Introduction
I have written two books (Amazon.com) on the subject of
the national public debt (that portion of total national
debt that represents government securities owned by
outsiders, much of it by foreign governments). [First
book]
My reason for doing so is simple to understand: I seek
to persuade influential people, including candidates for
the presidency, that the problem of public debt should
be at the top of their agendas.
The present level of debt, and the continuing
circumstances that create it, are the most dangerously
under-reported threats to the security of the nation.
The size of the military forces of the United States,
for example, is no longer determined by external
threats, but by financial considerations. “We must have
it” has been replaced by, “Can we afford it?”
This is a threatening situation that must be immediately
corrected.
Candidates for the presidency
Recognition of this problem has occasionally surfaced in
ongoing debates between political candidates for the
presidency, which is a good thing. But emphasis has been
inadequate, and some responses from these political
leaders have been disappointing.
Republicans Rudy Giuliani and John McCain, for example,
when they respond to questions about budget control,
focus on cutbacks in the government workforce, or the
minimization of pork barrel spending, or control over
illegal immigration as being the roads to solution.
Wrong!
If all of those things were done, the threat posed by
public debt would remain.
With respect to Democratic candidates, the approach is
more unified, but even more troubling. Phrasing differs
and emphasis varies, but the common line of action that
emerges from answers given by the serious candidates,
Hillary Clinton, Barack Obama, and John Edwards, is
four-fold.
l End the war; bring the
troops home.
l Cancel all, or some, Bush tax cuts.
l Increase selective taxes.
l Eliminate waste and fraud (the usual election-year
bromide).
And judging by the rhetoric of these Democrats when they
respond to other questions, there is little doubt their
victory in November would result in new and expanded
entitlement programs, and no progress on the need to
re-design the largest of them could be reasonably
expected.
This is a frightening prospect.
So far, underdog Republican Fred Thompson is the only
candidate from either side to correctly and clearly
state that the way to fundamentally deal with public
debt is to first deal with the monster that feeds
it -- entitlement programs.
Mitt Romney comes close to saying the same thing, but
has not done so as firmly as Thompson. Giuliani and
McCain have cost cutting credentials but neither has
focused on entitlements; Huckabee, based on his record
as governor, is not yet a reliable advocate of
entitlement reform.
And as far as Democrats Clinton, Obama and Edwards are
concerned, they have yet to recognize the need for
entitlement reform, and they will apparently add to, not
subtract from, the problem.
The unique expression of the debt problem contained
herein is aimed at all presidential contenders in the
hope that it will overcome ideological fervor and
trigger a desire to overcome it. But facts on the ground
make it clear that Democratic candidates have invested
so much capital in entitlements that they will find it
politically difficult to publicly turn back. And perhaps
they will not, until the will of the people, or fiscal
collapse, gives them no other option.
Let us hope that patriotism plus intellectual honesty
ultimately moves them to find a face-saving way to reach
across the aisle and become active participants in a
bipartisan attempt to solve one of America’s foundation
problems--an uncontrolled budget and runaway debt.
There is reason to hope that some Republican candidates
are tuned in on the central importance of the need to
control entitlement programs. And everything possible
must be done to move the others to the same conclusion,
and to send welcoming signals to any Democrat who shows
honest interest in a project designed to re-establish
the fiscal integrity of the United States.
On the surface, this plea for unity should not be too
difficult to sell. Debt is obviously too high -- 44
percent of it is owned by foreign governments, not all of
them friendly [1]. And interest cost has become a major
line item in the budget.
But politics being what it is, only a fool would in
confidence predict the bipartisan unity that problem
solution requires.
Look at what we’ve done to ourselves
From 1951 through 1970, Defense was a more expensive
line item in the federal budget than Human Resources
(the budget home of the Welfare State). This was a
signal that budget priorities within the halls of power
continued to recognize that the primary responsibility
of any government is national security. [2]
In 1971, after the social programs of the Great Society
matured into a flood of unaffordable costs, priorities
changed. Human Resources was 16 percent higher than the
cost of Defense (during the Vietnam War and the Cold
War). That has been the case ever since until in 2006,
that grotesque cost relationship increased to 220
percent (in a time of war). [2]
This is a clear signal that in Washington the needs of
the Welfare State now supersede the needs of the Defense
Department.
The Nature and Scope of the Problem-Executive Summary
My first book on national debt, published in 2000,
contains two statements worth repeating:
Costs of the welfare state … have become a national
security issue because they abuse the nation’s credit
and bring to the budget process extreme pressures that
cause self-serving politicians to under-fund Defense.
[3]
The American experiment will be resolved in the next
century. Either it will stamp its emblem of freedom with
responsibility on the face of history more firmly than
any social system ever devised, or it will join those
who have tried and failed, like the Soviet Union, to buy
power with benefits or preserve it with force. By acting
or failing to act, every living American will have a
hand in making that decision. [3]
Public debt in 1996, the last year covered in my first
book, was $3.6 trillion; in 2006 it was $4.8 trillion,
and it is predicted to be $5.4 trillion in 2008 -- up 50 percent in about a dozen
years. Obviously my first tome was ignored by federal
politicians.
A budget surplus has been generated during only one
four-year term since the presidency of Harry Truman
(1949-52). The exception to
this unbroken line of deficits occurred under Bill
Clinton (1997-00) under circumstances that are not
repeatable (e.g. a huge tax increase and a cutback in
the size of the military).
It is axiomatic that no person, or government, can
continually spend at a rate higher than available
revenue. Eventually, the practice brings undesirable
results. Such is the case today in the United States.
Public debt and associated interest costs are so huge
they limit the nation’s ability to maintain the military
force it needs in order to confront dangers posed by
international enemies and competitors, and to protect
the value of the American dollar.
The costs of Defense and Interest are referred to in the
balance of this essay as “primary costs” for good
reason: If they are not fully addressed when the need
appears, the continued existence of the nation as an
independent, international power becomes imperiled.
When Truman left office, public debt was $215 billion,
most of it directly related to the cost of World War Two
that had to be partly financed by issuing U.S.
securities--a sensible use of the nation’s borrowing
power. It replicated similar actions of past presidents
who also had been besieged by unaffordable external
events.
Since that time, despite the fact that the U.S. was able
to afford, out of current revenues, most of the increase
in primary costs during the Korean, Vietnam and Cold
Wars, [3] debt increased to $4.8 trillion, fundamentally
caused by uninterrupted annual deficits. And during this
time primary costs were funded by borrowings, instead of
by current revenues.
(billions)
|
|
IKE |
JFK/
LBJ |
RMN/
GRF |
JEC |
RWR |
GHWB |
WJC |
GWB |
|
Year |
1960 |
1968 |
1976 |
1980 |
1988 |
1992 |
2000 |
2006 |
|
|
|
|
|
|
|
|
|
|
|
Income |
92 |
153 |
298 |
517 |
909 |
1091 |
2025 |
2407 |
|
Expense(a)
|
37 |
86 |
255 |
404
|
622 |
884 |
1272 |
1908 |
|
Net |
55 |
67 |
43 |
113 |
287 |
207 |
753 |
499 |
|
|
|
|
|
|
|
|
|
|
|
Defense |
48 |
81 |
90 |
134 |
290 |
298 |
294 |
522 |
|
Interest |
7 |
11 |
27 |
53 |
152 |
199 |
223 |
227 |
|
Total Primary Cost |
55 |
92 |
117 |
187 |
442 |
497 |
517 |
747 |
|
|
|
|
|
|
|
|
|
|
|
Deficit/Surplus |
0 |
- 25 |
- 74 |
- 74 |
-155 |
- 290 |
236 |
- 248 |
|
|
|
|
|
|
|
|
|
|
|
% of Primary Cost |
0% |
27% |
63% |
40% |
35% |
58% |
46% |
33% |
|
% of Expense (a) |
0% |
29% |
29% |
18% |
25% |
33% |
19% |
13% |
|
|
|
|
|
|
|
|
|
|
|
Active Military (mil)(b) |
2.5 |
2.9* |
2.2* |
2.1 |
2.0* |
1.8 |
1.4 |
1.4 |
a) Excluding defense and interest; *estimate
b) Source: Time Almanac 2007, p.379
The above graphic demonstrates that
primary costs have been characteristically under-funded through the
seven presidential terms that followed the last chief executive to
respect heritage, Dwight D. Eisenhower. And it also reports the gradual
reduction of the nation’s military readiness (from an active force of
2.9 million to 1.4 million) in a world that has never been without
consequential threats.
In reviewing these numbers, two things should be kept in mind: 1)
Democrats have persistently blamed deficits on defense spending; 2)
Defense spending, as a share of all spending, has been on a steady
decline since Eisenhower.
In other words, the most popular explanation for deficits is
self-serving hokum designed to take the observer’s eye away from the
real cause -- the cost of the Welfare State.
In 1960 under Eisenhower, defense spending was 9.3 percent of GDP, and
52.2 percent of total spending; in 2008, it is projected to be 4.2
percent of GDP and 20.7 percent of total spending.
Higher spending was affordable under Eisenhower; lower spending is
unaffordable under Bush.
If the proposition is accepted that
the primary role of government is to
protect the safety of its citizens, and the value of its currency, the
above schedule makes plain that spending priorities shifted in the
1960s -- expansion of government services became the priority to such a
consistent extent that the nation could no longer afford to pay for its
survival expenses, and debt had to be expanded to cover the shortfall.
Such a policy, of course, has a measurable end, not precise but
foreseeable in broad terms: The security of the U.S. and its currency is
affordable only for so long as money can be created through the sale of
U.S. securities.
And the ability to do this has a lid:
Buyers must have confidence in the
U.S. economy, and in the value of the dollar. When this ceases to be the
case, the America that is, will decline to some undesirable condition as
yet indefinable.
That end is in view, and it will come to be if leaders from both parties
fail to join hands in an effort to attack and fix the budget monster
that they and their predecessors created and protected for a half
century.
[1] U.S. Treasury
[2] Historical Tables, U.S. Government, Office of Management and Budget,
January 2007, Table 3.1
[3] The National Debt-From FDR (1941) to Clinton (1996), Robert E.
Kelly, 2000, McFarland & Company, Inc., Publishers, North Carolina
[4] Historical Tables, U.S. Government, Office of Management and Budget,
January 2007, Table 7.1
