IT’S THE SPENDING, STUPID

Roger Hedgecock

The problem is not the annual federal budget deficit, the accumulating federal debt or even the funny money antics of the out-of-control Federal Reserve. These are warnings signs, symptoms of the problem. The problem is the spending.

Congress is spending way more than it has every year – more than it will ever have. It’s spending $10 billion per day and borrowing $4 billion of that – per day.

Every dollar taken by government is one less dollar in the private, productive American economy. Every dollar borrowed will have to be paid back with interest by taking even more dollars out of your paycheck (either by taxation or inflation or both) and your great, great grandchildren’s paychecks too.

I hear Nancy Pelosi believes that food stamps stimulate the economy and that unemployment payments are an even better way to stimulate the economy. In the real world, the cost of these and all other government programs is paid for by Americans employed in the private economy.

The more government spends, the longer the train and the smaller the engine pulling the train. And the hill is getting steeper. “I think I can” won’t work much longer.

The federal debt is over $15.4 trillion. That’s an unimaginable number. It’s an inconceivable number. And next year it will be $16.5 trillion.

What is $1 trillion? I get those emails explaining that a trillion seconds ago, Jesus was alive, etc. For me, Jesus is still alive, so I still don’t get what $1 trillion is.

Apparently, I’m not the only one trying to get my mind around the concept of a “trillion.” A friend of mine forwarded a simple way to understand the death spiral of the U.S. economy by understanding the concept of $1 trillion. It turns out that $1 trillion becomes more understandable when you lop off eight zeroes.

Using round numbers, in a recent year, the U.S. government tax revenue was $2,170,000,000,000 ($2 trillion, 170 billion). Federal spending was $3,820,000,000,000 ($3 trillion, 820 billion). The deficit for that year was about $1,650,000,000,000 ($1 trillion, 650 billion). Spending was cut last spring by $38,500,000,000 ($38 billion, 500 million).

Incomprehensible, no? But take off eight zeroes, pretend this is a family budget and the picture gets a lot clearer.

Annual family income: $21,700. Annual family spending: $38,200. New debt on the family credit card: $16,500. Outstanding balance owed on the family credit card: $142,700. Cut in family spending for the year: $385. Insolvency? Just around the corner.

But take heart, all ye who despair. The reason the government no longer teaches history in the government schools (except in California where it’s called “gay history”) is because it would have to tell students the U.S. has been in this spending mess before and cut government spending – drastically – producing an economic boom.

During World War II (for the U.S. De. 7, 1941 through September 1945), the U.S. government took over manufacturing, banking, in fact, the whole private economy, imposing rationing on all consumer goods – and controls on wages and prices. This total war effort mobilized all the resources of the economy to win. Taxes were raised, and the government borrowed trillions of dollars to sustain the effort.

After the war, the Democrats, worried about jobs for millions of returning G.I.s, wanted to continue high taxes and deficit spending for infrastructure investments and other government programs. They believed then, as Democrats do today, that government was the answer, that government could lead an economic recovery with high taxes and borrowed money, just as government had led the nation to victory with high taxes and borrowed money.

In the non-presidential 1946 election, Republicans won the majority of the House of Representatives on a platform advocating the opposite. They demanded the dismantling of the bloated wartime government agencies, tax cuts, abolishing rationing and wage and price controls, restoring a free-market economy and a balanced federal budget.

In the next two years, (1947-49), the new Republican House majority slashed federal spending by 57 percent – in two years.

The result of this drastic demobilization of the federal government? The Booming 50s. The economy took off. The returning G.I.s found opportunities unheard of during the government-led “recovery” of the 1930s. Optimism. The American Century. Tail fins on cars. Marilyn Monroe. Elvis. Mad Men. It was wonderful.

And nothing like it was seen again in the U.S. until Ronald Reagan, who again cut taxes, cut the size and scope of government, promoted private sector investment and turned the Jimmy Carter era of limits into the 22 million new jobs boom of the 1980s.

Roger, this is all ancient history, my critics say. It’s a different world today. We need government.

Well, that’s what the left told the Greeks, too. The Greeks bought that line, and look what it got them.

So, let’s look around at this “different” world today.

In Canada, average income is up, unemployment two points lower than the U.S. and the Canadian dollar is strengthening against the U.S. dollar.

The new conservative government has slashed taxes (the corporate tax rate is 15 percent compared to a 35 percent rate in the U.S.), cut government spending, encouraged private companies to invest in Canada and expanded oil drilling with some of the best environmental protections in the world.

In other words, Canada is prospering by doing what the U.S. used to do.

In Ghana (west Africa), offshore deep water oil drilling, coupled with a cacao-led farming boom, fostered by a free market promoting low tax government, produced a 13.5 percent growth rate in the Ghana economy in 2011. The U.S. growth rate is below 2 percent.

Russia, China, Poland, Estonia and a dozen other countries have adopted the flat tax. In a stroke, these countries have increased government revenues, reduced tax cheating, reduced the cost of compliance and stimulated their economies. The U.S. maintains the most complex tax code in the world and has an IRS workforce larger than the FBI and the CIA put together. It’s stupid and unnecessary.

What would happen if today’s Republican majority in the House slashed spending by 57 percent, abolished the Departments of Education, Energy, etc., enacted a flat tax, opened up oil drilling and promoted private investment instead of demonizing business?

What would happen? A boom would happen. America would once again be the engine of a growing world economy. That kind of Republican leadership could sweep the 2012 elections.

The House Republican majority could cut spending drastically or continue to timidly nibble at reform and watch as disgusted American voters re-elect Obama and the Harry Reid-led Senate and get four more years of this awful spirit-sapping stagnation.