The United States is broke, insolvent, bankrupt. We can not pay our current debts—all our creditors know this—but must borrow more and more to keep the scam going. The "benign" Ponzi Scheme whereby future economic growth pays for current funding needs is now over. Those who have purchased our bonds now require some signs that the United States is a serious enterprise.
Those policies should include but not be limited to the following—
- The Fed must raise interest rates
- The Fed must rollback QE2
- The federal government must pass and stick to a serious deficit reduction plan
President Obama's Debt Commission has released some preliminary recommendations for reducing spending in future years, but let's make sure we understand our situation before briefly examining the proposed policies.
When I refer to the United States as an Empire in decline, I am not just referring to the onerous symptoms of our decay —so many people living in poverty, so many people living paycheck to paycheck, etc. I don't dismiss the decline in our standards of living, for these are what's at stake when all is said and done. But our decline means something more than current statistics indicate.
Our deteriorating living standards are the outcome of failed or corrupt policies spanning decades. Now, if there were any possibility we could turn the ship around and implement new measures which would get us headed in the right direction, it would be wrong to characterize America as an Empire in decline. We could think of the hard times we're experiencing as a particularly low point in our country's history, and move on from here.
But I'm sure it has already occurred to you that there is no possibility that the United States can solve its problems and move on. If our creditors are looking for signs that America wil crawl out of the deep hole it's in, they are looking in vain. America no longer works. The reasons are various: lack of vigor, corruption, dysfunction, unfettered self-interest, diminishing returns on complexity, etc.
In any case, including deficit reduction, America is no longer a serious enterprise. If you doubt this, the burden of proof is on you to demonstrate that our failures are not all-encompassing. The fact that we are still the world's largest economy is merely an artifact of our past success.
It is in this context that we can now fruitfully assess the preliminary findings of the debt commission. If there is a document or powerpoint, I have not been able to find it, so I will quote others to get the details. In the grand scheme of things, those details are unimportant, for nothing will be done for the reasons I've just outlined.
As with all things political, Paul Krugman weighed in on the matter. This is from The Hijacked Commission—
Start with the declaration of “Our Guiding Principles and Values.” Among them is, “Cap revenue at or below 21% of G.D.P.” This is a guiding principle? And why is a commission charged with finding every possible route to a balanced budget setting an upper (but not lower) limit on revenue?
Matters become clearer once you reach the section on tax reform. The goals of reform, as Mr. Bowles and Mr. Simpson see them, are presented in the form of seven bullet points. “Lower Rates” is the first point; “Reduce the Deficit” is the seventh.
So how, exactly, did a deficit-cutting commission become a commission whose first priority is cutting tax rates, with deficit reduction literally at the bottom of the list?
Excellent questions, Paul! His point is that the commission reflects the political ideologies of its chief members—Alan Simpson and Erskine Bowles—and he's absolutely right. While I can think of a few people (e.g. Bill Black, Elizabeth Warren) who might ably serve on such a commission, this is another case of a dysfunctional, corrupt system trying to reform itself, which is impossible on the face of it.
Since everybody within the political system represents various special interests, and the commission members are important players in that system—why else would they be called to serve?—the recommendations will naturally reflect those interests. Thus we see that cutting taxes, especially for the rich, is a higher priority than reducing deficits.
Bloomberg also reported on the preliminary recommendations—
The plan would raise the gas tax, slash defense spending and farm subsidies and bring down health-care costs by clamping down on medical malpractice suits. The Social Security retirement age would rise to 68 in about 2050 and 69 in about 2075.
Sounds good so far, but then there's this item regarding defense cuts—
The Aerospace Industries Association, the trade group for U.S. defense contractors, said it had “grave concerns” about proposals to reduce funds for purchasing, research and development. “We cannot abandon the security of future generations,” said the group, which represents Lockheed Martin Corp., Boeing Co., and Northrop Grumman Corp.
Grave concerns. We can not abandon the security of future generations, especially future generations of aerospace workers sucking on the government teat! And on and on it goes, it's pigs feeding at the trough as far as the eye can see. Whenever a specific cut is mentioned, there is an affected group with powerful friends in Congress and a vested interest in a particular line item in the budget who will oppose it. There is no reason whatsoever to believe that America will ever define and implement a substantive deficit reduction plan.
This week it's the debt commission. Next week it will be something else. These stories flutter and disappear like leaves in the autumn wind. America's big foreign creditors already know that America is not a serious enterprise. The overwhelming problem for them is: what are we going to do to save ourselves?
And the big question remaining for us becomes: what tragic, terribly destructive events await us? Nobody negotiates with the Grim Reaper.