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.