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Opinion

Opinion

Opinion: U.S. needs dose of financial reality

October 21, 2012

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— Elections supposedly prevent convulsions, serving as safety valves that vent social pressures and enable course corrections. November’s election will either be a prelude to a convulsion or the beginning of a turn away from one.

America’s public-policy dysfunction exists not because democracy isn’t working but because it is. Both parties are sensitive market mechanisms, measuring more than shaping voters’ preferences. The electoral system is a seismograph recording every tremor of public appetite. Today, the differences that divide the public are exceeded by the contradictions within the public’s mind.

America’s bold premise is the possibility of dignified self-government — people making reasonable choices about restrained appetites. But three decades ago, Harvard political scientist Samuel Huntington postulated that America suffers regularly recurring political convulsions because the gap between the premise and reality becomes too wide to ignore.

Now Michael Greve, a constitutional scholar at the American Enterprise Institute, argues: “We like to tell ourselves that all our constitutional stories must have a happy ending.” The Founders’ foremost problem, Greve says, was debt. To establish the nation’s credibility, they needed to replace the Articles of Confederation with the Constitution. “We,” Greve says, “merely have to return to it, if we can.” He wonders whether we can.

The official national debt of $16 trillion (growing $4 billion a day), plus what the government owes its various trust funds, is more than 100 percent of GDP. Ninety percent is where economic anemia seems to deepen. States’ debts are about $3 trillion and their unfunded pension liabilities probably are another $4 trillion. “Debts of this magnitude,” Greve says, “will not be paid.”

Barack Obama’s risible solution is to add 4.6 points to the tax rate for less than 3 percent of Americans. Some conservatives have the audacity of hope — expecting 5 percent economic growth (the post-1945 average: 2.9 percent) and planning to continue financing the debt by borrowing at negative interest rates. Of our long slide into financial decrepitude, Greve says: “The rate of deterioration does not correlate in any obvious way with political control over the presidency and Congress.”

The housing debacle was not the result of “a spontaneous outbreak of private irresponsibility.” Public institutions and policies provided occasions and incentives for the exercise of private vices. Washington pays up to 80 percent of state Medicaid expenses, so states’ citizens demand more Medicaid services. Although the elderly consider Social Security and Medicare benefits earned, Greve says: “Most retirees could not have earned their expected payment streams if they had worked two or three jobs.”

“Our politics,” says Greve, “aims at inspiration on the cheap.” We should reduce government’s complicity in illusions by, for example, sending retirees “a statement showing the estimated present value of their old-age benefits; their lifetime earnings and contributions; and the earnings and contributions that it would have taken to ‘earn’ those benefits. We might then ask them who precisely should earn and remit the missing millions and in what sense it would be ‘unfair’ to modify the empty promises.”

Rash promises were made, Greve says, “in an era of prosperity, when and because we thought we could afford them.” Now they “are far too entrenched to be dislodged in the course of ordinary politics.” Even granting Mitt Romney’s embrace of something like his running mate’s reforms, this year’s politics are terribly ordinary. Although consensus is supposedly elusive, it actually is the problem. “Our operative consensus,” says Greve, “is to have a big transfer state, and not pay for it.”

Democracy is representative government, which is the problem. Democracy represents the public’s preferences, which are mutable, but also represents human nature, which is constant. People flinch from confronting difficult problems until driven to by necessity’s lash. The Claremont Institute’s William Voegeli, commenting on Greve and the dubious postulate of continuous 5 percent growth, says: “There’s good reason to fear that if the economy builds a 5 percent levee the polity will just come up with a 6 percent flood. We humans adroitly use scant and equivocal evidence to convince ourselves that the most congenial interpretation of events is also the most plausible and durable.”

Writing in 1830, Thomas Babington Macaulay asked, “On what principle is it that, when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?” Greve’s gloomy answer is: Because we actually see behind us protracted abandonment of the Founders’ flinty realism about the need to limit government because of the limitations of the people.

— George Will is a columnist for Washington Post Writers Group.    

Comments

weeslicket 2 years, 2 months ago

in 2000, after a lot of hard work and some good fortune, this nation had a surplus. with that surplus came a choice among three alternatives: 1. pay down/off the national debt; 2. stabilize social security, medicare and medicaid; 3. provide tax rebates and lower taxes.

well, we know the answer to that choice. and we've been stuck in our mess ever since.

(my opinion at the time was easily choice #1.)

George Lippencott 2 years, 2 months ago

Or reduce spending further to do what you suggest!

Richard Heckler 2 years, 2 months ago

Financial Reality = make the reckless republicans an endangered species. Why?

Because no one can afford their scandals!

These republican economic policies are apparently entitlements that literally destroyed millions of jobs,economies,retirement plans. And made owning a home a risky investment - now that is remarkable. AND are hell on shopping opportunities.

--- This ENTITLEMENT - Bailing out The Reagan/Bush Savings and Loan Heist aka home loan scandal sent the economy out the window costing taxpayers many many $$ trillions (Cost taxpayers $1.4 trillion), Plus millions of jobs, loss of retirement plans and loss of medical insurance. http://rationalrevolution0.tripod.com/war/bush_family_and_the_s.htm[

--- This ENTITLEMENT Bailing out the Bush/Cheney Home Loan Wall Street Bank Fraud cost consumers $ trillions, millions of jobs, loss of retirement plans and loss of medical insurance. Exactly like the Reagan/Bush home loan scam. Déjà vu can we say. Yep seems to be a pattern. http://www.dollarsandsense.org/archives/2009/0709macewan.html

--- This ENTITLEMENT - Bush/Cheney implied many financial institutions were at risk instead of only 3? One of the biggest lies perpetrated to American citizens. Where did this money go? Why were some banks forced to take bail out money? http://www.democracynow.org/2009/9/10/good_billions_after_bad_one_year

The fewer republicans the more our properties will become worth and the more likely USA jobs will be reinvigorated.

Richard Heckler 2 years, 2 months ago

Talk about scandalous behavior!

THE ENTITLEMENT program for the wealthy at the expense of the middle class = duped one more time. http://www.dollarsandsense.org/archives/2001/0301miller.html

Borrow borrow borrow and spend spend spend supply side economics has been supported by fraud and real big debts.

Republicans are all about big debt. Super duper bailouts HAVE BEEN the results which does not seem to bother Republicans, as long as they are in power.

In fact, by the time the second Bush left office, the national debt had grown to $12.1 trillion:

This ENTITLEMENT - Over half of that amount had been created by Bush’s tax cuts for the very wealthy.

This ENTITLEMENT - Another 30% of the national debt had been created by the tax cuts for the wealthy under Presidents Reagan and George H.W. Bush.

This ENTITLEMENT - Fully 81% of the national debt was created by just these three Republican Presidents. http://www.dollarsandsense.org/archives/2010/0111orr.html

This ENTITLEMENT - Starting in 2003, George W. Bush destroyed the world economy by encouraging U.S. banks to make loans to those who could not afford them, through schemes such as the "American Dream Downpayment Initiative".

Also through the destruction of oversight, such as lawsuits to prevent state securities laws from being enforced on Bush's watch.

Once Bush's policies led to their inevitable result of economic collapse, the United States found itself in a situation where it had to take on debt in order to restore the economy.

http://www.reaganbushdebt.org/CalculationDetails.aspx

Richard Heckler 2 years, 2 months ago

--- "Mitt Romney Made Millions from the Rescue of Detroit" as 25,000 GM jobs went to China

--- " Investigative reports reveal how Republican presidential nominee Mitt Romney made some $15 million on the auto bailout and that three of Romney’s top donors made more than $4 billion for their hedge funds from the bailout.

--- As part of a massive government bailout, U.S. taxpayers paid $12 billion to save auto parts maker Delphi Corporation. Out of that taxpayer money, three billionaires and their partners took in a profit of over $4 billion. One big winner, with a profit of over 4,000 percent, were the billionaires’ silent partners, Ann and Mitt Romney. The Romneys made at least $15 million, and as much as $115 million.

--- Our investigation began in Africa in the Congo. This is Greg Palast reporting. We are hunting for a vulture, a so-called vulture fund financier, this man, Paul Singer. Singer’s vulture fund seized $90 million out of foreign aid given the Congo, which could have been used to end a cholera epidemic. Singer’s vulture tactics are now outlawed in England and all over the world, but not in the U.S.A., certainly not here in Detroit, where we found Singer’s vulture fund feasting on the corpse of another victim, the once-world-leading Delco auto parts division of General Motors.

--- DELCO AD: Power that can’t get old before it’s sold. Delco dry charge battery, made by the Delco-Remy Division of General Motors.

--- So far, Romney and partners have pocketed over $4 billion. Then the billionaires gave Romney a million dollars each for the Republican campaigns. Nevertheless, Romney accused Obama of conflicts.

--- Documents reveal that a government bailout check was in fact cashed by none other than Ann Romney. It says that Ann Romney had a hunk of Mitt’s vast fortune in Elliott Management, Paul Elliott Singer’s vulture fund. Working our way between the limousines in front of his office, we wanted to ask Mr. Singer about his special financial deal with the Romneys. But he turned us down. The Romney campaign refuses to tell us exactly how much they made from the bailout, nor reveal their 2009 taxes.

--- ANN ROMNEY: We’ve given all you people need to know and understand about our financial situation and about how we live our life.

--- To cover up their payday and avoid taxes, the vulture funds have moved the headquarters of Delphi from Michigan to Jersey—not New Jersey, but the Isle of Jersey off the coast of France, a notorious tax haven.

--- Governor Romney wrote, "Let Detroit go bankrupt." And it did. Of the 25,000 UAW members at Delphi, every single one lost their job. Delphi once had 29 factories in the U.S., now just one. Today, GM still gets its parts from Delphi, shipped from the plants that the Romney hedge funds have moved to the People’s Republic of China.

-- Continued and is juicy. http://www.thenation.com/article/170644/mitt-romneys-bailout-bonanza

Richard Heckler 2 years, 2 months ago

--- Romney has been sending many a business and thousands of jobs to China since leveraged buyout opportunities got risky financing during the Reagan/Bush days till present.

--- Mitt Romney and his bailout bonanza. - http://www.thenation.com/article/170644/mitt-romneys-bailout-bonanza

--- Has risky financing stopped? Not that I read. Wall Street Big Banks find many loopholes. --- I'm not sure the loopholes are legal.

--- These elected officials posing as republicans love those loopholes and despise regulations that protect the financial health of USA.

De-regulation is irresponsible and unethical. White collar crooks love the massive deregulation.

Where is the FBI and the IRS?

notaubermime 2 years, 2 months ago

There is a lot of flowery prose here for something that boils down to 'our debt is big and we need to curtail medicaid, medicare and social security'. Well, our debt is big and there is a need to restructure social security, medicare, and medicaid (so long as it does not endanger lives), but there is a lot more to the financial reality than just that. The military also needs to be cut. Welfare needs to be restructured. Foreign aid needs to be re-examined and cut.

And then you need to restore tax levels to those from the Clinton years for all tax brackets.

Politicians get into office by promising everything to everyone. If we as American really care about this, then we need to be clear that we want all Americans to work towards a solution. Singling out the old, or the poor, or the rich while giving a pass to the middle class and the military isn't a solution; it is a part of the problem.

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