Is the spending really fixable?

The question of the day is whether or not the GOP will be able to deliver on campaign promises to stop the spending. I can answer that for you right now. No.

Can they reduce government spending? Yes. Can they reduce it significantly enough to make a difference? Highly unlikely.

Why so negative you may ask? Because reality gets in the way. The size and scope of our government spending problems are enormous and very difficult to get your arms around. For example, did you know we could completely eliminate the Federal government and still not fix our spending problems? Yes, it’s true! Fire every civilian government employee and eliminate the Department of Defense and still not save a trillion dollars a year. You are still left with entitlements and other discretionary spending that would exceed the tax revenue coming in. Social security, Medicaid, Medicare, pensions and any other type of welfare are the culprits. The fact is that we cannot have a substantive discussion about controlling spending while leaving these on the table as separate discussions.

The GOP is struggling with how to come through on its pledge to strip $100 billion out of the budget. Yes, I know it’s a step in the right direction. But the fact is that in the big scheme, $100 billion changes nothing on the course we are headed.

The solution from the left is also a guaranteed failure. In fact, guaranteed to make the problem worse. They want to raise taxes on the rich. The truth is that there is one sure way to make the government spend more money. Give them more money. They will do you one better. Give them an extra dollar and they will spend $1.17. Yes, a study was done that proves this.

I hate to be the buzzkill on any warm, fuzzy feelings we may have after the positive mid-term election results. But I don’t sense the feeling of urgency to deal with the problems of the debt and the deficits adding to it. In fact, I sense the opposite. It may be a jobs report with a glimmer of hope. It may be a holiday season that showed good results for consumer spending. It may be improving car sales. People are looking for good news. It’s natural to want to see something positive. Even if they disagree with Obama and his policies, they want some good news on our economy.

Why is this a problem at all? Because you are contributing to the problem. Yes, it’s true. This aligns with the type of responses we have had to the financial crisis. Every chance the government gets, they try to get the word out that they headed off a depression with their policies. You will find economists and bankers and businessmen who support this view. I will say this. They may have headed off an immediate crash with a Keynesian style response of stimulus and bailouts and money printing. This only succeeds in buying time and guaranteeing that the real crash later will be bigger.

Think of the foreclosure mess. They never flushed out the toxic garbage from the system. It’s still there today festering away. All of the solutions were designed to cover-up, to redirect, to delay, any way they could to not have to face the music. This is the danger we are in today. If Americans continue to buy in to the notion that the worst is past and the economy continues upward without ever having dealt with the core issues that led to the recession, we will be subject to an ever-growing collection of bubbles that will burst together.

The government will tell you they have dealt head-on with the financial problems in the form of  the Dodd-Frank financial reform bill. But read it and you will see that it is nothing more than a permanent guarantee of bailout protection for the Wall St. biggies. Hey, all that special interest lobbying money pays off!

The facts are that the administration is doing nothing at all to fix the problems that got us here and, in fact, are exacerbating them. No tax reform. No budget balancing. No austerity measures. No reform of public sector pensions. Entitlement programs untouched. Welfare programs actually made worse. On and on and on.

So beware. I think we will see enough glimmers of hope throughout the year that will allow the government to continue to kick the can down the road. Many predict the big crash will happen this year. I’m not at all convinced of that. Not saying it couldn’t happen. If oil goes nuts and blows past $4 a gallon or if some other military conflict occurs could quickly change things. But I fear more a bubble of confidence. If consumer confidence improves and people go back to business as usual without the government ever having solved any of the core issues, the stage will be set for disaster.

We simply can’t move forward without addressing the true problems right now. Any perceived progress will be false. No different that yesterdays drop in the unemployment rate was false. It gives a false sense of confidence. If the economy begins to move upward without first having dealt with the fundamental, structural problems, it will only succeed in a major, epic crash. I’m afraid that’s where we’re headed.

18 thoughts on “Is the spending really fixable?”

  1. I wrote a post a few months ago titled “truth-lite.” It was basically how people really do not want to hear the hard truth and that truth is that if we’re going to get our fiscal house in order it’s going to be painful. I also said the first things that the republicans need to cut are those things that the Constitution does not permit the federal government to do. So this means defense would not be cut because the Constitution mandates that the federal government provide for the common defense. However social security, Medicare, ObamaCare, and a number of unconstitutional agencies like the EPA and Department of Education need to go first. But the truth is people don’t want to hear this. They would rather cut defense because it doesn’t directly impact their wallets. They can’t see or feel when we draw down 100,000 troops, or cut funding to upgrade aging weapons systems. So they they would rather compromise their security; something the federal government is mandated to provide, over taking away some entitlement program that provides them a second class product that is absolutely flawed and deficient as compared to private sector options. People have chosen to take the crumbs or scraps from the federal government over the steak dinner the private sector offers. This is the sad but real place we are in. And until WE change our mindset about this it will not change and no politician will be motivated to touch it. Great post. You nailed it.

  2. Thanks John. In my occupation, I work with the public and encounter several hundred of the same people on a regular monthly basis.This is the consensus feedback that I get from them. Ignorance. Oblivious to what is really going on. Only concerned with the narrow focus of their own world. Although we’ve made progress on awareness, I still think we’re light years from where we need to be.

  3. Count me along with Fleece Me. I don’t want to agree with you. I hope to God you are wrong. I am not convinced you are. Senator Tom Coburn is certain that if we do not take on the serious issues now, we are in for a much worse crisis than any of us want to admit.

  4. We exceed our revenue by 50% each year. Even if we got to a true balanced budget, it wouldn’t account for the interest on the debt. Then above that is actually paying down the principal on the debt.

    Who can honestly say they can see Congress staying BELOW a balanced budget to account for the interest and principal on the debt for years?

    Who can honestly say we can stay out of military conflicts for a decade or more so we can focus on the debt?

    The task the GOP is faced with is enormous. Do they, or anyone else, have the political capital to do the heavy lifting? Are they willing to do one-term and out because the cuts required will be extremely painful to our dependent, entitlement society?

    When you truly look at what’s required, the odds are stacked way against us. It would ease the pain significantly if we had a pro-growth administration to help us actually grow out of debt problems, but we certainly don’t now and who knows when we will again.

  5. This is a frightening scenario, and it shows that what a lot of us have been saying is true-that our government has had no interest in actually fixing anything.

  6. First, until we find a way around Hauser’s Law, we are stuck with the fact that higher tax rates won’t bring in higher revenues. The problem can’t be fixed from the revenue side. New forms of taxes (e.g., VAT) might bring in some more, but I can’t see that it’ll be enough.

    Second, debt service costs are a dangerous wild card. We finance our government operations primarily through shorter term debt instruments to keep interest costs low. A spike in interest rates on treasury debt cold easily outweigh any other deficit reduction efforts. In other words, an uptick in the cost of servicing our $9 trillion in publicly-held debt will dwarf the GOP’s $100 billion in spending cuts.

    Third, economic growth is our best weapon against the deficit. Compare our nation’s future finances under 1%, 2%, 3%, and 4% annual growth scenarios. 4% gives us a chance. 1-2% is lights out.

    Fourth, I spent a month last year creating hypothetical economic and fiscal models for my upcoming novel. I had to go through implausible gyrations to keep us away from the “red zone” (publicly-held debt at 90% of GDP) for twenty years.

    Fifth, I feel like a voice in the wilderness when I argue that legal reform is critical for both state and federal fiscal health. If we could lower health care costs, education costs, the cost of government operations, improve business profitability and competitiveness, and many other costs, I argue that our deficits could become manageable. Read Philip K. Howard’s Life Without Lawyers for more info.

  7. I posted a comment about an hour ago, and confirmed my subscription, but I’m not sure what happened to the comment. It was fairly long, so I’ll give a short version in case it appears.

    First, I think you’re correct. The situationj is very dire. I created a hypothetical economic and fiscal model in support of my upcoming novel, and I had to jump through hoops to get the U.S. to make it to 2029 before hitting the “danger zone” of debt at 90% of GDP.

    Second, interest on our debt is a dangerous wild card. A sudden spike in rates could devour the GOP’s $100b in savings in short order.

    Third, a way to combat the deficit that is rarely discussed is legal reform. That would help both states and the federal government. Health care, education, government efficiency, business profitability and competitiveness, and other areas would benefit grealy from well-implemented reform. We need all hands on deck to deal with this problem, and I feel l;egal reform is a critical but rarely discussed elemnt.

  8. Nice to see you weighing in on this issue. You are a voice in the wilderness. When it comes right down to making the hard choices ahead, very few are even in the game. I have the bar set extremely low for seeing productive changes, so it won’t take much to exceed my expectations.

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