed to using that same money to pay more taxes) will result in real economic value creation, such as oil and gas, which either can be used domestically or sold around the world at market prices. This type of successful investment will invariably result in U.S. economic growth, jobs, higher incomes and additional tax revenues. All of these nice-to-have things result from successful private sector investments.

To repeat, a successful private sector investment creates NEW income and ADDITIONAL wealth. And an unsuccessful one, for that matter, doesn't cost taxpayers anything. Just the losing investor. To the rest of the taxpayers, it's a chance to win and a "no lose" proposition, unlike taxation.

In other words, a private sector investment results in a "riskless" approach for other taxpayers which comes along with an opportunity for huge gains for one and all. And that, my friends, is the way America became the world's leading economy able to provide the world's highest standard of living for its citizens. To be blunt, our American Exceptionalism is all about the Private Sector, Stupid!

That successful private sector investment then will lead to more investment, additional jobs, more income, more taxes and a balanced government budget, enabling society to pay its interest and principal on its debts outstanding, thereby leaving a wonderful deficit and debt free legacy to future generations of Americans. A virtuous circle. Productivity in play.

But needless to say, it ain't working out that way today. Not on the road we're taking and happily being led down by President Obama and his band of "progressives." And for a peak at where their "progressive" road will take us, let's look at the public sector and how it works.

In the public sector today, too many resources are being in effect confiscated from the private sector in the form of taxes to redistribute to public sector workers and other citizens, including the elderly. In addition, much of the money goes to ill advised government sponsored crony capitalism "investments" as well. As a rule, no wealth is created and no future jobs will result. That means adding more government programs and spending will require that more money must be taken from the private sector. It's a vicious circle. A downward spiral economically is the inevitable result.

But it's even worse that that. Public sector growth does add to the debt or necessitate higher taxes. Government has no money of its own. It's a mere conduit. Thus, either adding debt or raising taxes to pay for more government spending will weaken both current and future economic growth. And that's never a good thing for deficit and debt ridden societies like the U.S. is today.

Another Year, Another $1 Trillion-Plus is subtitled 'The Obama Presidency goes four for four on record deficits' and puts the question this way:

"One October irony is that even as President Obama hits Mitt Romney for lacking details . . . nobody seems interested in the substance of Mr. Obama's supposed $4 trillion deficit reduction plan. Maybe someone will ask after Friday's report showing another $1 trillion-plus deficit for 2012.

The Congressional Budget Office puts the figure at just under $1.1 trillion for the fiscal year that ended September 30. As a share of GDP, that's larger than any other year since 1947, except for 2009, 2010 and 2011. . . .

Federal spending in 2012 came in at $3.5 trillion, about $59 billion or 1.6% less than fiscal 2011. Outlays fell in most places except the entitlement state, with Medicare growing by 3% and Social Security by 6%. Some of this reduction can be explained by fewer people receiving jobless benefits and unwinding the wars in Iraq and Afghanistan. The Pentagon budget fell 3% overall—that's a hard cut, not a decline in the growth rate.

Another worrisome portent is that annual interest payments on debt held by the public fell 3%, to $258 billion from $266 billion in 2011, even as debt held by the public increased. That's because the Administration is rolling over its debt sheet in the short term to take advantage of today's bargain interest rates, which can't last. The boys at the Treasury, not to mention the Federal Reserve (who are buying the long-term bills), are storing up trouble for future Presidents when rates rebound toward their historical norms.

Better hope the President's $4 trillion "plan" really is sitting in a drawer somewhere."

Summing Up

Sadly, no "progressive" seems very interested in discussing exactly HOW we're going to live within our means in the future. By taking a magic deficit and debt reduction pill perhaps?

Of course, the only "un-magical" way to do that is to grow the economy and provide jobs, leading to more income and increased taxation as we work to bring our fiscal house in order and under control.

And yes, that even means laying off Big Bird or at least taking him off the government dole. You're on your own, big fella.

It also means a leaner, appropriately compensated (relative to private sector jobs) and more productive public sector, unless we want to raise property and other taxes dramatically to pay for our currently unaffordable public sector pensions and payrolls.

In simple terms, our government is spending money we don't have and enormous deficits and debts are the inevitable result. And the accumulation factor makes it a problem that simply won't go away if we don't make it go away.

And the "progressives" won't ever make these financial problems go away, because that's simply not the "progressive" way.

That's too bad but it's too true, too. The "progressive" way is the wrong way.

We in fact do need to turn back now, before it's too late.

As President Reagan said so well, "Government is not the solution to our problem; government is the problem."

Thanks. Bob.

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