Talk of The Villages Florida - View Single Post - A Troubling Prospect To Consider
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Old 01-18-2009, 03:42 PM
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Of course my list was somewhat satirical, as Boomer suggested. But only to a degree. "Orwellian" was the way the list was described. Unfortunately, it might be -- because we're facing a financial problem that may require an "Orwellian-size" solution.

Here are some numbers I put together to further define the problem we're facing. Are they precise? No. Nothing in government ever is. But in scale, they are generally correct and reliable. Before you begin to frame your responses, try not to respond with an argument for one political or economic idealology or another. Rather, just concentrate on the problem as defined by the numbers.

Consider this...

The problem that needs to be addressed is the issue of a federal budget which has costs somewhere in the neighborhood of 25-35% higher than the revenues it takes in. That problem is redoubled as the result of what we're spending the revenues on. If the author of the article is correct and that our federal revenues are nearly exhausted by just four areas of spending: Social Security and other retirement programs, health programs such as Medicare and Medicaid, defense, and interest payments on the public debt, with all the rest of our government expenditures — from education and infrastructure to international diplomacy and much more — funded by borrowing, how do we balance the budget? How do we fix the imbalance while also providing for a repayment plan to reduce what will soon be a national debt of about $3 trillion?

Reviewing the numbers: the U.S. GDP is in the range of $13-14 trillion per year. Tax revenues are approximately $2.6 trillion per year. We have been spending about $3.3 trillion per year. Those are the numbers until this year and next, when the stimulus expenditures will cause the annual deficit spending number to skyrocket. And at the same time, our GDP and tax revenues may actually decline. The "hole" that needs to be filled -- either with reduced spending or increased tax revenues -- looks like it is approaching $1 trillion per year.

In addition, no one is planning on any sort of amortization schedule to repay the national debt. Let's just say that we think we can eliminate annual deficit spending and that we should pay off the national debt over a 25-year amortization period. That kind of schedule would add somewhere in the range of $120 billion per year to our budget shortfall for principal repayments.

In total then, we need to find about $1.1 trillion per year in either reduced spending or increased revenues. Reduced spending would mean that an across-the-board budget cut of about 8% would be necessary. That sounds doable until one recognizes that much of our federal expenditures are essentially fixed. There is little chance that expenditures for Social Security and other retirement programs, health programs such as Medicare and Medicaid, defense, and interest payments on the public debt could be cut by 8%, particularly with an aging population and with the country fighting two wars. So if we look to the remaining part of government spending as the part that would need to be cut, even a complete elimination of all other expenses wouldn't produce the $1.1 trillion per year in needed in cost cuts.

So I continue to accept the thesis of the author of the article. Not only will the services provided by government have to be cut so deeply that they will be a lifestyle changing experience, but taxes will have to be fairly dramatically increased as well. The decades-old theory of reducing taxes in order to stimulate the economy simply won't work with numbers this large. It is simply not reasonable to project the U.S. economy growing to the point that these budget shortfalls could be resolved by any reasonable level of growth of the U.S. GDP.

To expect free market capitalism to solve the problem when it hasn't for forty years or so probably isn't realistic. Some form of government involvement in what heretofore have been private enterprises looks like it might be necessary. One example -- in addition to our banking industry, which has already been taken over by government -- might be healthcare. Free enterprise has produced an industry whose total costs are escalating at a rate more than double inflation, with 50 million Americans still having no health insurance at all, and by all quality measures Americans are less healthy than almost all of the rest of the developed world. Tell me how government intervention isn't needed to solve this problem?

Show me how to solve the problem -- not ideologically or theoretically, but with numbers. In the end it will be the cold, hard consideration of revenues and expenses that will solve the financial problem we're facing, with little room for political or economic idealology. This is the problem being faced by our political leaders.