Here in America, we used to take pride in claiming that we had a market-based, capitalistic economy. That system paved the way for the development of the greatest economic powerhouse the world has ever known. The American dream of freedom and opportunity was a beacon that called out to all points of the world, and the world answered. Waves of immigrants came to our shores (legally), assimilated into our culture and built our country and prospered along the way.
That wonderful legacy is now at risk. There has been a rash of fiscal policy decisions emanating from Washington over the last year or so which, if not stopped, reversed, or dealt with soon, quite literally carry the risk of seriously impairing — even ultimately collapsing — our economy and entire way of life. Have I said that clearly enough?
This is not a time to mince words. When you find yourself in a hole, you ought to quit digging. Well, we are in some kind of a financial hole here in our country, and rather than quitting the digging, all I see is Washington reaching for a bigger shovel.
After the severe economic downturn of the last 18 months, our government announced with great fanfare that our economy — at long last — grew by 3.5 percent for the recently completed 3rd quarter of 2009. What wasn’t so widely announced though was this: virtually all of that growth came from government spending. Not private investment, but government spending.
Now, government produces nothing. Nothing. Governments simply take from the productive (taxes) and spend. No sustainable production whatsoever. Growth built on government spending is an illusion. Which might not be so bad in the short run. In the long run, however, we can’t even begin to pay for it. And we damn sure can’t pay for the additional bills (Medicare, Social Security and now apparently, a government-run health care system) that are coming due in just a few short years. There simply is not enough taxing power in this entire country to pay for what is being jammed down our throats. So we borrow. More, and more, and more. So much so that our financial condition is rapidly approaching an untenable situation.
Five years ago our country had a national debt of roughly $7.5 trillion dollars. It has since ballooned to $11.4 trillion dollars. Add to that the current budget deficit — roughly $1.7 trillion dollars along with the estimated future budget deficits — and it is estimated that over the next 10 years our total national debt will exceed $21 trillion dollars. That’s real money owed, and it carries a cost. The interest payment alone on that debt would be roughly $640 billion dollars at a rate of 3 percent (more than we currently spend on our entire current defense budget!) And finally — and most unbelievably — all of those figures in no way include the bottomless pit known as “unfunded liabilities” that represent Medicare and Social Security obligations that we know absolutely will be coming due shortly as the swell of retiring baby boomers continues unabated for the next 15 years.
Hemmingway once wrote that a man goes broke “slowly, then all at once.” It happens to people. It happens to companies. It can happen to governments. If the current fiscal mismanagement coming out of Washington continues unabated, confidence will continue to erode, and investors (those who actually buy our government debt) will eventually simply stop lending. Or they will demand untenably painful terms. It happened to Lehman Brothers a year ago. It can happen to the U.S. government.
Now it can be argued that there is really no problem with the current governmental spending spree that can’t be solved by simply raising taxes. But such an attitude overlooks one important element: human behavior. Raise taxes to punitive levels, and members of the productive class will react. They will change their behavior. They’re not mind-numbed robots, and they’re not stupid (for example, it has recently been reported that 1.5 million people left high-tax New York state between 2000 and 2008, taking their tax dollars with them — $4 billion in 2006 alone).
Now, it’s a little harder to leave a country if taxes become excessively punitive, but here’s one thing the “rich” can do. They can simply stop. They can shut it down and get out. Make them a large enough target, raise taxes high enough, and I assure you, many will. I wonder how many jobs will that “save or create”?
The fact of the matter is that poor people do not create jobs. Rich people do. Period. Want to have a healthy economy? Let the productive folks who get things done, do. Want to ensure an anemic economy? Put a bull’s eye on the productive class. Start taxing wealthy people at confiscatory rates of 55–60 percent and watch the change we can all believe in.
The U.S. government’s current financial trajectory is, bar none, the greatest macro-economic risk at play today. Make no mistake about it — we are fast becoming a “Dead Country Walking.” Our current governmental fiscal and economic policies are an exercise akin to rearranging the deck chairs on the Titanic. A financial day of reckoning is coming. Count on it. It will be painful, expensive and highly disruptive. And it’s likely that most of us will be alive to see it.
This entire situation was summarized to me in a recent street side conversation I had with a friend. “Years from now, when our grandchildren ask ‘When did America make the collective decision to become a third world country?’ the answer will be: Nov. 7, 2008, the date that absolute one-party rule swept through our country.” I think he may be exactly right about that.
P.S., this is supposed to be a column on investing. If you give any credence whatsoever to the above, you might want to have a portion of your portfolio in non-dollar denominated assets. Real assets such as timberland, oil, gold, as well as foreign securities — both stocks and bonds — come to mind. For most of us, we can efficiently accomplish this through mutual funds or exchange traded funds that specialize in those areas.
Is it a crime for citizens to photograph, video, or take notes of a police officer in the line of duty, or a right protected by the First Amendment of the U.S. Constitution? Locally, such activity, as witnessed recently, will at the very least result in a night spent behind bars.
David Calhoun and Elizabeth “EB” Brooks are the first two employees of Lafayette Central Park Inc., the nonprofit charged with turning Lafayette Consolidated Government’s 100-acre Johnston Street Horse Farm property into a passive public park. Calhoun was named executive director, and Brooks is director of planning and design.
Episcopal School of Acadiana’s Dr. Joshua Caffery, chair of the school’s English Department, is headed to Washington, D.C., and the Library of Congress as the latest winner of the Alan Lomax Fellowship in Folklife Studies.