The Budget Discussions – Rod Serling Would be Proud

WHERE  HAS  COMMON  SENSE  GONE?  No. 17  Thomas Paine – March  2011

Where to start a discussion……..the Twilight Zone is the Twilight Zone no matter where you enter it. One might add….Common Sense is in short supply once inside the Twilight Zone.   I had a brief flashback to an old Rod Serling Twilight Zone episode when, a couple of nights ago, I watched Minnesota Representative Michele Bachman (RTP) try to discuss certain aspects of the Obama budget and Unfunded Liabilities.

I like Michele Bachman. She presents herself well and exudes civility and dignity to a degree not demonstrated by many of the other elected representatives we, as a nation, have sent to Washington. I think she has some future potential in politics, but that potential won’t last long if she continues to address issues on which she is woefully ignorant. This is doubly bad if it happens to be an issue she is likely to be involved in for most of her working days as an elected official. Her attempts to address certain issues in Obama’s budget must have been embarrassing to many viewers. My concern however is this…..Was this spectacle, where she kept repeating the same words even though it was obvious she was lost to any comprehension of the message she was trying to deliver, representative of the knowledge base most elected representatives have to draw from when they engage in budget solutions and government finances in general?

Based on most of the rhetoric I hear on the news the answer is likely yes. If so, this is not only shameful but very dangerous to our national future. It may also help explain why we find our nation in its present financial situation. I have been appalled at how quickly budget discussion seems to shift from record deficits to Social Security and Medicare.  Either our elected representatives are hopelessly innumerate or they are participating in an intentional monumental misdirection exercise on both sides of the isle. We citizens should not tolerate either case one day longer.

There is no useful purpose served in discussing the tens of trillions of dollars in future unfunded liabilities when we are today faced with a present deficit of 1.6 trillion dollars. To discuss the “off balance sheet” aspects of our future liabilities does nothing but obscure the lack of progress being made in curing the present problem. We the taxpayers need some serious spending reduction now and we should not be quiet till we get it. We should insist on dramatic spending reduction followed by longer term solutions later.

The reader is reminded of a closing statement in C.S. No. 3 of May 2009. “…..another example of the abuses fostered through a system of seemingly unlimited tax code manipulation by special interests and their government facilitators.”  Let’s tell it like it is……

The federal government will collect $1.75 trillion from individuals in income and payroll taxes in 2011. Corporations will pay $198 billion. The government will spend $3.8 trillion, $1.5 trillion (about 40%) of which will go to the people that paid the taxes, in the form of Social Security and Medicare. So before we skip right to cutting these benefits, let’s shed some light on what is hiding in plain sight: corporate welfare. The vast majority of the remaining $2.3 trillion in government spending will manifest on corporate balance sheets. (Review C.S. No. 11 Nov. 2010.)

Our political and economic systems are increasingly suffering from an atmosphere of risk-free profit. Do you wonder why anyone would pay a lobbyist up to $1,000/hr?  It is because getting your product or service written into legislation or an appropriation by a government agency results in risk free windfall profits. In recent years, lobbying dollars have provided a better return on investment than any other corporate allocation of capital. Thomas Sowell, a brilliant economist, stresses the need for the best undistorted application of capital as being the only sure way to provide long term benefits and profits in a free market system. The unholy alliance between government and business achieved through lobbying efforts is not what Sowell meant by undistorted application of capital.

It is an unfortunate reality that most of us know almost nothing about recent decisions made by the FCC (Federal Communication Commission), CMS (Center for Medicare & Medicaid Services), or the Federal Reserve, for example. The unelected officials that direct policy at these agencies determine how hundreds of billions of dollars are allocated in our economy, and, incidentally, the amount of money the public officials make from the companies they once regulated, after they transition to the private sector. This ongoing situation should call into question the integrity of the regulators decision-making. Certainly the potential and motivation to exploit one’s position exists, especially if loopholes in the Freedom of Information Act are used to prevent relevant disclosures from becoming public.

I don’t begrudge people making money, but if our leaders want to assure the populous that our government is serving “The People’s” interest rather than a “special interest,” they would be well advised to keep the number of public officials collecting paychecks from the industry they regulated to a minimum.

We have to recognize that every loophole, earmark, and tax credit is written to specifically serve a small constituency; yet, it is unwittingly connected to the broader economy. This means that every budget cut will cost someone a job. It is likely that job may never have existed without the subsidy anyway, but before we start slashing we should give a little clear thought to the way we proceed.

Our nation is looking for leadership. Leadership is about setting the goal, endorsing the plan, establishing the benchmarks to measure progress, and empowering the people to make the vision reality. Frankly, who designs and implements the plan is less important than the results that are achieved, but if we don’t take the time to think through where we want to go and the path we take to get there, we will end up lost. We are today a nation lacking a goal, a plan, and benchmarks. As a result, we are divided as a people, influenced more by extremists that say they will protect our special interest, even if that protection comes at the expense of those less politically organized. The truth is that the money has run out! Each group is fighting to protect their share of a fantasy.

There is a solution however, the government must rescind the present tax code in its entirety and provide a new simpler one along the lines suggested in C.S. No. 11. Every government subsidy must be eliminated. Most people will scream bloody murder at first until they realize the loss of their special interest subsidy will be more than offset by a new and lower tax rate that can be relied upon to encourage business and job creation.

We must act on these thoughts now. Repeating and reusing again and again the favorite instruments of government, manipulating interest rates and reshuffling the tax code cannot solve the problem. A major departure from the way government is presently run is the only solution. When interest rates are artificially low, capital is misappropriated to projects that are only productive if interest rates remain artificially low. Those projects prove unprofitable once the cost of capital (interest rates) increases. Further, any economist will tell you that a red flag, signaling unsustainability, goes up when nations start running debt/GDP levels greater than 4%. The US is running deficits that are nearly twice that level (8.9%, est. 10.9%, and est. 7.0% in 2010, 2011, and 2012 respectively). As you can see by the numbers, the government is not only engaging in unsustainable spending, it is also misappropriating trillions of dollars in this present near zero interest rate environment. Even with all of this spending, the economic response has not been adequate, in the view of the Federal Reserve, so they embarked on quantitative easing to further stimulate economic activity. At this point, so much of our economy is dependent on government appropriations and/or zero percent financing that any recovery strong enough to warrant an increase in interest rates, or withdrawal of government support, could also cause the economy to collapse again.

Eliminating government subsidies, overregulation and providing a simpler tax code can achieve economic stabilization and long term debt reduction. Taxes for the individual need not go up at all if they are spread more fairly and ending government spending on non self-sustaining causes will drive a focused economy that actually expands and improves.

Let your representative know that you will no longer tolerate their innumeracy with respect to fiscal issues.

T.P. – 2011

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