A few years ago if you asked me about the future I would have told you how amazing it will be because of technology. Imagine neural interfaces, augmented reality, genetic repair, organ clones, many times longer life spans. The technology is within reach to make any city on earth a two hour trip with propulsion technologies that can take us to speeds approaching mach 20 in the atmosphere. Leisure time was due to become the major industry and forget about civilization getting smashed by an asteroid like the dinosaurs. That was then…
Today I’m reminded of the expression “crossing the Rubicon” because it is as if we are coming up on it quick. If you don’t know your history Roman legions were required to disband before crossing the Rubicon river so as not to bring a powerful enough force into Rome to overthrow the government. Rome started as a rare self governing society ruled by a senate. Julius Caesar crossed the Rubicon and made himself emperor. In short order his popularity faded with resentment of his power and he was assassinated by members of the senate, even including his friends. Caesar may have had a short reign but the die was cast and emperors remained for centuries.
Today we are at a crossroads where ideologies our founding fathers would consider bizarre are placing us at huge risk. I was astonished to hear today that Al Queda terrorists wanted in Egypt and the US have safe haven in the UK. I guess they are protecting them from inhumane punishment. The Christmas bomber had a UK education where he was exposed to jihad. I was actually relieved to read that most Americans view socialism unfavorably the other day, but then those who know me know how much I admire Abraham Lincoln. Lincoln said after helping the fledgling railroads beat the Mississippi river boats with a few minute closing argument that he would give up six points to get the seventh… if the seventh was the most important.
If you get nothing else get this. We face difficult economic times today but we can recover. However we are seeing China race forward to overtake us just as we overtook the UK a century ago. Why does this matter? Well it depends on your values. China adopted socialism after WW II but their government is really a blend of traditional Chinese government at the local level with a central authoritarian state. True to all Marxist regimes their people paid the price. It’s estimated 70,000,000 people died under Mao. I want to be clear, Mao didn’t care! He felt that China could spare a few million. In fact when presented with the tens of millions of deaths be starvation in the third year of his failed farm reforms he replied “Maybe it’s not my best idea”. Today China has a booming business supplying donor organs and major social issues where men outnumber women 30 to 1 because of their policies. Why do I bring this up?
The United States is important not just to our 300 million people. Today we are taught we are terrible ugly resource hogs. In fact I remember being fed this guilt trip in the 1970s in school. I don’t want to get side tracked. I just want to make the case that if the US ceases to be the leading power in the world then the freedom and self governance that came into the world following our bright shining city on the hill example, that light of freedom could go out. And not just in other countries.
So now I’ll make my point. Here it is. The party is over! Let’s get the partisanship out of the way up front. Would you agree that if the US government were to go bankrupt, our currency were to collapse, our ability to defend ourselves dissipated… would you agree that is a problem that goes beyond politics? Ironically Al Gore has been saying for about 10 years we have 10 years left. It’s a shame that I must also tell the tale of the boy who cried wolf. Al Gore was clearly wrong, but if you want to argue that then please be aware if you can’t cite hard facts that are indisputable, without resorting to calling those who disagree names, then you don’t have anything. I have seen credible people speculate that we may have less than 10 years to save our economy. To me that was a comfort! We are in uncharted territory.
I’m going to offer links that you should look at but consider this. First of all our social programs like social security that are now in the red have been handled in such a way that any organization other than the US government would have had their entire management team in jail over it. The social security lock box is full of worthless treasury IOUs. When it started it was something like 6 paying in for every one collecting. Factors of age and birth rate mean that now we have a 2 to 1 ration. Do the math. How much better would it have been to allow us to have saved that money with interest? I don’t expect in 20 years I will see a dime.
Again I digress. As we have lost millions of jobs in the private sector there has been an explosion of public sector jobs as well has pay raises greatly exceeding anything possible in the real world. Collective bargaining means unions encounter a government that not only doesn’t have to control costs to make a profit, but loves the union dues paying for their re-elections. Again, digressing a little. Here’s my point…
In war time we expect to spend more of our Gross Domestic Product, that is the total wealth produced by our country. In peace time we need to pay that down. In any case we need to grow GDP to pay for what we borrowed in bad times. FDR was considered in his day a big spender with the new deal. He spent 10%-12% of GDP. During WWI we spent 25% conducting two wars. Today we are passing 20% headed for 25%. On the horizon a few decades at this pace is 40%. We also have so much debt already that we are spending roughly 25% of our tax revenue on interest… and we are borrowing 40% of the money we plan to spend every year.
You don’t have to be an economics wiz to get this. Actually if you are an economist from some ivy league university you might have the sophistry to try to rationalize this based on quasi-religious believe in demonstrably failed ideas of Keynesian economics. Just in case you don’t get it let me explain. There is only so much money in the world to borrow. China is getting wary while holding $800B of our debt and the only reason the dollar is performing now is much of Europe is in even worse shape… so it’s a good thing for us our President wants us to follow their lead and stop being a bunch of cowboys. Sorry, had to throw that in. I don’t want to follow the financial model of Greece
Right now our treasury and Federal Reserve bank are manipulating money. They are, as best as we can tell since they cannot be audited, printing money to buy debt. It’s really a slight of hand to see what they are doing as they cannot directly print the money, but at the same time the money isn’t there unless it is printed. Remember supply and demand? Inflation is not caused by prices going up. That’s the result. The cause is inflating the monetary supply. When the government borrows a trillion dollars for pork after the trillion we spent on banks… Well that money is no longer in the private sector, and to prop the private sector up the Fed needs to print money, which they have. The Fed saved us, not the stimulus which actually hurt. You see banks don’t want to lend when money is tight, and besides the most desirable client to lend to is the US government who happens to need a lot of money. Beating banks about the ears and shuffling borrowed money is a pretty delusional answer if you think about it.
Is this making sense? I know I’m drifting into details here. Let me spell it out. There is no big explosive recovery in the works. For that you need to cut taxes on business and business owners instead of sapping their cash out of the system and turning job creators upside down and shaking the cash out of their pockets like they were a piggy bank. There is no end in sight to the spending. War or no war entitlement spending is sinking us fastest of all and growing government is taking a huge bite. Eventually we will not be able to maintain our credit rating and it wouldn’t matter because there won’t be anyone who wants to loan us money.
I need to make a brief aside here over taxes and debt. What causes debt? There is an old saying, “if your income doesn’t exceed your outgo your upkeep will be your downfall”. Debt is spending more than you make. I make this point because when Ronald Reagan cut taxes the revenues to the treasury over 10 years doubled and we created 21 million new jobs. Critics point to the fact that debt went up and say it was a failure. Uh huh? What about spending? Well congress holds the purse and spending outpaced revenue just like it’s doing today which is why we have debut. The result of tax policy is not always intuitive. Art Laffer developed a formula to determine optimum revenue tax curves called the Laffer Curve. If you want to learn about it watch this video.
How do you know you are financially sunk? I would say that when you individually owe most of what you expect to make in a lifetime and all your income has to go to pay the interest on your debt that you are screwed. That means you can’t pay any bills because every cent goes to interest on your debt. It is an impossible financial circumstance… and it is where our country is headed. You don’t usually reach that utter disaster before confidence collapses. Once your lenders lose confidence the money flow stops. The party is over.
Here’s what you should ask yourself. Are we really beyond failure just because? I’m sure a great many Romans thought that just as the British thought they would always be the world’s greatest super power, as did the Spanish. If we accept our own mortality as a possibility then the question is when and how could we meet our demise. Here are some links. First a look at the recent debt we have accumulated. Next is a delightful proposal for dealing with the size of government. Finally I found a great deal of optimism in Paul Ryan’s road map for America’s future.
In my opinion the difference between a wonderful century and the horrible end to a civilization that respects human rights is all based upon what we as a nation decide to do over the next few years. If you agree then we can forget the D or the R by the name and look at the A for American. We must turn back our government from taking us across the Rubicon where our freedom and greatness becomes an historical footnote. One thing is certain. If we leave this president and this congress to keep doing what they are trying to do for seven more years we will be fundamentally transformed in a way we will come to deeply regret.