Archive for October, 2012

Spending Drives the Debt

Thursday, October 25th, 2012

Originally posted at the Coalition to Reduce Spending

(Note: I am a member of the Board of Directors of the Coalition to Reduce Spending)

Over at EconomicFreedom.org, Sam Patterson wrote an informative blog post entitled “We’ll Never Know the True Cost of the National Debt,” which is worth highlighting. Throughout the piece, Patterson throws out some disturbing numbers that should concern all Americans.

For example:

In 2000, U.S. national debt was about 57% of GDP … today it is a full 102%.

The Congressional Budget Office (CBO) projects that in 25 years our debt will be double our GDP, meaning we will owe more than twice the value of all goods and services produced in America in an entire year.

We are adding more than $1 trillion to it every year. If we continue spending at that rate then, in the coming decades, the interest on the debt alone will be nearly impossible to pay.

The interest on the national debt last year was more than $450 billion.

These are sobering figures, and prove that easy political promises don’t necessarily translate in the real world. For a visual representation of just how out of hand government spending has gotten, Patterson provides a fantastic chart that demonstrates how spending drives the debt:

Given the gravity of the situation, what can we do? At the Coalition to Reduce Spending, we believe the most impactful way to change the way DC works is through outside pressure. The magnitude of our debt problem requires citizen engagement that creates a new incentive structure for our elected officials. First, Americans need to be educated as to the extent of the issue, and how it directly impacts them. (Can each taxpayer afford their $113,000 share of the debt?).

Then, these voters need to challenge the Washington culture by demanding their representatives stop saddling them with unsustainable debt – which is why we’ve crafted our Reject the Debt pledge, which we we hope you’ll encourage your Congressman and Senators to sign so that together, we can hold them accountable. When the men and woman in DC feel they don’t have to answer for their behavior, they will behave accordingly, hence our current situation.

After all, the massive borrowing and spending the politicians in DC engage in is ultimately everyone’s problem, because together, all Americans will have to bear the consequences.

As Patterson explains:

Despite the drawbacks and risks, many of us are willing to go into debt for an education, to start a business, for reliable transportation, or for housing. In other words, we decide that there are instances when the benefits of borrowing money are greater than the costs of paying it back.

The federal government is supposed to be making the same calculation—looking at the risks posed by having debt, then deciding whether or not the benefits of the loan outweigh the risks. But that isn’t what the government is doing. Borrowing from foreign countries to enable current spending is now the standard operating procedure in Washington, no matter what the drawbacks of borrowing or the risks involved.

Clearly, our government is far beyond the point of borrowing responsibly as a means to create economically viable outcomes in the future. What the politicians in Washington have done is create a system that is ultimately unsustainable – and it’s up to us to call upon them to reverse course.

Romney Shined – Will it Last?

Thursday, October 4th, 2012

I’ve shocked myself by feeling this way, but Mitt Romney has finally impressed me. As a Massachusetts native (and adopted Texan, thank God) I’ve been waiting a long time for my former Governor to fire me up. And I’ll admit – his debate performance Wednesday night actually got me excited. Romney looked presidential. Obama looked weak. Romney sounded authoritative, utilizing real facts, figures, and studies. Obama wavered and told irrelevant sob stories as a means to distract from reality. Anyone who watched could tell objectively, that Romney absolutely destroyed Obama. After all, the CNN poll wherein only 25% of viewers voted Obama the winner says it all.

While I was highly encouraged by Romney’s performance when it came to domestic and economic issues, I’m skeptical that this honeymoon will last. I say this is due to the fact that there is an upcoming foreign policy debate – and the way Romney has framed many aspects of this issue (particularly during his Republican National Convention speech) has made me cringe. Romney has unfortunately, made a habit of engaging in what Congressman Mick Mulvaney (R-SC) has brilliantly termed Military Keynesianism. 

Essentially, Mulvaney called out many of his Republican colleagues for treating the military as if it’s a jobs program, and not simply for defense purposes. As if somehow, because the military is the most important function of government, it’s impervious to the laws of economics. Military spending should unquestionably be our nation’s top priority – but acting as if using government money to pay for military activity is any more of an economically sound jobs program than an Obama style stimulus dig-holes-fill-holes program is to misunderstand how free markets function. Romney eloquently explained to the nation why Obama’s “trickle down government” policies have failed to grow the economy on the domestic front on Wednesday – so naturally, I worry when he doesn’t apply the same logic to government spending in other areas, which is what happened surrounding military spending during his RNC speech – and was even touched upon similarly in his closing statement on Wednesday.

And putting my own ideological tendencies aside for a moment, one of the things that actually impressed me about Romney’s debate performance was the fact that he came across as reasonable and NOT ideological. This is something that appeals to swing voters who want someone to get the job done. Presenting a fact-driven common sense approach is precisely how challengers win. Naturally, as a libertarian Republican who is supporting Romney and is invested in the future of the GOP, I hope that he performs similarly in the foreign policy debate. However, some of his comments make me worry that he’s being pushed in an ideologically neoconservative direction – which is interesting, because polling distinctly shows that voters are NOT on the same page.

As Scott Rasmussen notes in his extremely interesting piece on the views of Americans on military spending that is featured in the October 2012 issue of Reason Magazine:

(more…)

New Fiscal Year Resolutions

Monday, October 1st, 2012

Originally posted at the Coalition to Reduce Spending

(Note: I am a member of the Board of Directors of the Coalition to Reduce Spending)

Happy New Year!

Well, maybe it’s not so happy, and certainly, most people don’t realize this, but October 1st marks the beginning of the federal government’s new fiscal year. What does this mean? That the federal government’s timing for taking stock of its yearly expenditures begins on October 1st, whereas the calendar year begins on January 1st for the rest of us.

To mark this occasion, James Harrigan and Antony Davies recently published a timely piece in the Washington Times entitled, “Uncle Sam’s New (Fiscal) Year Resolutions,” Davies and Harrigan share some interesting data about precisely who is (and isn’t) funding the operations of the United States federal government.

As they note:

Fifty-five percent of federal spending occurs automatically. This “mandatory spending,” on Social Security, Medicare, Medicaid, unemployment compensation, welfare, civilian and military retirement and veterans’ benefits is determined by the number of people who qualify for the programs, not by congressional action and a presidential signature.

And unfortunately, a huge chunk of this spending isn’t actually paid for, as this year marks the fourth consecutive time the deficit has been higher than $1 trillion. As Davies and Harrigan note, this year, revenue actually coming into the federal government through taxation only covered 70% of spending. We suppose future generations will just have to enjoy paying for that extra 30% on top of making up for all the other deficit spending. (Perhaps this is why a recent Rasmussen poll shows that only 23% of Americans believe life will be better for current children than their lives were – a perverse reversal of the traditional American Dream concept).

Ultimately, all of this ties in well to an inquiry recently made by Dr. Stephen Davies over at LearnLiberty.org. In a recent video entitled, “How Should Governments Deal With Debt?,” Dr. Davies lays out what he believes are the three choices governments dealing with large amounts of public debt face:

1. Enact a combination of spending cuts and tax increases
2. Repudiate the debt (leading to unspeakably high interest rates)
3. Inflate debt away by devaluing the currency

Unfortunately, as Davies notes:

The most common solution, unfortunately, is for the government to resort to inflation, and to inflate away the value of the debt by depreciating the currency. There are already alarming signs that this is what the American administration is thinking of doing.

(Watch the full video below)

Ultimately, we agree with the conclusion Dr. Davies makes: That the only way to truly deal with government debt in a sustainable manner is to reduce spending. After all, as he says:

Increasing taxes to get out of debt is better than the alternative route of causing inflation, which is in fact in this sense just another kind of tax. However, it’s ultimately undesirable, simply and straightforwardly for two reasons. The first is, taxes inhibit and distort economic activity, as any economist will tell you. So to the extent that you raise taxes, you’re going to slow down or reduce economic growth and the increase in human well being. The other thing is that a rise in taxation means an increase in the proportion of income that is decided and allocated by the political process rather than by personal and individual choice. And that is a bad thing to do on civil liberties and independence grounds. So therefore, the best way of dealing with the kind of fiscal crisis that many countries face today, not least of which is the United States, is to cut spending and to reduce the number of things the government does.

At the Coalition to Reduce Spending, we hope that the federal government will spend in a more responsible manner as the new fiscal year rolls around – but right now, it doesn’t look like the politicians are willing to change course. After all, the status quo will remain the same until political pressure from the people forces a paradigm shift. If you’re worried about the continuously growing $51,000 piece of the national debt each citizen, (including each newborn American) owes, tell your elected officials, and demand real spending reduction today.