Democrats have now packaged their agenda and the policies that it includes under the term “progressive” to obscure the liberal label, hoping by this camouflage to make their programs more acceptable to the American people. As with most fictitious names this one is designed to obscure reality. True, “progressive” could describe anyone who favors or advocates progress. If, however, the programs and policies our government embraces in the pursuit of progress are based on concepts and ideas that simply return or revert to old, thoroughly tested and failed economic and political schemes of the past, regressive would be a far more accurate soubriquet for today’s Congressional and White House liberals. They campaign and politic under a progressive banner, while committing the nation to vastly increased government control of the economy, an ever-corpulent government payroll and unrestrained spending and debt for which the taxpayers for generations to come will ultimately be responsible.
We were recently reminded by none other than Lech Walesa, the founder of Solidarity (and subsequently the President of Poland), who faced down the old Soviet Union twenty years ago, of just how frightening and regressive the course is on which the Administration and the Congress are taking us. During an interview conducted by blogosphere journalist Andrew Marcus, Walesa lamented America’s current drift toward socialism. He said that while we still lead the world militarily, we are growing weak economically and we have forfeited both political and moral leadership. He went on to warn of the waste inherent in centralized government control and seemed saddened that this was the path the United States was on. We could only think of the profound irony of this former union leader, an electrician from a shipyard in Gdansk, who risked his life to free his country from the socialist policies of the Soviet Union, providing such counsel to the elite ideologues now steering our ship of state.
We are witnessing the emergence of a central government hostile to industry, covetous of the earnings and savings of America’s most productive and most successful citizens, seemingly contemptuous of voters at the state level who are registering their disapproval of Washington in election after election, unrestrained and irresponsible in its willingness to spend money it doesn’t have and incur debt it has little or no way of repaying without printing money or heavily taxing its citizens for generations to come.
Simply stated, we cannot grow the economy and bleed it at the same time, but that is what Washington is attempting to do. To be clear, this type of government muscularity doesn’t emerge in a vacuum. Political opportunists have to have the opportunity to embark on such a course, and the recent financial crisis and the excesses of the past have, sadly, provided just such an opportunity.
We won’t rehash the panoply of government and private sector malfeasances that brought us to this state of affairs. We’ve done that in essay after essay. We feel we must, however, try to focus on what is happening with clarity unencumbered by the spin and misinformation emanating from Washington. Let us recognize that our government is spending with complete abandon, and that the recently announced, so-called, spending freeze which is to go into effect next year is intended as little more than a distraction from the breathtaking increase in spending that is to go into effect this year following a breathtaking increase in spending last year. Washington is proposing a budget that will drive our deficit to $1.6 trillion this year from $1.4 trillion last year. We do impose a statutory limit, or ceiling, on the debt we can incur, but Congress simply raises that limit whenever it decides to spend more than our debt limit would allow.
While this ever-growing debt is unimaginably large, and must be paid for as it comes due for generations to come, its serviceability is rationalized with economic growth projections that are highly speculative and, as they say at the poker table, on the come. If economic growth does not keep pace with these projections, and anticipated tax revenue is, therefore, less than expected, we will have to either tax more, borrow more or print more to keep up with our obligations as a debtor nation. We would not be the first nation to face such a dilemma. Other nations have…generally with disastrous consequences. Now, we recognize that there are well-credentialed economists on opposite ends of the policy spectrum. We also recognize that they can’t all be right at the same time. Milton Friedman and John Maynard Keynes would have rarely agreed with one another. Nor would Paul Krugman or Arthur Laffer.
Nonetheless, while economic theory can be very complex, when it flies in the face of common sense there is more than reasonable cause for alarm. We are reminded of Milton Friedman’s conversation with a high-ranking Chinese official during his first trip to China following the thaw between the People’s Republic and the United States. The famous American economist was taken to a major irrigation project. As he gazed upon the largest irrigation ditch he had ever seen, he noted that there were thousands of workers digging with shovels for as long as the eye could see. Friedman asked his Chinese hosts why they weren’t using modern earth-moving equipment so that they could complete the job more efficiently and much more quickly. His hosts proudly exclaimed in true Keynesian fashion, “Because the way we’re building the ditch we can employ thousands of people.” Friedman is reported to have smiled and responded, “Then why don’t you just give them spoons.”
Assuming Congress approves the President’s proposed budget, America will have to borrow nearly 50 cents for every dollar it spends, and that assumes that the Administration’s economic growth and revenue projections turn out to be on the money. Remember, the debt is real; the anticipated income from which it is to be retired is speculative. Like every borrower, we will be dependent on the goodwill of our primary creditor, in this case, The People’s Republic of China. Yes, we know the standard response of economists from academia; they have to lend us the money if they want to sell us their goods. This logic, we would argue, should provide little comfort and many sleepless nights. Just this week the Chinese government threatened to apply sanctions against any company participating in the Administration’s approved arms sale to Taiwan. They also expressed outrage over the president’s planned meeting with the Dalai Lama. In the future would we retreat from policies we believed are in our national interest if the Chinese refused to keep financing our debt? It is very thin ice on which we skate.
Despite government protests to the contrary, most observers here and abroad (including those to whom we are now, quite formally, indebted) know perfectly well that the so-called $790 billion stimulus program doesn’t seem to have stimulated anything, and they are largely wary of the President’s call for a second so-called stimulus program. Well, it’s not a so-called stimulus program anymore. Now it’s a so-called jobs bill. If the spending program doesn’t work the first time, just change the name and plow ahead. As our creditors watch our debt mount, they are aware that funds available to pay down that debt are instead being replowed back into spending initiatives that will, more than likely, grow and simply increase our debt.
The Administration’s recently announced plans to get Congress to change the law that provided the TARP funds, so that funds that are being repaid (with interest) can be diverted to new spending instead of being returned to the treasury to pay down the very debt TARP caused should be seen as both foreboding and irresponsible. Ivory tower thinking aside, increased spending in the face of decreasing revenue is not generally a good idea. Individuals know this, families know this and most institutions know this. Capital is the life-blood that allows individuals, families and private sector institutions to grow and prosper economically. Drawing that resource away through increased taxes, fees and penalties so that government can plan (and spend) how best to grow and prosper is one of history’s fools’ games. Think Venezuela, think Argentina, think Cuba.
If consumption continues to decline in America, production in China and the income it generates for the Chinese holders of our debt will diminish (income used to lend us the money we need to fund our deficit), making it far more difficult for these very same creditors to continue to lend us the money we desperately need. China and other foreign sovereigns hold an ever-growing portion of America’s debt. They are not happy creditors. They know what profligate government spending combined with soaring debt can do to the value of a national economy. Think Greece, think Spain, think Portugal, think Italy (big spenders all) who have created the current crisis for the European Union. Why do we refuse to think USA?
Just last week, as we were completing this essay, Moody’s, the international debt-rating agency, issued a warning that if the United States were to grow at a slower pace than expected, (the very concern we express in this column) our AAA credit rating could be impaired. Moody’s wasn’t predicting that this would happen, but the rating agency was clearly firing a warning shot over the bow of our ship of state. Were the US to lose its AAA rating, the ramifications would be widespread and immediate, as the cost of servicing our debt would escalate. As we stated earlier in this essay, the economic growth on which the serviceability of our debt is predicated is speculative, a point noted by Moody’s when they reminded sovereign debtors that economic growth is very important to their assessment, or rating, of credit worthiness. This might seem to be a curious warning, coming only six weeks after the agency stated it thought the outlook for the United States was stable. Moody’s “stable outlook” comment, however, was made six weeks before they were privy to the Administration’s plans to vastly increase spending (and the nation’s debt load) in 2010. It must also seem an ominous warning to China, which holds nearly $1 trillion of US paper, which accounts for sixty percent of all of its foreign reserves.
We are not sailing in entirely uncharted waters here. It is not as though there is no history to draw upon when a nation’s spending and debt spiral out of control. In fact, history is replete with examples of economies ruined when growth declines in the face of rising debt, and nations are forced to monetize their debt by turning to their remedy of last resort – the printing press. As Milton Friedman warned in his classic work, “Free to Choose,” a nation’s currency is backed only by the confidence people have in it, and when that confidence is lost the result is an irreversible downward spiral in its value.
So we close with a reminder to our “progressive” friends — Progressive dreams, pursued by regressive means will lead us back to a future we are not apt to like.