Debt hawks need to fight smarter battles

WestWordsWEBAll Americans should be disheartened by the outcome of the recent government shutdown.

Little was accomplished other than to upset the American people in general. More importantly, like the boy who cried wolf, the next time somebody complains about the mushrooming federal debt, people will be even less likely to pay attention. Americans want a large federal government, but only want to pay for a small one.

I, like 99 percent of Americans, want to have a government. I’m glad we have a military, Social Security, Medicare,  etc., so when politicians become cavalier about shuttering the government, it bothers me.

Even more frustrating are the politicians who vote for programs and policies, but not  for the means to pay for them. The result is that the government ends up borrowing the funds to operate. It is totally painless to do that — until the bill comes due.

Balancing the federal budget has always been an issue. In 225 years of constitutional government, we Americans have only been debt-free once, in 1835.

Today, the annual debt service alone (without paying the debt principal) comes to about $1,325 annually for each citizen in the nation, or $5,300 for a family of four. That money doesn’t go to food stamps, soldiers or health care. It goes to bond holders.

Our politicians managed to keep the debt under control until the 1970s. That’s when everyone forgot that it has to be repaid.

Some folks blame President Reagan for cutting taxes. That runs contrary to the facts. Reagan was both a tax cutter and a tax hiker. Under his presidency, annual tax revenue rose from $618 billion to $991 billion. Tax revenues went up sharply because Reagan unshackled the private economy.

The problem was that he could not persuade Congress to cut spending sufficiently. Congress increased federal spending during that time 53 percent. If it had held the increase in federal spending to 32 percent, the budget would have been balanced when Reagan left office.

The end result has been that we now have a spendthrift Congress with a 10 percent approval rating — but a 95 percent re-election rate.

Thinking the problem is all the members of Congress except those we vote for demonstrates a capacity for self-delusion that would put Houdini to shame.

I believe we are nearing the end game. It probably won’t be tomorrow, and it may not be for as much as 15 years, but eventually something is going to happen to force an increase in interest rates. The number of people willing to invest in our government is going to be outstripped by our demand for more debt. It could be an oil shock, a Mideast war or a terror attack larger than 9/11. It makes no difference.

One of the great truths about the world is that money flows where it is most appreciated and will appreciate most.

Credit President Obama and Fed Chairman Ben Bernanke for understanding that there is no political upside for trying to pay the piper. Everyone wants to keep the party going as long as we can, and it will keep going — until it doesn’t.

Then, like Greece or Spain, we Americans will wake up one day and interest rates will be spiking upward, investment capital will dry up, and jobs will disappear.

The government will be faced with either hyperinflating their way out of the debt (Everybody will be a millionaire, but bread will be $100 a loaf.) or defaulting on it, which will then force a slashing of government spending, including Medicare and Social Security because nobody lends to people who won’t pay it back.

We keep waiting foolishly for some miracle that will grow us out of our problems. The government’s coffers will be overflowing and our problems will be solved.

Dream on.

It can’t happen when our policies are increasingly anti-business. I’m all for punishing the Bernie Madoffs, Denny Heckers, Tom Petters and other rip-off artists for their sins. But I’m not for hamstringing entrepreneurs and small business owners with so many regulations that few will try and only those with a government-certified blessing can succeed.

The problem with the debt ceiling fight is that it is based on past acts that have been building for decades. We can’t change overnight what’s been done for years without wrecking the economy. That’s like the anti-abortionist committing murder to protest murder.

Debt hawks need to pick smarter fights. While I would back a true freeze in all federal spending (including entitlements) until the federal debt is reduced to, say, 25 percent of annual GDP, that won’t happen. Too many politicians would lose their jobs because over time too many Americans have come to believe that government money is “free” money.

If we are going to ever get the budget under control, it will need to start with smarter battles, like requiring means testing for Social Security. Should a retiree making more than $100,000 a year in pensions and investment income also be receiving a $3,000 government check every month?

How much longer will investors around the world finance our debt when we give no indication of ever paying it off?

Not much longer, I’m afraid.

Tom West is the general manager of the Peach. Reach him at (320) 352-6569 or by e-mail at tom.west@ecm-inc.com.

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