-$1.2 Trillion

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In this morning’s NYT, David Leonhardt offers probably one of the most concise and balanced accounts of the United States’ deficit. The numbers are nothing short of staggering:

The story of today’s deficits starts in January 2001, as President Bill Clinton was leaving office. The Congressional Budget Office estimated then that the government would run an average annual surplus of more than $800 billion a year from 2009 to 2012. Today, the government is expected to run a $1.2 trillion annual deficit in those years.

Although Obama, Orszag and company have maintained an outward confidence over their ability to manage the deficit, the indicators for inflation and devalued US currency are already appearing. Just yesterday, Treasury yields rose over concerns of the long term viability of US bonds. For months now, China has been expressing serious concern over the matter, prompting the country’s premier to make an unusually candidate assertion that he is “definitely a little worried” over China’s investment.

In other words, we cannot presume the ability to indefinitely finance public expenditures to address economic downturns. Consequently, it is essential the United State re-establish a government that absorbs as many as resources as it offers.

I am highly skeptical of the Obama team’s insistence that financing health care reform first is the best way forward. While lowering health costs in America—an enormous issue best left to its own post—is critical for our long term economic strength, I think making drastic eliminations to our government entitlements ought to be the immediate priority.

Although it will undoubtedly ruin numerous political careers, making cuts to Social Security, for example, should be paramount. As one of the lasting vestiges of FDR’s Presidency, Social Security has assumed an integral role in the American political system. Millions have relied on its public safety net and planned retirements accordingly. Nonetheless, as it presently stands, it is an unsustainable system. I don’t presume to possess an authoritative knowledge of Social Security’s inner workings, but raising the minimum age, lowering pay-outs and eliminating bureaucracy seem to be, in my view, intuitive and necessary steps to reducing the program’s size.

Apologists for the deficit often point to the post-World War II era as the precedent for responsibly amassing red ink, arguing that it laid the groundwork for years of post-war economic boom. However, it’s important to recall our country enjoyed unprecedented good fortune during that period. With Europe and much of Asia decimated, our country became the world’s sole provider for manufactured goods and financial institutions. After the Marshall Plan allowed Western Europe to re-capitalize its economy, we essentially guaranteed an entire continent would exclusively buy our steel, cars and technology.

We do not enjoy such fortune today. Asia, led by China and India, has become the new hub for manufacturing and efficient production. Despite our invaluable economic services, particularly in finance, the United States is no longer an indispensible epicenter of manufacturing.

Moreover, as Jim Manzi notes in this spine-chilling post, we inhabit a dangerous world in which 9 people with rudimentary bomb making materials, or worse, can destroy Billions in value. The effects of Global warming have also yet to be realized. Natural disasters are rarely anticipated, but inexorably costly. Taken together, The United States could endure a variety of catastrophic events in the coming years. Without any resources to mitigate their effects, we risk a genuine national calamity.

Cutting government programs is never painless, either politically or economically. In addition, I would argue that assuming some deficits in times of serious economic contraction is a necessary evil to encourage dynamic future economic activity. However, if we maintain our present course without addressing this deficit’s rising specter, we run the risk of suffering far greater national crises.

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4 Responses to “-$1.2 Trillion”

  1. jackofspades83 Says:

    Cutting what you consider to be “entitlement” programs at this time would be a major kick in the teeth to the millions of American families just barely making ends meet. Considering how stingy the business sector is, without a raise in wages, those programs are essential. There are plenty of ways we can reduce the deficient without decimating the working class. Ending our imperial occupations and reducing our bloated military budget would make an immediate, sizable dent. Return tax rates on the wealthier Americans to at least pre-Regan levels would be yet another blow. Combine that with closing corporate tax loopholes, and thats already several hundred billion without having to touch social security.

    The issue with the deficit is a matter of priorities. We can still run a budget surplus without having to cut government programs. It does mean that large businesses, upper class Americans will need to do their patriotic duty and support the republic, and that we’ll have to stop occupying countries. We have a choice in our country between asking those who can support this debt and those who can’t. To me there is only one reasonable and just answer.

    • hwiencek Says:

      jackofspades83,

      To begin with, I certainly agree that cutting Social Security does not represent the only means of slicing the present deficit. Withdrawing responsibly from Iraq, for instance, should be a high priority for the Obama administration, both on economic and military grounds. Entitlements, however, constitute the majority of the deficit (2/3 I believe) and should demand the greatest attention.

      I don’t think anyone, myself included, is eager to strip federal support from hard working Americans, but the deficit has made it simply a question of solvency. Social Security and Medicaid offer great services—I will not debate that. I will argue, however, that our long term fiscal health must supersede our short term reliance on such programs. As far as I’m concerned, the cost/benefit dynamic of entitlements is becoming too lopsided—benefits aside, it’s time to reduce costs, painful as it might be.

      While I agree that higher taxes are probably an inevitable consequence of our current budget, I think it’s important to recognize the relationship between higher tax burdens and stunted economic growth. Frankly, I think if we raise the income tax to pre Reagan levels (70%), our government would place undue pressure on private business. As I mentioned in my post, we’re not a manufacturing country anymore—we have to ensure our post industrial service sectors are competitive, especially compared to Asia. Keeping income taxes relatively low, especially relative to other industrialized countries, helps ensure we can compete with emerging economies. Although higher taxes are probably unavoidable, to a degree, I simply think we should be wary of discouraging employers from making capital investments by raising their taxes.

      Thanks for your comment,
      H

  2. Deficits and Chinese Finance « Repartay Says:

    […] and Chinese Finance June 16, 2009 — Jon A favorite argument of deficit hawks is that concerns over US financial integrity will drive away the foreign […]


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