I have said on several occasions that I am not a trained economist. I do not understand all the debates about theories and systems and frankly think most of our politicians do not either. I have also said that I think the most refreshing moment of honesty in the last presidential campaign was the most politically damaging. I refer to John McCain's admission that he did not understand the economy that well. The statement killed him but it was a rare moment of honesty almost never heard from a political candidate.
One thing I do understand. When revenue decreases spending should decrease. I took a 25% salary decrease twelve months ago. My wife and I have managed but only because we changed our spending habits rather dramatically. It has been a challenge but we've managed on a lot less. We've done less of those things that we enjoy and more careful accounting for every dime we receive and spend. It just makes sense. Everyone, including non-economists, can figure this out, or at least should be able to figure it out.
The problem is that the federal government, namely the president and Congress, cannot figure this one out. A report from the treasury reveals what we all knew was coming. This recession is starving the government of tax revenue. The numbers are stark. Tax receipts are on pace to drop 18% this year, the biggest single year decline since the Great Depression. At the same time the federal deficit will rise to $1.8 trillion.
Here are some more bleak numbers. Individual income tax receipts are down 22% and corporate income taxes are down 57%. Social Security is in trouble too. Receipts will drop for only the second time since 1940 and Medicare taxes are on pace to drop for only the third time ever. The last time the numbers were this bleak was in 1932, right in the middle of the Great Depression.
Our tax system is woefully inadequate to support the promises our federal government has already made. But at the same time the president and Congress are spending new money as if it grows on proverbial trees. The solution they offer, so far, is to print more money, which only makes matters worse.
I am not an apocalypse soon guy but a financial meltdown is almost sure to come if we keep this up. I understand the desire of Congress to reward various constituencies but when will they consider the next generation. My generation ("the boomers") now lines up asking for the biggest pay-out in history and expects the next generation to foot the bill. Someone will pay the piper. It is inevitable. It seems few politicians understand and very few people care.
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I’m thinking about how the stock market perked up when the bailouts came. The bailout is illusory. Somebody will eventually have to pay.
I think you are right:
“somebody will eventually have to pay.”
The above article highlights the almost inevitability of more federal taxation to pay for Obama’s spending.
Notice the contrast between Bush’s deficit and Obama administration deficit:
I’ve been thinking lately that “Ponzi Scheme using the dollar” hits the nail squarely on the head. It started in the 1970’s when Nixon took the dollar off its last bullion support and let it free float. The wizards of the scheme at University of Chicago got Nobel Prizes. We’ve been paying by deconstructing our economy rather than in higher taxes. Dollar devaluation, decapitalization and loss of our manufacturing base are some of the effects of higher and higher leverage.
I don’t blame either party and I don’t think that it can be stopped. Politicians who have resisted – Carter, Bush I and Clinton/Gore – were shown the door. The rest have maintained the course of increased borrowing. The buying power of the dollar (and with it all world currencies) appears to be headed steadily toward zero.
Thank you for your comment.
Personally, I tend to lean toward “Chicago Boyz” type of thinking due to my libertarian streak (as applied to Economics only). But the facts provided in your informative post seem to indicate our society has embraced a “libertarianism without any rules or constraints.”
Here is one scenario:
President Obama could possibly put the brakes on the “Ponzi Scheme uing the dollar.” He could do a Clintonian move, by:
greatly reducing military spending, cut “Star Wars” spending, reduce NASA spending, and withdraw from Iraq and Afghanistan and other worldwide bases. The effect of this would be major reductions in spending at a time of a supermajority Democrat presence in Congress.
America would then be a “defanged Tiger,” with a bloated, Statist attitude along with encroaching governmental influence in our society. Our country would be similar to Great Britain was when a Second World nation like Argentina attacked the Falklands Islands. Great Britain almost lost the Falkland War simply because it cannot spend much on its military. It is mostly now a coastal defense fleet,though Thatcher temporarily increased it at the time.
Australia has already hinted that the Obama Administration may significantly push for major reductions in the “blue water navy.” This is why, even in the presence of a world-wide recession, Australia leaders were increasing their military budget in anticipation of the fading of American naval power in the Pacific.
You may enjoy the articles pertaining to Economics on this blog:
Hi Tom. I was thinking………
It appears that social entitlements are always “off the table” as far as discussions among Christians regarding spending cuts go. Everyone talks about the “evil” of spending, but no-one really talks about the exponential, soaring costs in social entitlements.
Yet, our social entitlements are exploding.
Here are my questions:
1.) When will it be “politically correct” to talk about cutting spending as pertaining to social and welfare entitlements?
Granted, we may not like to talk about it, but Medicare (federal level) and Medicaid (State level) reimbursements to hospitals have declined over time. Private insurance managed care providers pay a lot, lot higher revenue stream to hospitals and doctors.
When Obama-Care gets passed in the Democrat supermajority Congress and the public option (either now or when the Dems implement it conveniently in the future to please the progressive base) becomes reality, we are in serious trouble. The private insurance market will dry up. Why pay for private insurance when you can have a “free lunch?”
2.) Add the fact that both major political parties in the USA endorse a “de facto” policy of importing tens of millions of people who are low-skilled laborers
(gardeners, service industries, landscaping)
with high-birthrate families on Public Aid, but yet, they themselves rarely pay any taxes (if any taxes at all) and who consume taxpayers’ subsidized benefits at a high rate, …..then this represents a serious negative fiscal issue in the near future.
See below for this summary from this think tank:
Here is a quote from the article:
“Thus, low-skill immigrant households received nearly three dollars in immediate benefits and services for each dollar in taxes paid.”
How long is this sustainable?
5 years? 10 years?
Personally, I am not even advocating the reduction in spending on social/welfare entitlements. I have no desire to see people suffer.
But I do ask those among us who actually do pay taxes:
how long is this negative fiscal trend sustainable?
One more friendly question from your J.A. blog colleague:
John McCain frequently talks about the evil of earmarks and out-of-control federal spending. And I salute John McCain on that issue.
Here is my question:
Earmarks (“pork barrell”) constitute what percentage of overall federal spending?
So the thinking among the culture is that if we just cut earmarks out of the budget and follow McCain, then our financial problems will be solved.
The correct answer is that earmarks and pork barrel spending constitute less than one percent of federal spending.
The point is: John McCain and other politicians are complaining about earmarks, (and they are right), but they are missing the bigger picture.
We are not asking the right questions in America.
Ranting and raving about earmarks (less than 1 percent of federal spending) while ignoring other areas is ridiculous.
But if you raise these other issues in polite conversation, then what happens? The microphone gets turned off and you are called unChristian names by Christian friends, merely for the crime of citing statistics.
Forgive me for being pessimistic here, but I think we are in serious trouble as a nation.
Thank you for listening and for our discussion.
When I raise these questions with friends and others, a common reply I receive is this:
“America can weather the storm because we are different. We are better than every other nation. We can weather any storm because we are blessed by God as a nation.”
This response is actually, a “Christianized” view of what is often called “American Exceptionalism.”
I have thought about this issue for some time now.
And I have reached the conclusion that this common response is unbiblical.
After reading the following book:
Nine Great American Myths: Ways We Confuse the American Dream With the Christian Faith (Paperback)
by Pat Apel
………..I no longer believe that America was in a “covenant status” with God. Therefore, I no longer believe that America is different from every other nation on Earth.
I now believe that we as a nation “reap what we sow.”
American Exceptionalism may have received some traction due to a general Judeo-Christian consensus that was prevalent in a by-gone era decades ago. But we are now a full-blown post-Christian, postmodern culture.
After work, I stopped by to say hello to my Eastern European friend where I brought up the subject of “American Exceptionalism.”
My friend replied, “Americans generally don’t know history of other countries, so they don’t know what is going to happen in the future. They just think everything will be fine.”
I am concerned my friend.