As we careen toward the fiscal cliff, a new socioeconomic meme surges through the culture disguised as cheerful, brilliant insight. Expect to hear this at holiday cocktail parties, even from friends with MBAs and Ph.Ds:
“The U.S. is one budget deal away from restoring its global pre-eminence.”
The quote originates with Australian Foreign Minister Bob Carr, a member of the quasi-socialist Labor Party. It was repeated by World Bank President Robert Zoelick in a June interview with Marketplace Morning Report, and soon thereafter began showing up at the water cooler. It picked up more steam last week when the Washington Post’s Bob Woodward tried to repeat it on the set of “The O’Reilly Factor” on Fox News.
“You know, there is a foreign minister or finance minister out there from another country saying the U.S. government is one budget deal away from being a great country. And that’s — we need to fix that,” Woodward said.
It is a fun, optimistic, smart-sounding thing to say. We’ll all hold hands, pass a budget deal and, voila, let the good times roll. There’s only one problem with this nugget of McBrilliance. It ain’t true.
To believe that our country’s economic stability counts on just one budget deal is to conflate the federal budget with the economy at large.
A nation’s economy does not originate with the government’s mint or its budget. The economy is a manifestation of individuals creating, producing and trading in a manner that provides for society. If individuals produce more than they consume, on average, society realizes an abundance of food, shelter, clothing and countless amenities that make life easier, more enjoyable and meaningful. We call it economic growth. If the human condition gets worse, we say the economy is failing.
In a failing economy, a government can provide a temporary sense of well-being by borrowing wealth from other economies. It can numb the pain of those who suffer the most by redistributing wealth from those within society who suffer the least. None of this is economic growth. It is no different than a family paying the mortgage and bills by borrowing from friends and neighbors and running up credit cards. Unless the family manages to produce more than it consumes, a day of reckoning awaits. At some point the friends, neighbors and banks can no longer afford to sustain the failing household. Adjusting the budget can help. The rate of decline will slow if the family reduces consumption, but the sacrifices feel like economic failure. Even worse, the household will not reclaim economic health and prominence until its members find a way to produce more than they cost. The budget adjustments alone will not cut it.
The United States enjoys a lifestyle it cannot afford. On average, Americans consume more than they produce. That’s why our government borrows from other economies and from future generations of Americans.
We all hear about the $16 trillion debt, but that’s only the surface. That’s what our government owes to outside creditors. Spread among every living American, the debt amounts to about $52,000.
In truth, our country’s debt is $222 trillion — a whopping $700,000 on the head of each American today. The number was calculated by Boston University economist Laurence Kotlikoff, using data from the nonpartisan Congressional Budget Office. It is the amount of debt government owes to foreign creditors and Americans who have been promised Medicare, Medicaid, veterans benefits, Social Security and all other varieties of entitlements. If government defaults on these obligations as more Americans age and retire, we will have rioting in the streets, mass poverty, illness and general misery. But we simply won’t have the resources to pay for the dependency politicians have promised and enshrined in our laws.
Yes, we need to radically adjust the budget. If that adjustment does not hurt badly, it will be little more than a source of false hope. The household cannot save itself by cutting out ice cream and tapping the kids’ piggy banks. Nor can the federal government save this country by tweaking the tax code and cutting expenses here and there. We could liquidate the rich, give their capital to government, and barely put a dent in the nation’s debt. In doing so, we would lose what production gives our economy any hope of sustainable, long-term growth.
We do not claim to have the answer for preserving our country’s “worldwide pre-eminence.” We’re pretty certain our salvation isn’t “one budget deal away.” We wish that were so.
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