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The Nonissue That’s Still an Issue

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Let the voters beware.

There are lots of Wimpies and Wilkins Micawbers who propose to expand deficits by spending more of your money now, with the promise that next year or five years from now the nation will have surpluses.

This legerdemain allows candidates to skirt or ignore what is possibly the most important issue now, the issue that most candidates avoid — overspending. The crisis of spending is now.

The government’s relentless spending threatens to hobble a weak economy with ridiculous costs.

Yet most popular mainstream candidates are pushing policies that will ultimately lead to still more economic disaster and possibly another market meltdown or national bankruptcy or both. They are mostly Wimpies and Micawbers whose policies mean spending today by ignoring a dangerous financial future that is getting closer and closer.

It is a future that could, in one market blowup in which markets lose confidence in the ability of the government to repay, destroy our economic liberty.

The forgotten lesson

It is a lesson that was illustrated by President Grover Cleveland, whose comments in 1887 remain relevant today. He warned of the evils of government overspending and overtaxing.

The United States Treasury, he said, would become “a hoarding place for money needlessly withdrawn from trade and peoples’ use, thus crippling our national energies, suspending our country’s development, preventing investment in productive enterprise, threatening financial disturbance, and inviting schemes of public plunder.”

Why have most politicians forgotten or never learned this lesson of economic liberty? It’s because most major political candidates, especially those on the presidential trail, have taken a see-no-evil perspective on one of the most important issues threatening the health of our country.

Almost all of our political class, both Republicans and Democrats, have grandiose plans to spend lots of money or cut taxes. And none of the leading candidates will go into detail about how taxpayers today and tomorrow will pay for it. Although the two major parties claim to have staked out dramatically different positions, the truth is, they are in tacit agreement on spending. They both propose much more of it.

Most Republicans actually don’t disagree with Barack Obama. Most Republicans are not calling for the huge spending cuts needed to prevent the nation from following the same road taken by Greece and other advanced welfare-state democracies, nations whose government overspending could lead to a worldwide depression. This is a lesson that even some socialists have recognized.

“I have always pleaded that people should be careful when overseeing government finances. There are many who are too easily inclined to act as though they are inexhaustible.”

Those are not the words of a Friedrich Hayek or a Ludwig von Mises, but instead of socialist Willem Drees, a post–World War II Dutch prime minister who founded Holland’s Social Security system (History of Holland, Mark T. Hooker, p. 147).

There is a constant that Drees warned of: The tendency of governments, Right and Left, to overspend.

How to continue the madness

Indeed, the Obama budget record is quite similar to that of previous presidents and congressional leaders’ positions on red ink: pretend concern. Appoint a commission and forget it, even if its members take things seriously. The commission’s recommendations can always be ignored or waylaid. (The Kerrey-Danforth Entitlement Commission of 2000 predicted all the problems we are going through now. It was ignored.)

Propose some spending cutbacks, but with a twist. The cuts go into effect five or ten years down the road. That’s when you’re no longer in office, collecting a government pension that is much better than the 401(k)s most of your former constituents have. Continue spending and spending in the short term. Elections often can be bought with promises of wonderful programs.

(In 1972, both the Republicans and Democrats tried to outdo each other with who could make bigger promises on expanding Social Security. Forty years later, the result will be documented in this article.)

First, let us examine the numbers of a president whose administration is becoming the Wilkins McCawber of presidencies, the veritable gold standard for red ink and failed promises of prosperity and deficit reduction. Campaigning four years ago Obama promised the deficit would be halved by this point. Obama, “read my lips” George H.W. Bush, and middle-class tax cut Bill Clinton all apparently hoped that, once in office, voters would forget what they had said during the campaign.

The president’s latest plan projects the deficit at $1.3 trillion in fiscal 2013, continuing a pattern of new debt that never seems to end. Indeed, the trend is unmistakable under Republicans and Democrats — it’s going from bad to worse. Obama is running for reelection after four consecutive trillion-dollar deficits.

Slow spending?

Yet clearly, substantially slowing government spending is not a priority for this administration, or for the prior one for that matter. In his latest budget, the president projects that federal spending will increase by $193 billion to $3.8 trillion. That means a few things.

Just in two fiscal years, from 2011 to 2013, the total debt will go from 68 percent of GDP to 77 percent, according to U.S. Office of Management and Budget. The debt to GDP figure was once about 40 percent in the 1970s and now it seems headed for close to 100 percent in the next five to ten years unless something dramatic changes.

At the same time the president is proposing new spending cuts. But most of them don’t go into effect for years and certainly they are not going to kick in during an election year. This is an election year in which the president has nearly $2.1 trillion of new spending proposals, which are a hallmark of his administration. Indeed, the four Obama budgets will constitute the four highest-spending years for the federal government since 1946.

The nonpartisan Committee for a Responsible Federal Budget says the president’s latest plan would not constrain rising debt over the long term.

“According to the Administration’s own estimates,” the committee recently wrote in an analysis of the president’s plan, “debt would grow as a share of the economy past 2022 — exceeding 93 percent by 2035 and nearly 125 percent by 2050.” Such spending levels, the committee adds in an understatement, would be “unsustainable.”

The latest budget proposal also means that the Obama administration will have run up nearly $5 trillion in new red ink over the past four years. Thirty years ago the whole debt of the United States was about $1 trillion, although one can and should always closely examine any official government numbers.

Now, with this new red ink, the debt is in the dozens of trillions of dollars. I estimate dozens because most economists agree that today’s official $16 trillion debt, which is even quoted in the Wall Street Journal as though it is a real number, is bogus.

Next year and next year

Yet the administration, once again, is, in effect, saying give us time to do things, such as raise taxes on the rich and turn the economy around, but wasn’t that the same message in 2008? Now it promises that the deficit will finally come down over the next four years. But how reliable are those projections?

The administration expects real GDP growth of 2.7 percent this year and 3 percent next year. Yet the administration in 2009 originally expected the recovery would happen two years ago, with the economy booming by now. Nobody thinks the economy is now booming.

We are now in a weak recovery. And the Congressional Budget Office (CBO) disagrees with the Obama numbers. It projects only 2.2 percent growth this year and things get worse next year (1 percent GDP growth). Of course, lower growth means less in tax receipts, which means higher projected deficits.

Yet the Obama administration, like a sleazy business cooking the books, is in effect already booking sales that have never happened, expecting happy days that haven’t come.

The other side to the rescue?

Certainly, the main opposition party, the Republicans, must be offering something more credible and realistic, right?

No, with few exceptions none of them will ever be mistaken for statesmen at the height of a crisis, telling us hard truths and offering us the right solutions.

That was recently underscored by the Committee for a Responsible Federal Budget, a group whose name seems an oxymoron.

Most Republicans seem to share the same general approach. In effect, they almost all say, Yes, I know we have a serious spending problems, but we have to go ahead right now with ______ (fill in the blank): more government health-care programs, more aircraft carriers, no significant cuts in government departments and space projects, and so on.

The GOP candidates on spending

Let’s take former House Speaker Newt Gingrich, who favors tax cuts as well as hundreds of billions of dollars in new spending, some of which include establishing a moon base and a manned mission to Mars. Whether one favors government space exploration or not, Gingrich seems to ignore a hard fact: the country can’t afford such projects.

“We estimate,” writes the Committee for a Responsible Federal Budget which analyzed the Gingrich spending plan, “that taken together, these proposals would increase deficits by $7.0 trillion through 2012 under our intermediate projections, resulting in 2021 debt levels at about 114 percent of GDP.”

How about the leading Republican candidate, the former governor, Mitt Romney?

“We estimate the sum of his proposals would increase deficits by $250 billion through 2021 under our intermediate projections, resulting in 2021 debt levels at about 86 percent of GDP,” according to the committee.

To get a historical view of these blinding numbers, remember that in 1970 debt was about 40 percent of the GDP. We’re close to doubling that in 42 years of reckless spending.

Maybe former Sen. Rick Santorum takes overspending seriously?

Maybe not.

“In total, we estimate the sum of his proposals would increase deficits by $4.5 trillion through 2021 under our intermediate debt projections, resulting in debt levels at about 104 percent of GDP,” according to the committee.

So I suppose the Committee for a Responsible Federal Budget has nothing good to say about the GOP candidates.

No.

Rep. Ron Paul actually earned the committee’s praise. “We estimate that, taken together, these proposals would reduce deficits by $2.2 trillion, resulting in 2021 debt levels at about 76 percent of GDP in our intermediate debt scenario,” according to the committee.

How are his proposals to reduce federal red ink different?

Paul is not talking in generalities, moon shots and tax cuts without offsetting spending cuts. He is not saying that eliminating “fraud and waste” or appointing a spending commission or kicking the spending-reductions can down the road for the next administration would solve the problems.

No, Paul, who also has big tax cuts as part of his plan, is actually giving specific instances of how he would reduce spending and pay for those cuts. He would enact defense-spending cuts, end overseas wars, and eliminate five federal departments.

But won’t the other Republicans save us from all that red ink? Won’t they level with us and tell us to stop the madness? If we go by their records, if we go by their campaign rhetoric, the answer is no.

A poor GOP record

Senator Santorum was a Republican senator who never objected to the Bush administration’s overspending.

Rep. Newt Gingrich, after his days as Speaker of the House, made big bucks advising Fannie Mae and Freddie Mac. The latter were two government-sponsored enterprises that went bust from mismanagement. They were at the heart of the mortgage disasters that led to the market meltdown of 2008, a meltdown that will take years to clean up.

Governor Romney sponsored a government health-care plan in the Bay State that now runs over budget and is a fiscal mess.

But as important as what those big spenders did is what they are proposing. In effect, their economic diet is based on the idea that one can eat junk food right now and eat salad later. The ideas of Gingrich, Romney, and Santorum are that tax cuts will stimulate the economy and there will be no need for any substantial cuts that would make them unpopular with voters.

So why are there no serious plans by most major political figures to stop the reckless spending that threatens to turn the United States into a Weimar Republic or a Spain under Philip II?

Neither Romney, Gingrich, Santorum, nor Obama offers anything that is specific for cleaning up the mess of excessive government spending that has been going for decades and generations. (I know some will cite Clinton’s surpluses. But the debt, despite surpluses in his second term, continued to go up under Clinton. That’s another example of why the government should be subjected to far stricter accounting standards.)

So it’s not surprising that all Republican presidential candidates, save Paul, are offering plans that would make the problem worse. They helped Democrats to make this a serious problem. Most of the Republicans have played a prominent role in running up a $16 trillion (sic) national debt (please see below). By contrast, Paul, in his years in the House, has consistently voted against spending and tax increases. According to the National Taxpayers Union, Paul’s career score was 90.8 percent. Gingrich’s was 61.9 percent and Santorum’s was 75 percent.

Can you trust government numbers?

And, by the way, that $16 trillion is not an accurate number. The number is actually much bigger, according to the former comptroller general David Walker and other financial experts.

In an article I wrote for the New York Post about two years ago, when the official debt number was $13.4 trillion, Walker and a group of economists I surveyed all agreed that that number was fraudulent. Their estimates? Somewhere between $50 trillion to $200 trillion. One economist, Laurence Kotlikoff, said the government was “functionally” bankrupt.

What is the debt, as distinguished from the annual deficits, the government, under Republicans or Democrats, seems to run each year?

The debt is the accumulated deficits. In 1970, the debt — the amount of all the accumulated deficits, represented about 40 percent of GDP. It has risen by nearly 75 percent over the past forty years and is today about 70 percent of GDP, according to OMB numbers. What is most alarming is the trend. The debt, even with the most optimistic projections, is likely to rise in the coming years, economists say. That’s because previous governments have made pie in the sky promises that are coming due.

Now aging baby boomers will expect their entitlements, such as Social Security, which recently, for the first time, reported that it was in the red, according to the Social Security Commission. That means the program has been paying out more money than workers are paying into it.

“Entitlement programs in the red” actually is dicey way of putting it, since Social Security and Medicare have no money, merely the paper promises that a government says it will make good on while requiring workers to pay into the system. Nevertheless, the trustees of this system last spring warned that problems are coming sooner rather than later.

“Trustees for the two funds said the Medicare trust fund is projected to exhaust the funds in 2024, not 2029 as estimated last year, and that the Social Security retirement program will run out of money in 2036, not 2037 as previously thought.”

That is a trend that is likely to continue because the birth rate is declining and people are living longer, the commission warned. But there is another factor that makes the problem worse and increases the red ink: there is no Social Security trust fund. The surpluses, in the years when there were fewer retirees and more workers, were spent every year on all manner of government expenditures. Here is another example of the government’s “Enron accounting” that would send people who tried such chicanery in the private sector to jail.

Clearly, our government doesn’t believe in government under law. Our government believes, like Charles I and Louis XIV, that the law is subservient to it. That is a subject for an interesting book, or perhaps a library of books that document the deeds of lawless governments.

“The history of Social Security,” an economist friend of mine once said at a 401(k) conference I attended about 15 years ago, “is that whenever there have been surpluses, politicians have spent them.”

Here, by the way, is another reason for Social Security and all entitlements to be privatized and why a young generation of American workers should have the ability to have individual retirement accounts that they — not the government — should control.

Baby Boomers depending on entitlements to fund a significant portion of retirement are playing with fire: You can’t trust the government to keep your money safe, especially when the government forces you into those systems.

The career politician’s problem

Why do the candidates, save Paul, have little to say about how the nation is spending itself into the poor house?

It’s because the leading candidates all have their eyes on the office over everything else. And winning an election in an advanced welfare-state democracy is usually based on who can make the biggest promises. The bigger the promises — no cut in defense spending, expanding entitlement programs, and big tax cuts for everyone — the more likely the candidate is to win favor with the constituency of court intellectuals, mainstream media, neocons, and status-quo voters who believe the nation, no matter how much the red ink there is, needs more of the same.

Four years ago, I wrote a story calling spending the “Nonissue That Should Be an Issue.” I will not say that little has changed since then because things have actually become much worse! Back then the official debt figure was $7 trillion.

In the last four years, the nation has rolled up four consecutive trillion-dollar deficits. And that’s just the official numbers. As I have said, much of the debt incurred by the government isn’t even counted in the official deficit numbers.

Example: Social Security/Medicare obligations aren’t counted as part of the official debt. Does the government expect that tens of millions of Americans will be happy to give up their entitlements, entitlements they were forced to pay for throughout their working lives in the form of regressive taxes euphemistically called “contributions?”

Who pays to keep the promises?

Social Security/Medicare bills are real debts that are coming due. Tens of millions of baby boomers have made plans for retirement on the basis of receiving those benefits. They can’t go back now and re-live their lives, increasing their private assets.

This shady “we don’t recognize certain debts” practice, which is a bipartisan one, is a practice that I think any sensible person would agree is an example of “Enron accounting.”

Our governing class doesn’t want to discuss overspending in detail. So it’s clear that they want Americans to accept more of their statist philosophy even when some of them actually claim they will reduce the size of the state.

Demand the truth

But how can one reduce the size of a government that will continue to spend more and more? That is certainly a logical question that should be put to the candidates again and again until they get sick of hearing it and actually have to give a coherent answer.

Instead of actually answering, most candidates, seeking to avoid hard choices, will coat their promises with phrases such as, “Change We Can Count On” or “Deficits Don’t Matter.”

It is all campaign drivel; it is political pabulum that patronizes voters.

Indeed, at heart, our ruling pols have the soul of French collectivists who believe that “the government must pay for everything.” It is a philosophy brilliantly detailed in a book by the Gaullist minister Alain Peyrefitte, The Trouble with France.

So most of our candidates, as usual, are scamming voters. But unfortunately some of them are ready to accept this political Three-Card Monte. The truth is that the major candidates actually believe that “the more things change, the more they stay the same.”

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  • This post was written by:

    Gregory Bresiger, an independent business journalist who works for the Sunday New York Post business section and Financial Advisor Magazine, is the author of the book Personal Finance for People Who Hate Personal Finance.