Growing Our Way to Solvency
Two years ago, I wrote a piece for PJ Media that ended with this:
Tax the relatively few rich; you still can’t tax them more than 100 percent, and if spending grows faster than GDP, it will eventually overwhelm whatever taxes you can levy. Tax the many poor, and you get the same result — except you’ll be voted out of office first, because there are a lot more poor people than rich people. And it still won’t matter, because you cannot make revenues grow faster than the economy forever.
So the real bad news is that this is a mathematical fact: over the long term, government spending cannot grow faster than GDP forever.
In my 2008 article, I showed that we can absorb almost any one-time increase in spending if only we preserve one simple rule: the rate of spending increase in constant dollars has to be less than the rate of growth in GDP.
In the intervening years, we’ve seen the consequences of electing both a Congress and an executive who have ignored this. The result is shown in a chart that’s been all over the web; it originally came from the Heritage Foundation and is reproduced here:
The Obama administration has, with the stimulus plan, introduced a one-time massive expenditure and then followed it with rapidly growing expenditures with the health care plan. When we put those together, according to the CBO, we get a new chart, like this (linked from Greg Mankiw’s blog because the CBO chart is in an annoying slide show):
Now, squint just a little bit, so you can ignore the (rather frightening) numbers, and just look at the two colorful ribbons. The blue ribbon is tax receipts; the green ribbon is expenditures — in both cases, actual up to 2010, and estimated from then on.
You see the expenditures grow dramatically and receipts drop, between 2008 and today: that’s the effect of the recession, stimulus, Fannie and Freddie, and auto industry bailouts. Then, for a short while, receipts grow rapidly while expenditures drop, but by 2015 the expenditures are growing at least as fast as receipts. Longer-term projections show the same thing: expenditures growing much faster than receipts.
This way lies ruin, as Greece is demonstrating today.
There is a very useful point being made here. Instead of centering our “tax/spend” graph on zero, let’s — for the purposes of argument — center it on the rate of GDP growth.
Then, let’s rotate this graph so that we are looking along the axis of GDP growth.
Government spending can increase more or less than the GDP. Taxation can increase more or less than the GDP. If spending increases less than the GDP while taxation increases more, we’ll have gradually decreasing deficits….but government will be an increasing drag upon the economy. If spending increases more than the GDP while taxation increases less, we’ll have deficits rapidly growing out of control. If both spending and taxes grow faster than the GDP, we’ll be well on the road to centrally-planned Statism.
Only if GDP growth outpaces both government spending and taxes can we prosper in the long term; and only if GDP growth builds taxes more than spending will we end up financially solvent.
Keep a close eye on your retirement accounts, they will soon be in play. I can see the government issuing IOU and taking cash as slush fund to continue spending beyond its means. And there is nothing anyone is going to be able to do.
Enjoy the new world order
They’ll be able to do something- riot.
There is a middle path, which the states are already on:
Civil disobedience on a scale which overwhelms any Federal
response; The economically healthy states will not give up
their rights, and their money, and there is nothing the Feds
can do about it.
Note that at the tail end of the Bush administration, the lines were heading for a convergence and then the crisis hit. But of course it was all Bush’s fault. In any case, spending must be cut. The size of government must shrink radically.
O/T, nice to see a fellow moron-blogger infecting this site too!
One way to get GDP up would be to abolish all business taxes. Because all taxes are ultimately paid by the customer, that would lower the cost of products produced domestically which would increase exports, and make everything more affordable for residents of the U.S. Another result would be investment in this country instead of other countries who have business taxes. GDP would go up like a rocket, as would everyone’s standard of living. Tax revenues would go up along with the increased income of everyone without raising the rates. It’s not a zero sum game like liberals would have us believe.
I agree that this is probably the most significant change we could make – but also the most unlikely. One of the great fictions that government perpetuates is that the business itself actual absorbs the cost of taxes, fees and regulations. The truth is that these are passed on 100% to the purchasers of their goods and services. They really don’t have a choice.
The problem is that most people don’t understand or accept that the free market keeps companies honest and keeps their profitability within a certain range. Too low and they cannot attract investment. Too high and they attract a lot of attention from competitors from all over the globe that drive prices back down. Yes, companies and industries go through periods where they have a temporary monopolistic advantage, but profitability always snaps back to a reasonable return on assets invested.
But they are just too rich and too easy a target for politicians and they have little incentive to fight this so long as their competitors are all paying the same tithes. BTW this is why it is so important for our Progressive regime to support a World Government that they can dominate with their ideology. Because when a country takes a free market and low taxation, low regulation posture with their own businesses, they immediately prosper at the expense of more statist countries.
As pointed out by C Baker, we would benefit tremendously at the expense of the rest of the world if we unburdened our own businesses. Freedom from such taxation would provide a self-directed wave of investment in the right things at the right time and bring more money and jobs into our country. I believe that corporate taxes represent only 15% of federal revenue – the way we are spending, the loss of it would hardly be noticeable.
There’s no way to grow our way out of this.
We have to cut spending.
We’re not going to cut spending.
Our fiat currency is headed for extinction.
I consider my republican party to be almost as culpable as the democrats by pushing this ‘grow your way out of it nonsense’.
It’s the spending, and when republicans won’t even admit it, just like they won’t admit that someone who’s a natural born citizen doesn’t lawyer up to hide their birth certificate, they the country is toast.
Period.
Goodbye.
The analysis is OK. It won’t change until the political animus behind it changes.
There’s no escaping a tumble inot Mad Max territory without these minimum actions:
1. Eliminate the Civil Service by firing 4 out of 5 sniveling servants.
2. Sunset all laws. Test rewrites for constitutionality by a Robespierrean Council .
3. Limit terms of all legislators by instituting capital punishment for service disloyal to the constituition. (and institute urine tests immediately)
None of that will happen. The fall, despite leaf-like dips and pauses, remains unstoppable.
I’m all in favor of cutting spending. The place to begin? The Defense Budget. Any plan to reduce spending without a serious cut to the built in waste at the Pentagon is not serious
Cutting defense is how Clinton helped balance the budget. Then when bad things happened, 9/11, Bush had to draw enormous debt to ready the military. Inefficient spending can always be eliminated.
There is some truth to this. But the problem that occurs when cutting defense spending is the same problem that happens with a city when faced with budget cuts. They first cut back on police, fire, and ambulance services — to emphasis the pain to the citizens — while protecting the back office administrator positions.
It is certainly feasible to cut waste in Defense — but carefully to avoid the above problem.
In some cases it would merely be better to reallocate resources. For example, suppose we told S. Korea that they were on their own in 36 months, and commenced rotating out our 30K troops from S. Korea — and parked them on our Southern border (which we do by declaring a 5 mile strip along the border a military zone via federal eminent domain). Kills two birds with one stone — we get our troops out of the DMZ and park them on the border such that illegal immigration and smuggling falls to zero. (Plus they get to have some live fire exercises with the cartels for a few months — everyone wins).
You were incomplete in the 2008 piece, Charlie, and you’re still incomplete. One day, perhaps soon, you’ll have to confront something more than these peripheral factors if you’re going to unravel and explain what’s going on — why fiat reserve banking in a nearly wholly manipulated global economy ended up putting all of the eggs in such a few international baskets.
Is power that hard to fathom?
Spending is a symptom, and therefore the tax/spend Catch-22 — for that’s precisely what it is, an irreconcilable paradox — you tacitly outline here is too. The problem is the system. It has been for a hundred years. You’re simply describing a fragment of the end-state.
Thank you Charlie Martin for explaining the Economics 101 reality. We need to cut through the baloney and make it easier for businesses to operate, depreciate, capitalize and that dreaded work, make a “profit” to increase their working capital and get out from under their loans. We also need to make it easier to hire people without the fear of a person soaking up the gravy when they don’t like what they are doing.
I’ve often wondered why all politicians don’t realize that they can have their programs by making sure that our economy is sound and growing in a responsible way. Our free market would perform much better without the restrictions placed upon it by an overweening Washington. However, with someone in office such as Obama who wished for everyone’s utility bills to “necessarily skyrocket”, that will never happen. Another source of wonderment is why we can’t seem to find pols who want to better the lives of everyone, not just the ones they choose.
But then again, as just another moron, what would I know?
I seem to agree with everything Charlie Martin is saying. His advice should be be heeded. Unfortunately, there is one thing that he failed to point out: the United States is already bankrupt! Our national debt is minimally seventy trillion dollars. Some estimates go as high as one hundred thirty trillion dollars. We are unable to pay off on all of these legal obligations. Some of our creditors must be stiffed! Which ones is the only valid question.
Americans must be willing to endure massive spending cuts. The so-called lazy bum who resides down the street will not be the only person impacted. You will also likely feel the sting. Are you mature and honest enough to live with this harsh reality—and not pressure the politicians to save your “earned entitlements”? This is the big test.
The actual number, David, is closer to a quadrillion dollars when you include all unfunded liabilities and financial derivatives.
Money is debt — it’s an abstract entity lent into existence to multiply by fractional reserve and accumulate an unpayable interest burden. Being a closed system, these parabolic numbers can never reconcile.
Not only have we spent ourselves silly, we leveraged ourselves over an abyss with the printing press. To be complete, Charlie needs to address this.
I don’t know what more Charlie can add. Does he have any magical suggestions? I doubt it very much. A lot of damage was done during the Clinton administration. The MSM and its allies were committed to helping Bill Clinton to say in power. They constantly told the American people that his economic policies were good for the country. Many agreed—and stop worrying about the burgeoning deficits. We are now paying an awful price.
Any discussion of the U.S. economy should include the recent World Economic Forum’s take on why the U.S. fell in the ranks of the global economy: “The public does not demonstrate strong trust of politicians”, while the business community” considers that the government spends its resources relatively wastefully.”
One outstanding myth is that of corporate taxes. That superstition never goes away. Corporations do not pay taxes, they collect taxes. One study shows that there is on average a 26% hidden tax on every citizen for such things as gasoline, telecoms,etc. . . beyond mere income tax. Then there is the death tax which is a tax on moneys and fortunes that have already been taxed. The debt to GDP ratio is the sound of the brakes locking, with the accelerator floored as the wall of insolvency stands firm for fiscal foolishness.
The solution to the fiscal problems will also be to reduce spending by redefining entitlements (eliminating COLA, increasing the age requirement, etc) or eliminating them (eg, Obamacare).
When the marxists are defeated, it will be like the end of WWII. The economy will begin a 20 year climb that will rock the world. There are trillions of dollars of investment capital on the sidelines right now that will create millions of jobs in a few years. It will be enough to stop the impending mega-cataclysm just short of Niagra Falls.
But the author and Paul Ryan and every person with a brain are all correct, Social Security and Medicare have to be fixed so that receipts meet or beat spending.
It really isn’t difficult at all. For Social Security, the retirment age for people under 50 to 55 has to be increased. For Medicare, the “benefit” age also needs to be gradually increased, and it needs to be paid in the form of an insurance premium. The free market will do the rest (including making the decisions about what forms of treatment are simply too expensive for elderly people, which is the real elephant in the room). If nothing else, the hundreds of billions of dollars in Medicare fraud will disappear instantly.
Defeat the marxists and do those 3 things, and there can be a future.
If not, there will be wars that will dwarf whatever has come before, because for millenia, that is the default method human beings have used to solve otherwise irreconcilable problems.
Waters@7: Cut military waste yes, cutbacks on R&D, size and readiness NO! Our defense is THE only thing keeping us safe and for that matter the world safe from Iran, China, jihadists and so forth. Cutting back in our military like reducing our naval force is wrong, wrong, wrong. If we cannot project our power, we lose our ability to get the bad guys to consider the consequences of their actions.
Grow the GDP. Baker@4 is right on target. Reduce corporate taxes and create a less hostile (litigation, unionization, regulation) industrial atmosphere for industry and reopen our steel mills, fabrication mills, textile industries. Stop our one-sided trade imbalance with China. No more companies locating off shore.
A president should be able to zero out programs and departments. That is where the real cutbacks need to occur.
Ten@8, and Yo@5: You are both saying the same thing. Okay we know the Fed. Res. has controlled our economy for years. Some may call by fiat. What can we do? Go back to the gold standard? I’m curious.
Lower taxes and less regulation, yes. But relaxed accounting standards? No thank you. Both governmental and corporate financial accounting already constitute sanctioned frauds.
Until a few years ago, governments did not have to account for any pension liabilities (neither pension payments nor even more expensive post-retirement benefits). Only after accounting standards required it did we begin to understand the magnitude of what our public officials and employees were doing to us. They just ignored the ‘run rate’ of their decisions leaving us with unsustainable much less payable liabilities.
It is the same in accounting for depreciation of fixed assets (roads, bridges, etc.) It is sexy to build these things, especially if you can get them named for you in the bargain. It is not sexy to maintain them. And so, bridges full of cars plunge into rivers and whole cities deteriorate (Camden, NJ, East St. Louis, MO and on and on).
New programs implemented without accurate accounting and budgets to keep them productive, much less safe, are how we got into this mess. They bloat budgets and then allow those who the projects are named after to skate on the costs of maintaining them. So more and more stuff gets built while the costs to keep them up are hidden but very real.
This must stop. One way I can think to do that is accurate accounting for both companies and governments, but especially governments.
Robert Fuller
Hopewell, NJ
Robert, I think there are two aspects to this. One side is, yes, accounting standards need to be established to make accounting accurate and transparent: everyone should have good information within limits of proprietary knowledge etc. (So, for example, we should be able to tell that BigDrugCo is spending $1 billion on discovery, but we don’t need to knw that it includes $100 million on Compound Q47.)
The other side of this, though, is that the accounting standards need to be relaxed to the extent that they don’t make accountants do foolish things: one of the underlying causes of the banking meltdown in 2008 was the imposition of an inflexible mark-to-market rule, which meant that if anyone had to realize a loss in value, say by needing to sell something at a “fire sale” price, then everyone had to mark it to the fire-sale price, no matter what the maturity might be. Then your balance sheet is affected, reserve issues happen, and poof, you’re suddenly on-paper insolvent.
Charlie
Your equation seems inverted.
Productivity as I understand it is when the washing machine plant produces 100 washers a day using 75 workers and a productivity increase alllows the plant to construct the same 100 washers using 60 people. If demand for washers is actually 140 a day then all is well, but if demand is still only 100 then 15 people just lost a job.
Right now unemployment is ridiculously high implying that the demand isn’t 140 at all; it is more like 90.
As such an increase in productivity sans demand results in more unemployment and adds to the suppression of demand.
I’m not an economist and I don’t play one on TV, but it seems to me that the first step isn’t productivity but rather a change in the legal/tax climate that fosters job creation. Productivity seems more of a mechanism to allow for meeting demand AND freeing workers to move to other jobs; this is the equation for an upward spiral where jobs compete for a limited supply of workers. Right now we’re in a downward spiral with workers competing for a limited supply of jobs, so what needs to be addressed is the mechanism by which jobs are created in the first place.
Then the price needs to drop.
Then the price needs to drop.
That’s assuming that there’s a demand increase at the lower price and also assuming the same product (no lowering of quality using crappy plastic parts, etc.) and so on.
If your decent paying job was lost due to productivity increase at the washing machine plant and you’re pulling 2 shifts at the 7-11 just to make the mortgage, you can no longer afford the reduced price version, either.
The problem is that demand can’t increase when everyone is ramping up productivity (and shedding jobs) unless there are new jobs being created and paying as much as the jobs that were lost.
There are no high paying jobs being created that replace the jobs lost due to productivity gains. Demand is lowering.
GL, I think that’s somewhat a short-term versus long-term issue: we need the economy to grow now to add jobs, we need productivity to grow so we can grow the GDP over the long term without unacceptable inflation.
To get the economy growing now we need to change the environment so people want to spend money. The O’s have been trying to get that to happen by spending government money, but since everything else they do is simply scaring the bejeezus out of people with money, it does no good at all.
That means, basically, reassuring people that it’s safe. Killing off a lot of the stupid things that have been done in the last eighteen months would help.
Long-term, make investment in R&D cheap; encourage people to invest by eliminating dividend taxation and capital gain taxes; make the tax code simple (how much productivity would be gained simply by eliminating all the time spend on taxes?)
The O’s have been trying to get that to happen by spending government money, but since everything else they do is simply scaring the bejeezus out of people with money, it does no good at all.
The spending of government money isn’t the problem, so trotting out that far right wing wishful thinking is a non-starter. It’s *how* it’s spent.
e.g. you could spend a ton of government money by putting every penny of the cash they wasted into nuclear plants and massive effort into spaceborne solar power sats. This creates jobs. Lots of jobs. It creates an industry, and it creates energy. Energy = wealth. Government spending to create wealth isn’t equivalent to the usual undefined right wing bogeyman of “government spending” in general (not all government spending is equal; some is better classified as investment.) Those jobs and power plants pay for themselves; the government gets the money back.
This doesn’t make me an O fan; O and his cronies seem to think the economy is all about people selling burgers to each other and somehow, eco-friendly grass fed burgers will boost the economy. (They’re utterly incompetent.) But good grief, there’s a lot of miles between wannabe marxists and their “let’s throw perfectly good money away” and the clueless reactionary far right’s “OMG it’s government spending which by definition can’t work.” Government spending can and does work.
If the govermnent were to spend THREE TIMES AS MUCH as it already has and toss it all into the creation of energy, I’d still be all over it. Spending government money isn’t the bogeyman that scares people. What does is mere cluelessness, lack of direction, and a plan that can work. Everyone knows O and his enviro-nonsense is utter crap. On the other hand were O to embrace something that would actually work (spaceborne solar and nuclear plants) then the investment money would free itself up. Nobody is stupid enough to invest in “wind power” and other green crap that everyone KNOWS doesn’t work (which of course explains how it is that power companies are forced to “invest” into this stuff because it’s by gov’t mandate.)
End of Rant. Sorry for the sidetrack.
GL, go back and re-read the sentence you quoted.
“The spending of government money isn’t the problem, so trotting out that far right wing wishful thinking is a non-starter. It’s *how* it’s spent.”
As for how it’s spent, government will always spend money for both political reasons as well as economic reasons, and is likely to spend it mostly for political reasons–so its spending is never likely to be economically efficient. As evidence of this, the Obama administration’s spending cost about a quarter million per job and the jobs don’t pay nearly that much, and the spending was done so slowly it reduced the velocity of money in the economy far below what using the same borrowed sums to fund tax rebates would.
The spending you say isn’t the problem is already an economic disaster, and you want us to double down.
Same ol’ trickle-down lies, huh? You guys really are reality-proof. Just one question: how come Canada, where government regulation is a fact of life, has a booming economy and minimal unemployment, while the neoconned USA is having a 1933 flashback?
Economics redefined:
Booming economy = 2 per cent growth (last quarter).
Minimal unemployment = 8 per cent.
Government = best employer in the history of mankind.
As a lifelong Canadian, I’d like to point out that the current Prime Minister of Canada, Stephen Harper, is the leader of the CONSERVATIVE Party of Canada and is frequently condemned by the other parties as a “neocon”.
This country has had a long history of Liberal governments with a clear enthusiasm for the idea that every problem needs to be solved by the creation of yet another government program. Sadly, a large percentage of the electorate has been persuaded to feel that way too. However, Harper is not nearly so enthusiastic about that idea and has been relatively resistant to the growth of government, including during the current economic downturn.
Do you find that being a fool impairs your ability to manage in daily life?
Scuse me.
Whos in charge of the government during this 1933 flashback?
Is Obama a neocon? Is Pelosi? Is Reid?
The current economic downturn can be directly traced back to when the Democrats took over Congress, and it hasnt been relieved by all the lefty spending that the terrible trio has tried to do.
Now go tell Soros you failed. Maybe he can hire a brighter troll for PJM next time.
While I entirely agree with Charlie Martin, allow me to ask a question: isn’t growing our way out of deficits what the real estate bubble tried to do? Or am I wrong about this?
You are confusing genuine economic growth with a con job. The productivity gains must be real—or we are simply deluding ourselves.
The US needs to create _new_ wealth, products which our creditors
want _bad_ and cannot get anywhere else.
We cannot keep relying on microcomputer revolution spinoffs forever;
The 21st century will see the worldwide adoption of nuclear power,
both fission and Polywell fusion, and the exploitation of space
for profit.
The single largest obstacle to reaching these goals is the web
of bureaucratic red tape spun by the Federal government as a
barrier to entry of new technology; It has got to go.
The spending growth is in the ‘entitlements’ section: that section of SSA and Medicare/Medicaid now eat up all revenues. The rest of the budget is funded on borrowing, including interest on the debt. That is not sustainable.
The demographics behind SSA and Medicare/Medicaid cannot sustain them, and even putting in a ‘fix’ to delay retirement and means test it all only pushes this problem on to our children in a worse state than it is now as we will continue to spend freely on all else once the system is temporarily ‘fixed’. The money put into SSA is gone, it was spent, and an IOU was put in its place and we put our children in debt to us to pay off that IOU. We visit our sins upon our children and call that ‘good’, while it is indenturing them to labor for our goodies because we cannot suck it up and say we can stand on our own. If you want to be ‘nice’ kill the entitlements, offer people a chance to write off their SSA ‘funds’ against new taxes and kill FICA. Take the medical entitlements, add them together, divide by two, apportion to the States in block grants that then decrease to zero over 5 years. We can pay for current retirees, but if you aren’t in the system, then it is time to face the day the system does not work and end it.
Get the leviathan money sucker off our Nation’s backs and the backs of our children. Then trimming Defense, eliminating the subsidy creature known as Agriculture, the money pit of Education, the pointless thing known as Energy which eats money just fine but finds solutions never… these things we fund with current borrowing and need to be addressed. These are leeches, you do not deal with them whilst a Vampire is at your neck.
We can be poor for awhile, our government turned tiny, and we take care of our own and do not shove that to faithless bureaucrats to do and for our children to pay off. This Ponzi Scheme can not go one more level down as that is the abyss. SSA is already in the red, it eats into other fund streams. It sucks in red ink and our lives, and that of our children. Wanting to keep it so you ‘get yours’ will just delay the inevitable, and that is the unconscionable, the immoral and the unethical to force those without a say to work for you without their assent. We are born free. Too bad we don’t see our children as deserving that.
If we manufactured the goods we buy here rather than in SE Asia, we would be a lot better off. There are two parts to the manufacturing jobs loss, a hostile financial, tax, regulation, retirement, and union environment here, and mercantile export policies in SE Asia.
We have to reform the tax and regulatory rules here to make manufacturing more profitable. We need to get the government to change from being pro union to being a neutral fair referee in union/corporate negotiations. A good place to start would be to put unions under the same campaign contribution laws that corporations work under.
Young people have to be moved to investment based personal retirement accounts, and old people’s fixed benefit plans have to be limited in increases in benefits to the CPI.
Government agencies need to file economic impact statements before issuing major regulation changes. Regulators need to adapt the mindset that manufacturing is a great asset to the country, not an evil to constrained and eliminated.
Corporate income tax needs to be abolished, and only taxed as individual income when dividends are paid or capital gains are accrued.
Dealing with mercantilism is easier. Tariffs. They will howl and threaten to stop buying lumber and food from us, but those are sold on a world market and are fungible. If China stops buying lumber from us, they will buy it elsewhere leaving others with more need for US products. Short term there will be pain, long term we will be better off. Economically we are behaving like a colony of SE Asia, we sell then food and raw materials and they sell us manufactured goods. This has to stop. It is the source of much of our problem. We can make iPods, TVs, and cars. We invented them and the technology to manufacture them.
Recovery isn’t impossible, it does need a new strategy.
If you really want to grow your way into solvency then you should become an advocate of growing industrial hemp. Anything that can be made from petroleum can be made from hemp, only better because hemp is bio-degradable, as a fuel it is better than gasoline, hemp burns clean, creates no smog or any other pollution, makes a better paper than wood, saves the forests, better clothing than cotton, and as a food it is unbeatable, contains all essential amino and fatty acids, for omega 3 it can’t be beat. Both the Declaration of Independence and U.S. Constitution were first drafted on hemp, Betsy Ross made our first flag from hemp, Guttenberg his first bibles, and Franklin used hemp for his newspapers. Washington, Jefferson, and Adams farmed hemp. Ask your government representative why hemp is illegal to grow in the U.S. while it is flourishing in China, Russia, Europe, and Canada. Industrial hemp contains no THC can not use it to get high.
You blaming Barracky Baby for this failed presidency? He inherited it!
He didn’t inherit the trillion dollar health care soon to be boondoggle. Why did he wait almost two years to even mention tax cuts for business???? Don’t cut the messiah no slack, he is horrible as a leaxder and if you voted for him you should be doing serious penance for your most greviuos sin.
I think we have gone past the tipping point. Default the next stop. Our overlords will try inflating the money first to reduce debt. That will only make things worse. At some point we admit the USA cannot pay its debts. The same has to happen with all the toxic debt the banks now pretend are assets. Enron accounting didn’t save Enron, it just bought time for the insiders to cash out. We have to get back to sound money, a free market, impartial taxation and Constitutional principles before we will see a return to prosperity.
Any discussion of the U.S. economy should include the recent World Economic Forum’s take on why the U.S. fell in the ranks of the global economy….
Jed, I agree, and that’s my next piece for PJM.
Growing Our Way to Solvency is the title of C. Martins piece,
and most of the commentary ignores that topic entirely, in favor
of arguing ad nauseum over political and economic policy issues
which are as dead as the Middle Class discretionary income
consumer economy; It is not about _money_ , or current assets,
it is about creating massive amounts of new wealth using new
technology in the future, if the US is to determine its own
future, as opposed to having it imposed from without.
Yes you can grow your way out of a one-time spending problem and yes the USA has one of those. Sadly the deficit problem is not the main problem facing the US. Unfunded liabilities are the main problem. No resources are set aside and invested each year by the US Government to pre-fund promised and enshrined in law, future social program entitlements for an aging population . Social Security, Medicare, subsidised drugs, subsidised industries, subsidised/government backed mortgages are all future unfunded liabilities.A 2009 article by The National Center for Policy Analysis entitled Measuring the Unfunded Obligations of European Countries , author Jagadeesh Gokhale; also estimated unfunded liabilities for the US.
The study concluded that the US would have to save and invest 8.2% of its GDP beginning now and continuing forever to pay expected future benefits without future tax increases. Alternatively, the US fiscal imbalance could be closed by more than doubling the current 15.3% payroll tax on employers and employees, immediately and forever. Or, to achieve the same thing, the federal government could immediately stop spending nearly four out of every five dollars on programs other than Social Security and medicare. This would mean eliminating most discretionary spending on programs like education, national defense, environmental protection and welfare – forever.
The problem is much bigger than just controlling the annual budgetary deficit. European countries are in deeper trouble. Canada not so much federally, but not a pretty picture when the Provinces are included.
That fluttering sound we can all hear is the pigeons coming home to roost.
“So the real bad news is that this is a mathematical fact: over the long term, government spending cannot grow faster than GDP forever.”
I would say instead that the real bad news is that the gov’t thinks it should be able to spend what it wants forever, even if it stays within some “tolerance” of deficit.
While I agree that growing our way out of a deficit with slashing regulations and taxes is a start, our Federal Gov’t needs to CUT SPENDING. I propose we start dismantling whole departments of the Federal Gov’t. If we don’t get rid of them now, they are going to go away when our nation implodes. California has already written IOUs for their gov’t workers…. how long will it take until the Feds are doing the same? Let’s also implement Ryan’s Road Map in order to get ahold of entitlements. We need to do some serious bulldozing to get out of this mess.