Friday, December 10, 2010

Obama's Spending Growth

There are two ways to spend Federal Dollars.  Spend them on "operating costs" such as Medicare, Medicaid, Military, Social Security, interest on debt.  They may also be invested in "capital costs" such as road and rail infrastructure; replacement infrastructure for water, sewer and "wire" utilities; new sources and distribution of energy; research and development ways to derive more benefit for our dollars; education and training of the replacements and expanded staffing of our medical services.

There are two ways to raise the funds that we spend and invest.  We can tax various activities and assets to generate revenues and we can borrow the funds from people and countries that have a trade surplus with the US.  The FED issuing more dollars into the economy is merely a form of borrowing against the future. 

Borrowing to pay immediate operating expenses is really a bad decision.  It is the same for the nation is it is for an individual or family who charges a lot of expenses on a credit card when there is insufficient income to pay the balance due each month.  Many people got into difficult position with their debt when they counted on a pay increase or bonus that did not materialize.  The setback may also be attributable to an unexpected expense such as illness, injury or layoff.

Borrowing to build for the future or facilitate lower monthly expenses is a good reason to borrow.  College educations, continuing education credits, replacing an old car, replacing an old furnace all can bring about a better financial situation down the road.

Not taxing enough assets at a high enough rate for our immediate operating expenses leads to bad borrowing.  Bad borrowing leads to present people leaving a financial burden for the next generation if it is not paid up within about 20 years.  Bad borrowing is repeated each year such that the debt can never be repaid by those who benefited from it.

Borrowing to build a 50-year bridge is a reasonable debt if the balance is paid off in the 50 years that the bridge will stand.  Borrowing to build a power plant of any kind is a reasonable debt since it will keep making electricity for many decades and a second and third generation may still benefit from it.

Obama's problem today is that it is on his watch that all the neglect of several decades has come together with the reduction in revenues that the nation needs for paying the obligations.  We did not tax enough when we needed to do so.  We did not pay down our debt balances.  We spent one trillion dollars on a decade of war in two countries.  We watched millions of jobs move beyond our borders.  We allowed ourselves to have a massive trade deficit with China and the OPEC nations.  A lot of that trade deficit came back to us as credit on easy terms, therefore we were not eager to stop it.

We watched as the largest population cohort, the 79 million Baby Boomers, aged from worker status to Social Security status while doing nothing to prepare for the cost of that money.  They aged out of Blue Cross, et al, into Medicare.  2011 is the year that the floodgates open for Medicare enrollments.  As people reach 65 they become eligible to start collecting Social Security payments, too.  We can make President Obama shoulder the burden for the debts incurred on behalf of those millions of Americans.  After all it is on his watch that it starts.  Problem is that even with a second presidential term in office, the problem of retiree income and health care payments will long out live the Obama Presidency.

The growth in SSI recipients will continue through 2039.  After that year, barring any major life extending factors, the over 65 population will begin to drop.  By 2044 every Baby Boomer will be over 80 or dead.  Although the Baby Boom population will be aging out of the system, there is a second wave of future beneficiaries, not quite as large, following close on their heels.

Congress, economists, and visionaries need to figure out how we will provide for our non-working parents in their last few decades of life.  One political party wants to curtail SS and Medicare in order to contain costs.  It is ironic (read idiotic) that their mouth-pieces in the pseudo-news media are the ones who are warning that their opposition wants "death panels" that will ration health care and turn medical decisions into a government bureaucracy.  There is no faster way to kill off elderly people by the thousands than to have them starve in cold dark quarters because they have no money for food and heat or access to doctors.

It is not just the publically funded retirement income and health care that is growing without control.  The lack of control is not for a lack of trying.  The lack of control is due to the increased numbers of people who each year age out of their jobs.  Their employer funded pensions and health insurance continues to mount.  As the balance sheet accrues more retiree expenses, more of the company income must be applied to those accounts.  This means less profits for the owners and shareholders.  This means higher prices for the products and services.  Higher prices make the business less competitive in the global market where foreign laborers either get health care and pensions from their government or they get nothing at all.

The bottom line to us is that we need a new paradigm of funding our retirement and health care costs.  In our purely Capitalist system of business where all the means of production are in the hands of private citizens and private businesses, the only method of funding for our retirees and other non-working people is to levy a tax, or legislate that an employer pay all the bills.

President Obama has had the supreme misfortune to have been the man elected to the Presidency at the crossroads of global change.  He is faced with powerful forces that that no other American President has had to face.  His war legacy will be the "War on Global Economic Collapse."  It is a WWIII even though no Nukes are being hurled at each other.  The fact that only a few burning tires and minor demonstrations have yet perforated the curtain erected by partisan media on both sides is a testament to the leadership of our President and the many other national leaders who are trying to keep a smoldering world from bursting into flames.  When America went to war in Afghanistan and Iraq, the ultimate cost of doing so was unimportant to Congress.  We have spend more than a trillion dollars so far without a single tangible benefit or hope that any part of it will get paid back to the American taxpayer.  Because we borrowed that money, our descendants unto the fourth or fifth generation will be paying that bill.  Congressional  partisans quibble over a few millions in earmarked funding while demanding taxbreaks or taxes to balance a budget and not stymie the economic recovery.  In all this wrangling and rancor we loose sight of the need to find a solution to our poor budget practices and invest in ourselves.

We have been willing to spend $1 trillion on our current military wars.  How much are we willing to pay for keeping our economies from being destroyed?