Newsletter 75 - Fall 2014
Too bad more folks didn’t listen – In its first newsletter in 1996, SAFE warned about “the growth of the federal government, and the huge debt being left for our children and grandchildren to pay.” We have been raising that issue ever since, as for example in a recent blog entry – Don’t forget the fiscal problem, 7/28/14 – which was prompted by a Congressional Budget Office report on the long-term budget outlook.
Our initial position was that the federal debt should be paid off, which harmonizes with the famous Shakespeare lines (advice of Polonius to Laertes, in Hamlet) on the subject. “ Neither a borrower nor a lender be; For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry.”
The government has kept running up the tab, however, and at this point we would settle for spending cuts sufficient to balance the budget and keep it that way. SAFE so suggested in a letter to all of the members of Congress in June 2013; one response (from Senator Rand Paul) was received. http://tinyurl.com/ltmv5pd
In this newsletter, SAFE director rycK Stout argues that the debt problem has been ignored for too long. The notion that this country can grow its way out of the problem is unrealistic, and the problem will necessarily continue unless and until there is a major financial crisis that shocks the country back to its senses. The danger of our high debt, page 2.
From a financial standpoint this is not necessarily true, as the government could take many actions to cut the deficit and speed up economic growth. For example, the huge unfunded liabilities for entitlement programs could be slashed by overhauling the programs that are in place. A status report on the fiscal problem, 5/6/13.
Politically speaking, however, any substantial rollback of the welfare state that is being created in this country could prove very difficult. We make that point with a modest suggestion about honoring the legacies of several 20th-21st century presidents. Tongue in cheek, page 3.
The danger of our high debt, by rycK Stout
Many think the US debt level is dangerously high, while others believe this debt can be managed. The division of opinion appears to be drawn along ideological lines. So, how serious is the US debt and is it a threat to our economy and future?
The current national debt is $17.7T (trillion). This works out to $55,600 per citizen and $152,000 to the average taxpayer. [Numbers come from http://www.usdebtclock.org/] But who is liable for this debt? Federal liabilities are borne by taxpayers, and most of the debt must be pushed off on the top half of our wage earners and so-called “rich.” The rich are famous for avoiding taxes so there is probably no way this debt will be paid off by them. The middle class will take the hit as usual if history is any guide.
Since 2008, we have been told that it will be possible to “grow out of debt” with a strong economy, which assumes GDP growth rising to 3.5% per year. However, the Congressional Budget Office recently downgraded US GDP growth for 2014 (five years after the “Great Recession” officially ended) to a paltry 1.5% or $252B (billion). The current deficit is some $550B, including annual interest on the debt of $235B.
Clearly, this is not working and we are going broke. The gross debt-to-GDP ratio is now over 105%. Greece went down at 140%, as did Ireland and Cyprus, and soon we may see Italy going down too. We are creeping up to debt ratios that will debase US currency or undermine the federal government’s credit or both. The result could be catastrophic inflation and/or defaults on government obligations.
Why isn’t the government addressing this problem? Part of the answer is the liberal political notion that it is imperative to “redistribute wealth,” which means taxing or confiscating the wealth of those with money and giving it to the poor. For example, the president advocates increasing the minimum wage to $10.10 per hour, and some would go further and double it. How is that going to work without higher unemployment and/or a corresponding increase in prices, which would leave most people worse off than they currently are?
In theory, there is plenty of money to take from corporations and wealthy individuals if things get bad enough, e.g., corporations own some $20T in assets. But let’s not forget that private debt is over $16T, and that the federal government has unfunded future liabilities for Social Security, Medicare, and other entitlement programs that have been estimated to exceed $100T on a present value basis. If anyone attempted to fund the resulting debt total, our economy would collapse.
Much confusion has been created by defining GDP [gross domestic product] as C [consumption] + I [investment] +G [government spending]. This categorizes government spending as a contribution to output, when it might more properly be considered a deduction from the amount of money available for productive investment and the satisfaction of consumer needs and wants. To the extent that government spending is financed by borrowing, moreover, its classification as an economic contributor borders on the absurd.
Sustainable government spending is dependent on taxes and fees on the economy, and as already mentioned the current rate of growth in GDP is swamped by the government’s continuing deficits. The civilian labor force participation rate has fallen from 66% in 2004 to below 63% now. We are employing a lower fraction of our population than was done a decade ago.
Do leftist thinkers really believe there is some way to grow out of this mess even though the most optimistic mathematical calculations indicate otherwise? It seems to me they must be thinking that if the system crashed like what happened in 2008, or even worse, they could shout “Capitalism has Failed” and turn the situation to their political advantage.
The debt is now intractable and there is no way to pay it off or even stop or slow down its cancerous progress. We are letting a profligate government undermine our wealth and certainly that of our children and later offspring.
Tongue in cheek – At some point after he leaves office, it’s been suggested, President Barrack Obama’s profile should be carved on Mount Rushmore in South Dakota. This would put him in the company of four earlier presidents – George Washington, Thomas Jefferson, Abraham Lincoln, and Theodore Roosevelt. Will Obama end up on Mount Rushmore? rt.com, 5/28/13. http://tinyurl.com/pfgphq4
It’s not entirely clear what the connection would be between the current president and the other four (except perhaps Theodore Roosevelt). Moreover, there have been 18 presidents since TR left office, and some Americans might feel several of them should be honored. We are also not clear whether there is a suitable place on Mount Rushmore for additional faces (65 feet high) to be carved.
To resolve these issues, why not build a new memorial on another mountain to honor presidents who contributed, by virtue of their staunch support for government spending programs, to the vast expansion of the national debt over the past 100+ years. The current president would surely fit in this category, along with Franklin Roosevelt and Lyndon Johnson. And there should probably be a Republican president on Mount Debtmore as well, perhaps George W. Bush.
Puzzler - A woman has two sons born on the same day; they are not twins and neither was adopted. How could this be? (Answer on page 4)
Improving Delaware education – On September 19, SAFE sponsored a talk by Charlie Copeland – former state senator, successful businessman, and the current state chairman of the Delaware Republic Party - to the Retired Men’s Luncheon Club. He spoke about Delaware charter schools, a subject with which he has a lot of hands-on experience.
- Copeland co-founded and chairs the board of Delaware Academy of Public Safety & Security, a charter high school for first responders (police, fire fighters, paramedics, etc.) that is in its 4th year of operation with 400 students. DAPSS is the first school of this kind in the US.
- He is also a director of the Community Education Building, a former Bank of America facility now dedicated to housing charter schools in Wilmington. The CEB has two schools with nearly 1,000 students; there will be a third school next year and a fourth is expected in 2016.
Why have charter schools in Delaware? The basic rationale has been that the public schools are not, on average, performing very well. Consider Delaware’s unimpressive rankings versus schools in other states & DC (never mind schools in other countries, many of which are leaving US schools in the dust): 51st (at the bottom on SAT scores, although this statistic may be marginally skewed because Delaware tests all students while some states don’t); 9th (near the top in terms of dollars spent per student); 4th (even closer to the top in number of state Dept. of Education employees per capita).
From another perspective, many students aren’t graduating from high school let alone attending college. In the worst Delaware schools, only 4% of the students are making it to the second year in college. Many of the others will gravitate to a life of crime or end up on the dole, with enormous social costs.
Charter schools can be given a chance to succeed or fail. In contrast, public schools are handicapped by bureaucratic procedures, top-heavy administration, and a lack of competition. It’s practically impossible to fire ineffective teachers in public school, let alone shutter failing schools. And while charter schools can provide for systematic coaching and counseling of their teachers, the public school rules do not allow this.
The typical arguments against charter schools don’t hold water. Charters have not reduced public school enrollment; the losers have been parochial and private schools. As shown by testing data for Wilmington schools, good charter schools are performing well in comparison to the public schools despite receiving less financial support. As for bad charter schools, e.g., Moyer, they should be shut down. And experience belies the notion that the public schools could be fixed simply by spending a bit more money.
Educational Savings Accounts (means tested credits that could be used for public, charter or private schools) are an interesting idea. Many of the elite in Delaware, including political leaders, send their children to private school. Fair enough, but the state will pay for lower income students one way or another, so why shouldn’t their parents be given an analogous choice? If you like this idea, look for political leaders who support it.
Puzzler (answer) - The woman had triplets, one of whom was a girl.
Book review – Paul Ryan’s new book, “The Way Forward: Renewing the American Idea,” begins with an account of Congressman Ryan’s personal background and how he gravitated into politics. It then reviews a wide range of policy issues, dispensing with the usual generalities, and offers very specific recommendations. We found The Way Forward interesting and informative. http://tinyurl.com/pnmm6pv
Change of pace – Hang gliding is lovely to watch, but could be hazardous. http://tinyurl.com/m6yqs78 (4:46 video)
Andrew Betley, (302) 239-9679
Edgar Fasig, treasurer, (302) 999-0611
Dan Kerrick, (302) 658-7101
Steve McClain, (302) 998-3910
Jerry Martin, (302) 478-5064
rycK Stout, (302) 478-9495
Bill Whipple, president, (302) 464-2688
For e-mail addresses, click here.
Secure America’s Future Economy (SAFE)
SAFE is a non-partisan, all-volunteer organization that was founded in 1996. We advocate smaller, more focused, lower cost government, to be achieved by cutting spending, restructuring “entitlements,” simplifying taxes, and rationalizing regulations.
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