A Little Political and Fiscal History
Im finding this thread pretty interesting. Given the politics involved, Im actually a little surprised it has stayed as civil as it has. Im going to take a little different direction on this, and not blame (for the most part) either the Republicans or the Democrats. Im instead going to place the blame squarely where I think it belongs; the American electorate.
Has anybody heard the old story/fable about an ancient king who commissioned his wise men to go out into the world, and collect the wisdom of the ages, and then archive it all? Well, they went out, and after several years they returned. It took several more years to compile it all; ending up with a seven book collection.
The king was very happy with their achievements, but asked them if they could return to their compilation and perhaps condense these seven volumes down to one. It was quite a task, but eventually they finished this new directive. The king was again very happy, but felt perhaps it could be condensed even more, perhaps to a single chapter.
Well, this was becoming increasingly challenging for his wise men, but they eventually finished this task as well. The king, who obviously believed in keeping things simple, kept asking them if they could condense it down even further; to a page; and then to a paragraph; and finally to a single sentence. The wise men obviously had to make some pretty major decisions during this whole process, especially getting down to that last sentence. But they finally reached consensus on how best to describe the wisdom of the ages in one sentence. That wisdom?
There aint no free lunch
Unfortunately, 30 years ago, Ronald Reagan convinced the American people that everybody could have their taxes reduced by 30%, the defense budget could be dramatically increased, and this would all lead to a balanced budget. George Bush Sr., who ran against Reagan in the primaries, described this all as voodoo economics. Well, this approach of promising the American people something for nothing, that there is such a thing as a free lunch, resulted in $200 billion/year annual deficits throughout his entire presidency, and set the stage for our current debt and deficit problems.
The American GDP was about 1/5 of what it is today, so those $200 billion per year would be equivalent to about $1 trillion today. Even those deficits were less than reality, as the U.S. Government was raking in hundreds of billions in Social Security revenue, which was then used to make the deficit look smaller. Reagans treasury secretary, when asked about these huge deficits, replied by stating that deficits dont matter".
George Bush Sr. inherited these annual deficits in 1989, and when a recession hit the country in 1991 or so, they ballooned to $300 billion. Bush, rightly concerned, signed off on some modest tax increases that might reign them in. Much of his Republican base was furious about this, apparently feeling the country should not have to be subjected to new taxes, even though they very much wanted the government benefits.
Clinton inherited a $300 annual deficit from Bush, and in his first budget to address it, marginally increased some of the tax rates, especially on the wealthy. Republicans unanimously said this was a job killer, and not a single one voted for it. It passed by one vote in the Senate, with Al Gore (as VP) casting the deciding vote. The recession did pass, and the economy did begin to create new jobs. In fact, approximately 20,000,000 were created from then until the end of the decade. Government revenues increased, and Clinton, starting with a $300 billion deficit, passed off a $200+ billion dollar budget surplus to George Bush Jr., a reversal of over a 1/2 trillion dollars annually.
Bush Jr. right away in 2001 passed what has now become known as the Bush tax cuts, which would amount to $4 trillion dollars less in government revenues over the next decade. Many argue 90%+ of those tax cuts went to the wealthy. What he didnt do, is propose spending cuts as well, so the budget could stay balanced. In fact, he presided over the largest increase in the size of government in our history, but didnt want to pay for it, fiscally or politically. Instead of telling Americans that wars have to be paid for, and asking them to make some sacrifices, he instead told them to just "go shopping", apparently to support the economy.
The huge budget surplus he inherited quickly turned into an annual budget deficit. When some Republicans began to worry about these deficits, Dick Cheney would argue that Reagan showed us that deficits dont matter. Over the next seven years, almost entirely controlled by a Republican President and Republican Congress, the job creating tax cuts produced large annual deficits, and about 7,000,000 jobs, almost all of which were lost in the ensuing financial crisis.
Regarding tax cuts and jobs: Marginal increases in tax rates in 1993 still allowed for the creation of 20M jobs in the rest of the decade. Tax cuts in 2001 were followed by virtually no job creation for the entire decade. Are these numbers just coincidental, or does it suggest that perhaps deficits, as a result of Americans expecting something for nothing, are primarily responsible for such a dearth in job creation?
And what did Bush Jr. hand off to Obama in 2009? The worst financial crisis since the 1930's, 700,000/month job losses, a $1.4 trillion deficit, and a huge national debt, mostly built up during Republican administrations in the past 30 years. I have to say I find it more than a little disingenuous for Republicans to try to pin our country's fiscal problems entirely on the Democrats. I would call it revisionist history.
Today, thirty years after Reagan foisted voodoo economics on the economy, Americans, on both sides of the aisle, seem to have bought into the notion we can all have something for nothing. I dont think theres a clear understanding by many Americans that all government benefits must be paid for in the true coin. To give just one example, a government cant continue to collect approximately $100,000 in Medicare premiums from Americans, and then pay out on average about $400,000 in benefits.
Life doesnt work that way. We cant continue to receive benefits from the government that were not willing to pay for. The consequences are profound, and not only for our current economy. If we don't pay for these benefits, future generations will, with interest, and this will be a continuing drag on future economic prospects. I really liked this quote by Parismountain:
That national debt is too large to ever be brought down without a complete reset of this country anyhow. This generation has robbed from not only the children but their children's generation. And I do appreciate the Greatest Generation's contributions to making this country great but I will say this about them, they sure are adamant about collecting their promises they set up for themselves, even at the cost of the youngest.
This something for nothing, or entitlement mentality, is something that seems to affect both Republican and Democrats alike. They both have their sacred cows, and dont want to give them up. Their political constituency often doesnt allow them to do so, even if they want to, and its in the best interests of the country for them to buck their party.
Regarding whether social security checks will go out on time this month. I really dont know who decides what bills get paid and what doesnt if the government is no longer allowed to borrow money. Monthly government income is about $200 billion; legislated outlays are more than $300 billion. I have no idea who decides what bills get paid and what dont. I doubt the President has sole discretion over this, so I can understand his statement that he cant assure that social security checks will go out on shedule. I actually think hes being honest about this. I suspect nobody really knows; were in uncharted territory. I dont think the U.S. government has ever come this close to defaulting on its debts in its entire history.
Any default on U.S. government obligations would have a devastating impact on many of us on this board, and would send gigantic reverberations throughout the entire U.S. and world economies. I know some tea party people who do not want to raise the debt ceiling no matter what, say these are just scare tactics, but it seems to be the consensus view of most respected economists. Speaking of tea party Republicans, you would probably be shocked to know how many of them have received hundreds of thousands of dollars and far more from the government over the years from Federal farm subsidies, hardly anything more than another government welfare program. I agree with tea party perspectives on the need for fiscal discipline, but they often strike me as more than a bit hypocritical at times.
To somewhat get back to Tammies points and concerns;
I think in the end, major ramifications will likely be averted, but probably not until we go through a few more days of government officials playing chicken or "Russian roulette", or whatever you want to call the childish, irresponsible behavior by politicians on both sides of the aisle. I myself am an independent, but have to agree with some of the things former Republican senator Alan Simpson has said about his
Republican colleagues. I will readily blame Democrats when they are being irresponsible, but in this particular case, I have to say the Republicans and their tea party constituency are primarily responsible for this latest crisis.
Just my own thoughts. Be assured, Im not trying to convince anybody of anything. :Retro smile:
Best Regards,
Wayne
