Conservatives Anonymous
Monday, March 22, 2010
The Die is Cast
Thomas Jefferson once questioned the ability of one generation to bind another in a political context. I disagree him on this point; two plus centuries removed from the French Revolution we better appreciate the value of continuity in ensuring stability and freedom from violence. I think in a fiscal sense though his point is much more salient. It is unjust for one generation to ask another generation to pay for money spent before its time. This debt, set to reach 100% of GDP with no signs of slowing, was not incurred in the service of existential conflicts. A small fraction paid for the two conflicts in Iraq and Afghanistan; important as those might have been the economy seemed to be booming and they could have been paid for at least in part through the raising of revenues. This debt was grown by expanding entitlements, cutting taxes and refusing to make politically unpopular spending choices. This was a bipartisan effort. Presiding over its ballooning were Republican and Democratic Presidents, Speakers and Majority Leaders. It really began under Reagan, and while as a conservative he is of course in my pantheon in this instance his legacy led us astray.
As far as I'm concerned yesterday was the last chance to stop the madness. At present we have the third largest deficit in the OECD, behind only Ireland and the UK. We have no reasonable hope of sustained economic growth as the tax burden necessarily has to grow and interest rates are essentially at zero. The debt is expected to swell to nearly 150% of GDP by 2014. Yesterday a Democratic House debated a bill that used specious accounting to mask the fact that it is likely to cost $1.3 trillion over ten years, even if Washington goes through with politically unpopular Medicare cuts. Foreseeable Republican countermeasures are probably going to exacerbate the fiscal hit; a repeal of the mandate to purchase coverage (necessary to subsidize the requirement that insurance companies insure the unhealthy) is likely to send the insurance companies scurrying to Washington for a handout or to convince them to jack up their rates, which may give the Democrats cover for an actual takeover or something equivalent to one.
This was an act akin to national suicide. A new and unassailable entitlement expansion was rammed through using procedural loopholes, on a Sunday, by the slimmest of margins. Pelosi and some of her colleagues expect that by rendering several million more Americans reliant on the government for healthcare they have created a durable Democratic majority. If I had to wager a guess I would suppose she sold it by telling her colleagues that the next priority would be financial sector reform, where populism cuts against Republicans and seats may be salvaged. The end result is that what little chance we had to salvage our medium and long term fiscal situation is being squandered for a purely political advantage.
Raise taxes? Sure. Necessary evil. But you can't raise them to close the gap because you're going to need to raise them to pay for the entitlement obligations you just incurred. And how are you going to grow an economy against the backdrop of rising taxes? Lower interest rates? They're already essentially at zero. Our ability to provision long-term growth is virtually non-existent at this point. The states will of course shoulder much of the burden for this healthcare program, putting further strain on California, New Jersey and other states already on the brink of insolvency.
For the first time in my adult life I have zero optimism that this nation's fortunes will improve over time. The best we can hope for is a muddle-through that accepts 1-2% growth for a generation, punctuated by the failings of other states occasioned largely by our economic weakness. Demographics will accelerate this for us as the percentage of the population at work declines and the percentage receiving entitlement checks grows; this problem is even worse for Western Europe and East Asia.
As mentioned above there is no one single cause, just the mixture of political cowardice and political opportunism of this generation and the ones that preceded it. Democratic (and Republican) Administrations swelled entitlement obligations knowing they would not have to pay for them while Republicans pushed tax cuts uber alles. Interest rates were lowered to stimulate growth and then lowered again to keep it going. In time of plenty these actions don't seem objectionable, but now that the inevitable downturn finally occurred we find meaningful choices so curtailed that we can do nothing to get the economy going again. It is an economic, fiscal and foremost a political trap from which there is no escape.
Thomas Jefferson once questioned the ability of one generation to bind another in a political context. I disagree him on this point; two plus centuries removed from the French Revolution we better appreciate the value of continuity in ensuring stability and freedom from violence. I think in a fiscal sense though his point is much more salient. It is unjust for one generation to ask another generation to pay for money spent before its time. This debt, set to reach 100% of GDP with no signs of slowing, was not incurred in the service of existential conflicts. A small fraction paid for the two conflicts in Iraq and Afghanistan; important as those might have been the economy seemed to be booming and they could have been paid for at least in part through the raising of revenues. This debt was grown by expanding entitlements, cutting taxes and refusing to make politically unpopular spending choices. This was a bipartisan effort. Presiding over its ballooning were Republican and Democratic Presidents, Speakers and Majority Leaders. It really began under Reagan, and while as a conservative he is of course in my pantheon in this instance his legacy led us astray.
As far as I'm concerned yesterday was the last chance to stop the madness. At present we have the third largest deficit in the OECD, behind only Ireland and the UK. We have no reasonable hope of sustained economic growth as the tax burden necessarily has to grow and interest rates are essentially at zero. The debt is expected to swell to nearly 150% of GDP by 2014. Yesterday a Democratic House debated a bill that used specious accounting to mask the fact that it is likely to cost $1.3 trillion over ten years, even if Washington goes through with politically unpopular Medicare cuts. Foreseeable Republican countermeasures are probably going to exacerbate the fiscal hit; a repeal of the mandate to purchase coverage (necessary to subsidize the requirement that insurance companies insure the unhealthy) is likely to send the insurance companies scurrying to Washington for a handout or to convince them to jack up their rates, which may give the Democrats cover for an actual takeover or something equivalent to one.
This was an act akin to national suicide. A new and unassailable entitlement expansion was rammed through using procedural loopholes, on a Sunday, by the slimmest of margins. Pelosi and some of her colleagues expect that by rendering several million more Americans reliant on the government for healthcare they have created a durable Democratic majority. If I had to wager a guess I would suppose she sold it by telling her colleagues that the next priority would be financial sector reform, where populism cuts against Republicans and seats may be salvaged. The end result is that what little chance we had to salvage our medium and long term fiscal situation is being squandered for a purely political advantage.
Raise taxes? Sure. Necessary evil. But you can't raise them to close the gap because you're going to need to raise them to pay for the entitlement obligations you just incurred. And how are you going to grow an economy against the backdrop of rising taxes? Lower interest rates? They're already essentially at zero. Our ability to provision long-term growth is virtually non-existent at this point. The states will of course shoulder much of the burden for this healthcare program, putting further strain on California, New Jersey and other states already on the brink of insolvency.
For the first time in my adult life I have zero optimism that this nation's fortunes will improve over time. The best we can hope for is a muddle-through that accepts 1-2% growth for a generation, punctuated by the failings of other states occasioned largely by our economic weakness. Demographics will accelerate this for us as the percentage of the population at work declines and the percentage receiving entitlement checks grows; this problem is even worse for Western Europe and East Asia.
As mentioned above there is no one single cause, just the mixture of political cowardice and political opportunism of this generation and the ones that preceded it. Democratic (and Republican) Administrations swelled entitlement obligations knowing they would not have to pay for them while Republicans pushed tax cuts uber alles. Interest rates were lowered to stimulate growth and then lowered again to keep it going. In time of plenty these actions don't seem objectionable, but now that the inevitable downturn finally occurred we find meaningful choices so curtailed that we can do nothing to get the economy going again. It is an economic, fiscal and foremost a political trap from which there is no escape.
Comments:
Post a Comment
|
| |||
| There are currently sites in this ring. | |||
