After Uncle Sam’s economic pulse dropped suddenly last fall, he called in Dr. Obama and the Democratic Congress for treatment. Now on the case, they’ve quickly prescribed radical change for our sick patient. So far, the hardest pill to swallow has come straight from the left-wing lab – a massive, experimental dose of big government spending. The medical team seems unconcerned about the cost of care.
Uncle Sam has always bounced back from his illnesses. The question is: This time, can he survive the cure?
The big pill is the stimulus, a $787 billion monstrosity, far and away the largest spending measure in U.S. history. With interest, the package tops $1 trillion. Other huge spending initiatives are announced almost every day.
The nation is entering uncharted waters. This year’s federal deficit is predicted by many to explode to nearly $2 trillion, which will more than double the highest previous peacetime deficit, as measured against the overall economy. This deficit will equal all the national debt accumulated during the country’s first 210 years.
Today, the national debt totals $10.9 trillion. It’s going up fast. The Treasury borrowed a record $94 billion the last week of February. Interest on the debt over the next ten years is conservatively estimated at $4.5 trillion.
The physician hasn’t explained the side effects of all this. Interest rates are surely headed higher. While U.S. debt skyrockets, recession is shrinking the funds available to finance it. China, Japan, and OPEC can’t be counted on to buy our debt at the level they once did. Some investors are inclined to avoid treasury bonds amid a growing fear that the U.S. could default on its payments.
To attract buyers, the Treasury will be forced to pay higher interest on the bonds it sells. Higher rates will add to future deficits, requiring even more government borrowing. Many private sector interest costs will increase, including interest paid on home mortgages.
To compensate for the expected shortage of private and foreign government buyers, the Federal Reserve will buy our debt. But they don’t have the money either, so they’ll have to print it, which causes inflation.
Higher taxes are also on tap. The Obama Administration is calling for tax increases to offset new spending. Tax increases won’t come close to paying for the ocean of debt we’re incurring. And unlike the 90’s, additional revenue from higher taxes won’t effectively reduce interest rates. Current deficits are too big.
Combined, these side effects spell substantially slower growth for the U.S. economy. Tremendous amounts of money will be diverted from the private sector to buy treasury bonds and to pay higher taxes. Higher tax rates will discourage production and investment. Siphoning-away business investment will choke the engines which produce jobs and fuel economic growth. Unchecked inflation will destroy savings and result in uncertainty and instability throughout the economy.
There’s more. With 77 million baby boomers anticipating retirement, Medicare faces unfunded obligations of $36 trillion. Add another $6.5 trillion for Social Security. Trust fund surpluses collected under these programs to meet future payments have been loaned out – to the federal government. The new flood of government debt will make overcoming these gaping shortfalls even more insurmountable.
To top it off, the stimulus bill contains an epidemic of liberal social policy initiatives. The first steps toward socialized medicine are in there. Highly effective welfare reform policies, which helped reduce welfare rolls by 70 percent since 1996, are reversed. The overall prognosis: welfare state relapse.
The secret to reviving Uncle Sam’s economic strength lies in the productivity of the American people. Turn Americans loose with greater incentives to produce and invest, and history shows the results will be astounding. The medicine Uncle Sam needs now is renewal of the expiring Bush tax cuts for individuals, lower tax rates on corporations and capital gains, and a widely-targeted freeze on federal spending going forward. Instead, President Obama and the Democratic Congress have prescribed runaway spending with a whole lot more on the way. Who pays? Future generations. All in all, bad medicine indeed.
Henry Ross recently returned to Mississippi after serving in Washington as a Bush Administration appointee in the U. S. Department of Justice. He resides in Eupora. Contact hiim at firstname.lastname@example.org, his e-mail address.