The National Debt

Ok, my liberal/progressive friends, I agree and acknowledge that President Bush was no friend of fiscal conservatism. But Bush was downright thrifty in comparison to the out of control spending of the Obama Administration. The Bush Administration’s spending was analogous to a person charging an amount equal to a year’s pay to credit cards – the interest alone is overwhelming. This type of debt is obviously irresponsible, but, with determination, hard work, and a commitment to fiscal responsibility, the person can pay off the debt over time and once again become solvent. But the Obama Administration’s non-stop printing and borrowing of money is like that same person accumulating credit card debts greater than the amount they will earn in 5 years – a staggering debt that probably cannot be satisfied in a lifetime.

That is exactly where we find ourselves today. Our national debt is approximately five times our federal income. If our national debt cannot be paid off in our lifetime, it must de-facto be paid by our children and grandchildren – an immoral, un-American, and unthinkable proposition for any responsible parent – if you care for your children, you cannot saddle them with mounds of debt.

Economists tell us that a certain amount of national debt is a good thing. I don’t really get that, but I guess I’m ok with it as long as the “certain amount” will be paid by the people who benefit from the proceeds of the debt, a condition that we have woefully failed to satisfy. Let me be very clear. Our generation has provided itself with social benefits and entitlements that we cannot afford. Our progressive government congratulates itself on its generosity, benevolence, and altruism, all of which will be paid for by the sacrifices and privation of our children and grandchildren. Our parents were the greatest generation. Our progeny will be the sacrificial generation. We are the selfish generation.

Economists also tell us that there are only a few ways to decrease national debt:

• decrease spending,
• increase tax revenue,
• increase the Gross Domestic Product (economic growth and productivity),
• inflation (the government can then pay off the debt with cheaper dollars),
• (gasp) devalue the currency, or
• (gasp, gasp) default on the debt.

Note that the last three of the six have devastating implications. We are therefore left with decreasing spending, increasing tax revenue, and increasing productivity.

During the past couple of decades, our increasing social programs (government spending) have been accompanied by increasing national productivity. The problem is that the increasing productivity was not permanent – it was based on two “booms” (the dot-com boom followed by the housing boom), both of which went “bust”. We now find ourselves with a great financial burden to pay for all our new social programs (medicare prescription drugs, no child left behind, bail-outs, government take-overs of corporations, heath care, financial sector regulation, possibly cap and trade), but a stagnant economy with little growth in productivity (GDP).

The Obama Administration promises that their spending programs (euphemistically called “investments”) will lead to increased productivity, but there is absolutely no evidence that this will work. Government spending creates government jobs which add little or nothing to national productivity. The Roosevelt administration unsuccessfully tried to spend its way out of the Great Depression for more than 7 years, but the depression continued in full force until WWII, when great sacrifice and effort by the entire American population resulted in a huge increase in productivity. It was WWII and the American work ethic that ended the depression, not government spending.

The Obama Administration also promises that increasing taxes on the rich will increase tax revenues. Once again there is no evidence that this will work. In fact, history shows exactly the opposite. You cannot create jobs and increase productivity by penalizing the very people and corporations that create jobs and wealth. Increasing taxes punishes success and thus decreases revenues. However counter-intuitive, President Kennedy was right when he said that decreasing taxes on the rich would increase tax revenues (a rising tide floats all ships).

So, how can we decrease the national debt?”

Every liberal/progressive politician will answer that government spending and stimulus programs combined with tax increases on the rich will increase the GDP. Those answers have never worked anywhere on earth, including here in the U.S. They are the same answers traditionally given by the socialist leaders of European countries that are currently failing. If you nonetheless believe that government spending and increasing taxes will work, then I pray you are correct, because that’s the way we’re headed.

If you haven’t been drinking the progressive kool-aid, what is left? Assuming that hyper-inflation, devaluation, and default are off the table, we are left with:

• Tax cuts (highly unlikely in an Obama Administration).
• True tax reform by abolishing all federal income taxes and implementing the Fair Tax (see the October 2009 essay on the Fair Tax).
• Increase the GDP by eliminating government interference with and regulatory burden on business, with a specific emphasis on small business.
• Decrease spending by decreasing the size of government – why, exactly, do we need the Departments of Education, Commerce, Agriculture, Labor, and heaven knows how many other federal monetary black holes?

I don’t have the expertise to quantify the effects of these reforms on our national debt. They may or may not be adequate. Here’s what I do know. Nothing short of enormous personal sacrifice by every American, a national commitment on the scale of WWII, will get us out of this financial quagmire.

It is my sad conclusion that America will face deprivation. We will suffer and sacrifice, either voluntarily by implementing fiscally conservative reforms, or, absent those reforms, involuntarily by the inevitability of hyper-inflation, devaluation, and/or default. The only question is who will make the sacrifices – us or our children and grandchildren?