Voices of Fiscal Sanity in the Wilderness

When it comes to matters of fiscal conservatism, it often becomes a lonely business to stand on the beach by yourself, shouting at the ocean with these foul tasting, sandy pebbles in your mouth. Readers have made their preferences clear when it comes to matters of economic prudence. “Nay nay!” you say. “We’ll have none of your Bob Barr and his crazy ideas about cutting spending across the board. We’ll stick with the way we’ve been doing things for years, thank you very much.” I’m feeling slightly less isolated this morning after reading the Washington Post’s editorial, The Long-Term Cost.

The piece begins with some sensible warnings regarding the upcoming bailout agreement and how it may, in fact, make things worse in the short term. There is, however, a potential (if unlikely) bright side.

Paid for with borrowed money, today’s rescue plan will actually make matters worse in the short term. But it will be money well spent if we use the time it buys to put America’s financial house in order.

Count me among those who are skeptical, to put it charitably, about our government’s ability to read the writing on the wall and begin the hard work of reducing the federal debt. Far more likely is the scenario where the bailout will temporarily push the “crisis” further down the road and we, as a nation, will go back to simply refusing to think about an unpleasant reality. If we aren’t threatened with barbarians at the gate tomorrow, we shall happily go about the business of running up bills, gutting our credit worthiness, and leaving the bills for “somebody else” to worry about down the road. That date with unfortunate destiny may be quite a bit sooner than you think, however. As usual, the major culprits are our social entitlement programs, Social Security, Medicare and Medicaid.

According to the GAO, existing law requires the government to spend $41 trillion more on these entitlements over the next 75 years than it can expect to receive in payroll taxes and premiums. Of this, $34 trillion is related to health-care programs.

Does 75 years seem remote? Well, the crunch actually begins much sooner than that — in 2011, when Social Security’s cash flow turns negative, because of the first wave of baby-boom retirements. No longer will the rest of government be able to live off the surplus in Social Security’s trust fund. According to the GAO, the federal budget deficit — projected at more than 3 percent of GDP next year — is on a path to exceed 20 percent of GDP by 2050, unless we enact substantial reforms to our tax structure and entitlement programs.

With the passage of this bailout plan, we’re going to have a federal debt in excess of $11 trillion next year. The government claims that the GDP will still be higher than that, but as the Wall Street Journal recently pointed out, those numbers need to be critically examined and adjusted for reality. It’s very much akin to asking a used-car salesman to quote the total value of all the vehicles on his lot, then writing down the number he gives you and wandering away to report it without question.

We can either correct this situation intentionally, which will be painful, or we can let it crash on its own later, which will be disastrous. Neither John McCain nor Barack Obama are seriously talking about any sort of national policy which will result in a lower federal debt over the next four years. Our friends on the Left need to realize that this is no time to look at strapping the federal government with additional entitlement programs, and the ones we have now will require serious adjustments. Similarly, our colleagues on the Right are going to have to face the fact that “one more tax cut” isn’t going to solve anything and $10B per month in military adventurism is already adding up to real money that we simply don’t have. We are in hock to the Chinese for half a trillion dollars, and they’re beginning to balk at the idea of fronting us further. But we continue to insist on electing leaders who promise us more of the same. We will eventually reach a point where this fiscal house of cards collapses entirely under its own weight, and that truly will be the end of the nation as we know it.