We're not in Kansas anymore: US National Debt and the Fiscal Cliff

I saw this in my inbox this morning. Combined with Jeff Opdyke's commentary about the difference between a real social safety net and the Social Security system the United States (and virtually every other western country) has today, and Laurence Kotlikoff and Scott Burns's The Clash of Generations, and I think my own views concerning the current so-called "debate" between Democrats and Republicans are coming into sharp focus.

I see so many of my Democratic friends touting the "compassion" and "love" being shown by their favorite politicians, and I think: "Really?"

It's all well and good to speak of compassion. But who can pay for this so-called compassion--much less who is willing to pay for it (with their own money)? Please don't talk to me about your great compassion when you are willing to saddle future (not-yet-able-to-vote and/or not-yet-aware-enough-to-vote) generations with massive debt that they will never be able to repay [that's the message I get from Kotlikoff and Burns; good summary of their book here]. And please don't talk about compassion when the supposed social safety net is being used, today (and for the foreseeable future--unless Congress decides to change the system) as a primary vehicle of retirement funding [the message I get from Jeff Opdyke's article].

The following, by Alexander Green of InvestmentU in last Friday's Investment U Plus newsletter, provides further perspective, I think:

Imagine that your 18-year-old son goes off to college for the first term of his freshman year. You are happy to pay for his education costs - room, board, tuition, books, etc. - but you also give him a credit card "in case of emergencies."

When he comes home for Christmas, you discover that he has run up $70,000 on his MasterCard. You hit the roof and demand an explanation.

"Now hold on, Dad," he says. "Before we start talking about how much less I might spend, let's talk about how much more money you [really ought to be giving] me."

Consider your response - and whether it would be printable in a family paper. Yet Congress makes our hypothetical spendthrift look like a piker.

Most reasonably well-informed Americans know that our $16.1-trillion federal budget deficit is now larger than the nation's GDP. But what most don't realize is this figure doesn't include the unfunded liabilities for Medicare, Medicaid, Social Security and the Prescription Drug Benefit. That's another $121.6 trillion. [According to Kotlikoff and Burns, it's actually more than $200 trillion. But what is $80, $90, or $100 trillion between friends? --JAH] Combine the federal budget deficit with the unfunded liabilities for current entitlement programs (excluding ObamaCare) and it comes to a mindboggling $1.2 million per taxpayer.

Some will argue that this is exactly why we need to stick it to the ultra-rich, an approach that has clear populist appeal. But here's a bit of perspective. Less than a hundred years ago, the nation's richest man, John D. Rockefeller, could have written a personal check and paid off the entire national debt, every penny accumulated since 1776. Today the government could confiscate the entire net worth of the nation's wealthiest man, Bill Gates, and it wouldn't pay six weeks' interest [NOTE: That's interest! --JAH] on the national debt. . . .

Writing in The Wall Street Journal this week, former Congressional Committee Chairmen Chris Cox and Bill Archer note that even if the government confiscated the entire adjusted gross income of every individual and corporation in America, it still wouldn't cover U.S. entitlement obligations. Yet the first order of business according to President Obama, Senator Reid and Mr. Buffett is not to reform entitlements or rein in spending but to raise tax rates? You might as well try bailing out the Pacific Ocean with a teaspoon.

Congress has a world-class spending addiction, but then so do most other Western democracies, including Canada, Britain, Western Europe and Japan. In every case, politicians on both sides of the aisle have learned that promising lush government benefits paid for by "someone else" is a big winner at the polls.

As for the current fiscal cliff negotiations, the Congressional Budget Office estimates that raising the top marginal tax rate to 39.6% - as Obama proposes - would generate approximately $70 billion a year. That's not an inconsequential sum. But it won't come close to fixing this year's $1.1-trillion federal budget deficit. Where would we get the other $1.03 trillion?

And why did I title this post "We're not in Kansas anymore"? 

Because I get the impression that the American empire has run its course. It can no longer maintain the illusion. Reality is beginning to set in. The U.S. cannot continue to inflate away its debt problems and expect its citizens not to feel the impact. We all--wealthy and poor--are going to experience the results of almost  three decades of spending beyond our ability to pay.