The Answer to Debt

From an article in Reason by Veronique de Rugy  addressing the deficit:

"The great news is that if lawmakers decided to do the right thing, we would know what to do. There is not only a large amount of literature but also a consensus among economists about what fiscal adjustment packages are the most effective at reducing the debt-to-GDP ratio with the lowest level of short-term costs.

First, based on past experiences in developing countries, we know that spending-based adjustments are more successful than tax-based adjustments at reducing the debt-to-GDP ratio. They also last longer.

Second, consolidations based on spending cuts are more effective if they focus on reforming entitlement programs. Spending-based adjustments, unlike tax-based ones, also lead to long-term growth.

Third, spending-based packages can sometimes encourage economic growth in the short term. Tax-based ones never do. Even the International Monetary Fund recognizes in its research that when spending-based adjustments impose a short-term slowdown, the declines in consumption and GDP are three or four times smaller than tax-based fiscal consolidations. These findings were confirmed in a recent paper by Harvard economist Alberto Alesina and his co-authors.

Now, the more depressing part of this body of research is that a vast majority of the fiscal adjustment experiences end up as failures because politicians choose to raise taxes rather than cut spending. Maybe that's because they continue to be more committed to the special interests benefiting from the government programs—e.g., seniors—than to the long-term health of their country."

"The great news is that if lawmakers decided to do the right thing, we would know what to do." Managing spending works better and last longer in controlling debt and may encourage growth, as well.... If lawmakers decided to do the right thing....
The problem here is that such approach would be hard, would require careful management, and demand leadership.

The Real Meaning of Entitlement

Several articles have appeared recently on the deficit and the nation's "entitlement programs." This phrase, "entitlement", is, of course, untrue. The entire program was created as a combination safety net and insurance plan; citizens were required to give the government money with the expectation they would get it back. Now there are ominous murmurings; perhaps the government will have to break another promise, this time to people who vote.

 

Numbers from the Congressional Budget Office show that in the past 10 years, 70 percent of real spending increases have gone to Social Security and Medicare. In fiscal 2017, the federal government spent $4 trillion. Of that, 40 percent — $1.5 trillion, or 8 percent of our gross domestic product — went to Social Security and Medicare. These two programs will consume $3 trillion in the next decade, and that doesn't include the interest charged on credit. (de Rugy)

 

In an article for National Review titled "The Entitlement Crisis Ignored," the Manhattan Institute's Brian Riedl reports that within three decades, the Social Security and Medicare systems will run a cash deficit of $82 trillion — including interest.

de Rugy writes that Riedl emailed her: "The rest of the federal budget roughly balances over 30 years." He added: "In other words, the entire long-term deficit comes from these two programs' shortfalls. The national debt would reach 150 percent of GDP" at the current rate.

de Rugy goes on: 'We have known for a long time that these programs are unstainable. Yet no one elected to office seems to have the political courage the state the obvious — that these programs are insolvent and in need of reform.

As Riedl wrote to me [de Rugy], "popular solutions will not work. Doubling the 35 percent and 37 percent tax rates to 70 percent and 74 percent would close just (one-fifth) of the long-term Social Security and Medicare shortfall. Cutting defense to European levels would close just (one-seventh) of it. Nor can economic growth or inflation fix the gap."'

"Popular solutions will not work." So an unpopular solution will have to be turned to. Which is.....?

Sumner

William Graham Sumner’s term “the forgotten man” has been revived. Like "American Exceptionalism," it is a phrase that is adopted liberally by people who misuse it, often in a way directly opposite of its original meaning.
 It is the title of Amity Shlaes' reassessment of the Great Depression. And it has appeared in Trump's speeches as well.

Sumner introduced the term “forgotten man” in 1883 as a reminder of the overlooked decent and hard-working people whom the government taxes, pushes, and prods in order to acquire the resources and create the privileges that it then bestows on those who do not earn these things. 
Shlaes writes that in 1936 Franklin Roosevelt systematically established the modern political constituency, from unions to artists, to senior citizens. Her website summarizes that Roosevelt's solution was to spend for these groups, so extensively that federal spending that year outpaced state and local spending, for the first time ever in peacetime. The consequence was the Roosevelt landslide of 1936 --but also the modern entitlement trap. Roosevelt often spoke of the Forgotten Man, the man "at the bottom of the economic pyramid." Yet, Miss Shlaes shows, his New Deal recreated Sumner's forgotten man, the man who subsidizes the funding of other constituencies -- and who haunts politics in all developed nations today.

But central to Trump’s worldview is his belief in the economic and ethical merits of economic protectionism.  Yet no policy received more withering criticism from Sumner than protectionism.  In “The Forgotten Man,” Sumner complained that “The biggest job of all is a protective tariff. This device consists in delivering every man over to be plundered by his neighbor and in teaching him to believe that it is a good thing for him and his country because he may take his turn at plundering the rest.”

Old New Years Problems

All nations face problems. Some are specific: The management of the rainforest. Some are generic: Management of health care resources. Some are practical: Farmland productivity. Some are theoretical: The inevitability of the destruction of the bourgeois. In all of this international competing mess, the United States has to pick leaders that have insight into the nation's specific and generic, practical and theoretical problems.

We have, for some reason, focused upon a number of bizarre components of the nation's integrity. We worry about coal plants emissions, income disparity, regime change in Libya. Now these may or may not have some value as problems, they may or may not have some relevance in history, they may or may not have some provable importance to us at some time. But there are two obvious, staggering problems that we face that are irrefutable, hazardous and entirely within our control that are almost never discussed. First, we are a culture totally dependent on fossil fuel most of which is supplied by foreigners who do not like us and wish us harm. And, second, we have allowed to develop a financial system that depends upon a growing and productive group of younger people to support programs promised to the older population and the direction of that supporting population is declining.

These two problems can be quantified and must be dealt with sooner or later but there is no evidence that the current candidates plan to discuss or deal with any problems that are not of their own fetish or choosing.

The Democrats' Nixon Moment

Missionaries, Christian Colleges, the Peking Union Medical College and America's war against Japan that benefited China so much were all American efforts that promised reasonable relations between the U.S. and China until Mao won the war with Chiang Kai-shek, Chiang fled to Taiwan and Mao created the Peoples' Republic of China. Mao began to harass everything not Chinese--especially Americans, the Korean War broke out eventually pitting Chinese troops against Americans (where Mao's son was killed) and any hope for a relationship was lost. The Americans signing a defense treaty with Taiwan in 1954 made things worse.

Nixon became president with anti-communist credentials from Helen Douglas to Hiss to the Kennedy Taiwan debates. But close on the heels of the inane "ping-pong diplomacy" Kissinger went to China secretly in 1971 and arranged to provide China with American intelligence on Russia. Nixon followed in 1972. The China door was open.

A democrat could not have done that; only someone with a history of being part of the process can reverse it. That time has come for entitlements and the republicans can not do it. The democrats must. This will be ugly but these programs are democrat programs and must be curtailed in some thoughtful, sensitive but meaningful way.

On the assumption that the Congress can not be as foolish as they appear, this will be more than an intelligence or parliamentary test; it will be a test of integrity.