Recently, I had the opportunity to hear Senator Bob Corker, (R-TN) make a presentation on the dangers of the national debt. To the involved citizen, his PowerPoint presentation was admittedly an elementary explanation of the mess in which our country finds itself. I suspect that he has discovered that many citizens have no idea how desperate our situation really is and is trying to get the message out to his constituents.
What individual Americans know to be true about their own finances we are discovering is also true for our nation. Regardless of whether our government borrows money from its citizens, its allies or its enemies, the result is still the same. The borrower (U.S.A.) is slave to its lenders. By being in a tenuous financial position, our obligations color every part of our effectiveness as a nation. Our debt affects the standing of our currency in the world. The amount of interest we must pay to service our debt steals capital from other necessary spending. Owing money to our enemies stifles our ability to maintain an effective foreign policy and creates anxiety among our allies.
The clear-thinking American knows that being out of debt creates a freedom that cannot be matched by those who spend their weekly paychecks on mortgages, car payments, school loans, and credit cards. This debt is a ball and chain around potential prosperity. Despite the declarations by politicians that debt is really very good for a nation or by policy analysts that our national debt serves to hold the nation together, common-sense Americans know this is all “smoke and mirrors”.
Now that our national debt is reaching 100% of our annual Gross Domestic Product (Greece went broke at 120%) and unfunded liabilities are reaching $100 trillion, the American people have finally (Thank God) realized that the debt party is over, the national credit card is maxed, and it is time to starve this Washington bureaucracy of its lifeblood; our money. The 2010 elections have shaken the elitists in D.C. (this includes Republicans and Democrats) and the 88 new congressmen getting ready to descend upon the Capitol have been tasked with stopping this debt train.
This is no time for half-measures. Federal spending has to be reduced, right now. We have Senate holdovers (i.e. Mitch McConnell) whose statements belie that they, like the President, don’t get it. (I suspect that if all 100 Senators had been forced to stand for re-election this year, many more of them would “get” it.) The bipartisan Deficit Commission co-chairs have issued a preliminary report of what to do about the deficit. I would like to offer a few suggestions.
Reform Social Security, Medicaid and Medicare to create actuarily (I hope that is a word) sound, more sustainable programs. Riots broke out in France recently when its legislative body increased the retirement age from 60 to 62. When Social Security was enacted, life expectancy for the American male was 64.5, the same number as the legislated retirement age. (Can you imagine a more sinister program? Think about it. An American citizen was asked to contribute to a retirement fund for 40 years in which his chances of ever collecting a dime were minuscule and he could not pass this asset along to his heirs. That is downright evil, Mr. Roosevelt.) Improvements in diet, public health and modern medicine have increased life expectancy to 78.4 years with no change in the Social Security requirements. Over the years, additional beneficiaries have been added never conceived in the original legislation, thus putting the program in further jeopardy.
At its inception, fifteen workers were supporting one beneficiary. Three workers now support one. The U.S. Treasury owes Social Security $4 trillion at the moment. Had Social Security recipients been able to take the $15%+ of their wages and invest them in private investments, they would have built higher wealth and would have been able to pass along their assets to their heirs. As it is now, a person’s Social Security investment dies with them. The retirement age must be increased and young workers must be allowed to invest a portion of their withholdings in private investments. Perhaps even a means test should be added. A true Constitutionalist would advocate for complete privatization of the program as this program is not an enumerated power of any branch of our government.
Reduce the scope and size of the federal government. Federal workers earn too much and there are too many of them because the government is doing more than it should be doing. The federal work force has exploded over the past ten years and its wages and benefits now eclipse the private sector by almost a factor of 2 to 1. These workers are unionized, thus making it almost impossible fire them. In addition, their benefit packages are huge and unfunded. This is no time for the faint of heart. When the State of Tennessee experienced a sales tax shortfall in 2009 and 2010, its Democrat, and very popular private sector-experienced, Governor immediately required all departments to trim budgets, no questions asked. By Constitutional mandate, the state budget had to be balanced and there was going to be no tax increase. We were just out of money. The budget was trimmed and we are still operating. Well, the U.S. is $14 trillion in the hole. If that is not being out of money, then what is? Stop spending! Cut the budget now!
Do not raise taxes, but reform the tax code to a flat tax. Kennedy, Reagan and Bush proved for all time that the way to stimulate federal receipts is to reduce taxes and allow entrepreneurs to keep more of their money. These are the people who create jobs. If Washington wants to see jobs created, then simplify the tax code and let business do what it does best. Create stability in the business climate so investors have an idea what the rules are going to be. Crushing regulations and uncertainty encourage businesses and individuals to hang on to cash and wait for certainty to arrive in order to begin creating jobs. This is exactly what we are experiencing. Rather than businesses spending billions to manage the current tax code and rather than politicians using the tax code to reward special interests, let the free market be free.
Keep the federal government out of the private sector. This includes car companies, insurance companies, investment companies, healthcare, you name it. Government was not created to decide winners and losers in the private market. History teaches us that we have tried micromanaging culture and business through government and it has been a miserable failure. (If you would like a historical perspective of how we got here, read The Forgotten Man by Amity Schlaes.) We now know what does not work.
It is time to try a new approach that keeps the sticky fingers of politicians out of the market and back to their constitutional mandated roles. Oh, and did I mention, WE ARE OUT OF MONEY!