“There are men regarded today as brilliant economists, who deprecate saving and recommend squandering on a national scale as the way of economic salvation; and when anyone points to what the consequences of these policies will be in the long run, they reply flippantly, as might the prodigal son of a warning father: “In the long run we are all dead.” And such shallow wisecracks pass as devastating epigrams and the ripest wisdom.” – Henry Hazlitt
Henry Hazlitt may have written these words six decades ago, but they aptly describe Paul Krugman and the legions of Keynesian apostles whose bastardized interpretation of Keynes’ theory has led us to this fiscal cliff. How anyone can truly believe that borrowing to consume foreign produced goods versus saving and making job creating capital investments is a rational and sustainable economic policy is the height of ignorance. One look at this chart exposes the political party system as a sham. When it comes to the fiscal train wreck, set in motion thirty years ago, the ignorant media pundits peddle a narrative about politicians failing to compromise as the culprit in this derailment. Nothing could be further from the truth. Compromise is what has gotten us to this point. The Republicans compromised and allowed the Democrats to create a welfare state. The Democrats compromised and allowed the Republicans to create a warfare state. The Federal Reserve compromised their mandate of stable prices and preventing financial calamities by inflating away 95% of the dollar’s purchasing power in 100 years, while creating bubbles every five or so years, like clockwork. There are a myriad of facts related to the chart above that cannot be ignored:
It took 192 years for the country to accumulate $1 trillion in debt. It has taken us 30 years to accumulate the next $16 trillion of debt. We now add $1 trillion of debt per year.
If the Federal government was required to use GAAP accounting, the annual deficit would amount to $6.7 trillion per year.
The fiscal gap of unfunded future liabilities for Social Security, Medicare, Medicaid, and government pensions is $200 trillion.
Using realistic growth assumptions adds another $6 trillion of state and local government unfunded pension benefits to the equation.
The Federal government has increased their annual spending from $1.8 trillion during Bill Clinton’s last year in office to $3.8 trillion today, a 110% increase. The population has increased by 12% over that same time frame, and real GDP has advanced by 25% since 2000.
Defense spending has increased from $358 billion in 2000 to $831 billion today, despite the fact that no country on earth can challenge us militarily.
The average Baby Boomer will receive $300,000 more than they contributed to Social Security and Medicare over their lifetime. Over 10,000 Boomers per day will turn 65 for the next 17 years.
The Social Security lockbox is filled with IOUs. The funds collected from paychecks over the last 80 years were spent by Congress on wars of choice, bridges to nowhere, and thousands of other vote buying ventures.
A normalization of interest rates to long-term averages would double or triple the interest on the national debt and increase our annual deficits by at least 30%.
Obamacare and the unintended consequences of Obamacare will add tens of trillions to our national debt. The initial budget projections for Medicare and Medicaid showed only a modest financial impact on the financial situation of the country. How did that work out?
Entitlement spending in 2003 was $1.3 trillion. Entitlement spending in 2008 was $1.7 trillion. Entitlement spending in 2013 was $2.2 trillion. Entitlement spending in 2018 will be $2.8 trillion, as these programs are on automatic pilot.
When you consider the facts in a rational manner, without vitriolic denials, bitter accusations, acrimonious blame, and rejection of the entire premise, you come to the conclusion that we’ve passed the point of no return. Decades of bad choices, bad leadership, bad men in important positions, bad education, bad governance, and bad citizenship have led to bad times. But very few people, across all socio-economic classes, have any interest in understanding the facts or making the tough choices required to save future generations from a life of squalor. We willfully choose to ignore the facts.
“Most ignorance is vincible ignorance. We don’t know because we don’t want to know.” – Aldous Huxley