A looming Terror

The Gross National Debt

Peter G. Peterson answers "A Looming Terror" with: You Can't Carry It With You


Supply-Side Economics, a theory President George H. W. Bush said was voodoo economics, is a term not as often referred to in recent years, even though it continues to be the founding basis for the Republican mantra, “Reduce Taxes.” Tax reduction has also become the byword of most Democrats. In fact it’s near impossible for any candidate to be elected or re-elected without some anti-tax sentiment. Case in point: The anti-tax guru, Grover Norquist, recently campaigned against North Carolina’s 3rd Congressional District’s Republican U.S. Rep. Walter Jones, who according Norquist violated his anti-tax pledge by voting last year for major farm and energy bills, even though Jones had voted against President Bush's two big budget expansions which included Medicare prescription drug benefit and the No Child Left Behind program.



Supply Side was introduced in 1974 by Arthur Laffer in the presence of Jude Wanniski, an editorial page writer for The Wall Street Journal and Dick Cheney, then-deputy assistant to President Ford. Where they met at a restaurant on that evening, Laffer pulled out a cocktail napkin and drew a parabola-shaped curve on it – to illustrate that a zero-tax rate would produce zero-tax revenue and likewise a 100% tax rate would produce zero-tax revenue, with assumption that it kills all incentive to produce a profit. His theory: government revenues would increase as the tax rate was dropped to lower end of the scale because of correlating ascending-profit incentives; increased profits, reinvested, of larger businesses feeds back in trickle-down to the masses to keep an economy churning. Jonathan Chait's book, The Big Con, according to him, tells the true story of how Washington got hoodwinked and hijacked by crackpot economics as condensed in Feast of the Wingnuts. Arthur B. Laffer defends his supply-side economic theory in his Supply-Side Investment Research, a pdf file complete with charts.


The broader question of tax revenues, budgets, national deficit, personal debts, foreign oil addiction, and foreign trade balances have become taboo or tone-deaf politically, for fear that the frightful “tax word” might be invoked. In James Fallows’ The $1.4 Trillion Question, he tracks the dollars that China is loaning back to the U.S. so that we can keep on buying their cheap products, as the poor Chinese people unwittingly forfeit a higher standard of living and needed capital for their country’s distressed infrastructure. Subsequent to Fallows article, on Jan. 14th, he received an update: China’s People's Bank of China, China's equivalent of the Federal Reserve, announced that the holdings had now reached $1.53 trillion, and at the current rate of $1-billion per day will be about $2.0 trillion by year’s end or about $6,000 for every person in the USA. And consider the national deficit of $9.323 Trillion (see National Debt as a % of GDP), for a debt of $31,000 for every American citizen. In Robert Samuelson’s last week’s Newsweek article, The $3.0 Trillion Cop-Out, he comments on the current budget: “Most Americans don't seem bothered by more government spending and endless budget deficits. We're focused on our own entitlements.” That’s probably true, “thank you very much for my socialized Medicare.”



Are these ominous signs and do they signal a more agonizing financial trouble is imminent? Some would say “NO” we’ll keep printing the money. Absurd? I don’t claim to know much. I just have these wearily growing qualms about these economic times. What I do know is that whatever we want as a country, whether it’s energy independence, health care, education, or an American defense budget that equates to the sum total of all other nations of the world and 6-times greater than the next largest, Russia’s (reference page 250 “Beyond The White House”), someone has to pay. In today’s N&O see The incidental cost of a costly defense. To maintain our wants it has not been proven, for its part, that trickle-down economics can accomplished its goals (if the goal’s a reasonably balanced budget/economy), not without disciplined lockstep expenditure controls necessary to control the deficit.


In my opinion, this current economy is suffering not merely from a normal down-cycle, but more acutely from irresponsible fiscal policies of sub-prime loans (symptom of a deeper issue), auction-rate securities, national deficits, personal debts and trade imbalances. And the quick fixes: shoring up home loans, low interest, lenient credit, and $150-billion tax rebates that the government doesn’t have will do nothing to insure a long-term solution; all that may just add fuel to a politically self-perpetuating destabilization of natural economic forces. New York’s Mayor Bloomberg says, “handing out money is like giving a drink to an alcoholic.” Inevitably there comes a point when the nation as a whole has to bite the bullet, and even concede that our descendents, as a whole, will live at a lower standard of living. Thomas Friedman says in his book, The World is Flat. For the USA that mean the playing field is precipitously tilting in favor of many other people s of the world, some 2.0 billion of them who now live on a $1 or $2 a day. Americans with only 4.54% of the world’s population competing with China’s 20%, India’s 17.11% and other parts of world growing hungry for the good life is a warning of the arduous planning and adjusting we must make to compete in this global economy. If our financial house is not in order the challenge become overwhelming. Will our national leadership muster the fortitude to face these challenges now rather than defer them to our children’s cataclysm? The answer is: Only in a bottom-up and top-down change of societal attitudes adjusted to forgo our greediest desires; concessions we will have to make known to our leadership if we are to prepare for the eventuality. Let true patriots step forward!



I guess no one is thrilled about paying taxes but I’ve never grieved over paying taxes and have been privileged to be able to do so. Certainly pay raises and low taxes, while important, were never the sole motivating factor in my professional life. Beyond pay raises or an extra-low individual and corporate tax, the foremost assets and incentives in an industrious society’s strength are individual good character, strong-work ethic, ethicalness, and a personal gratification of personal and company achievements. Otherwise, there would not be successful companies. To diminish these industrial tenets, to say that “profit” is the only motivation for success hastens humanity’s avaricious decline.


The aforesaid is in no way to suggest a high tax rate is needed. However, it is time for bold new ideas as well to review some of the old such as Steve Forbes’ “Flat Tax.” In as much as “flat tax” requires dismantling of the current tax code to rebuild a fair-tax structure without the loopholes, it could possible give impetus for pay-as-go budgeting, insurance of a long-term fiscal responsibility and security for our country. That will probably never happen, not because it’s so complicated but because of the lobbyist influence resulting in political gridlock. It’s the same with healthcare which is much more complicated because of the established institutions we already have that make up a socialized-medicine system, consisting of Medicare, Medicare Drug Benefits, Medicaid, Veterans Administration, County Health Departments, and write-offs of hospital/ emergency-room visits. Problem: these institutions exclude 47-billion people short of Universal Care. We’ll need a lot of Hope, Solutions, and Straight Talk to work out this twisted web. What part will “trickle down” or “funnel up” economics serve to secure a great society? Where is the balance?



It’s silly I know that I would even dare write this and share it with others. I don’t mean to be an alarmist, but there is a deafening silence of horror, a looming terror within our own financial foundation, few want to talk about, and every person in this nation shares a responsibility. As Robert Samuelson says, “The fact that we are not debating the possible consequences is a cop-out—but it is a cop-out in which the broad American public is conspicuously complicit.”