October 28, 1994

Financial Irresponsibility

The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.

Thomas Jefferson, 1816

When a politician says that he wants to cut spending or government, I consider that as a legitimate position; like loving his mother or country. When a politician, running for a federal office, says that he wants to cut taxes, I figure him to be either irresponsible or a liar. Why? To answer that question, I will reprint parts of my column of 2/14/92.

If you graph the number of cells in a culture of bacteria, or cells of any kind, on semi-logarithmic paper, you get a growth curve that will not only tell you how fast the culture is growing, but the slope of the line is the growth rate. In the same way graphing money will give you a view of an economy over time. You get a panoramic view of what is actually happening; whether the rate is decreasing or accelerating. You can also make some projections. I made such a graph of the national debt, income and spending, from the turn of the century to now. It was a frightening picture.

World War I, like every modern war, was paid for on credit. The national debt zoomed up to 24 billion dollars; a staggering amount in those days. Presidents Harding, Coolidge and Hoover tried to bring it down, but before they could make a real dent in it, the great depression hit. Roosevelt tried to bring the country out of the depression by deficit spending for public works. W.W.II ended the depression and zoomed the debt up tenfold to 260 billion. Government income, in taxes, as well as government spending went up sharply as the economy grew. Truman, Eisenhower, Kennedy and Johnson held the line on the debt, but didn't reduce it. We never did resolve the W.W.I or W.W.II debt.

The Kennedy tax cuts set the stage for the era of gross irresponsibility which started with Richard Nixon, when the rate of growth of the debt rose, doubling the debt every 6-7 years. This high rate remained unchanged with Carter, Reagan and Bush.

Why did this happen? It happened simply because the government spent more each year than it took in. This annual difference between income and spending is the deficit. The national debt continues to accumulate and is now about 4 trillion dollars. Nixon, Carter, Reagan and Bush all spent more than they took in, with the enthusiastic help of congress. Reagan decreased taxes and increased spending -financial suicide. Don't take my word for it, ask Reagan's former economic adviser David Stockman.

At the present time, about one quarter of the money that the government takes in goes to pay the interest on the national debt. This interest money does nothing constructive; it buys nothing and builds nothing. If the increase in the national debt continues at its present rate, it will break the 10 trillion mark in about the year 2000. The interest on that, at the present rate of 8%, would be about 800 billion per year. Should government income also continue to increase at its present rate, the interest would consume about 36% of the government's income. If economic growth levels off, the interest could be as much as 80% of all the money now taken in by the government. That wouldn't leave enough money to make Social Security payments. The great government of the U.S. would be, to all intents and purposes, bankrupt.

Is there a way out of this problem? That is like a patient with cancer, who, after the cancer has invaded his whole body, asks the doctor "can you cure me?" Even if it were possible to cure the economy, it would mean a large increase in taxation for the only people who have money, the employed middle class and the wealthy.

The national debt, like the weather, has become something that everybody talks about, but no one does anything about. Unlike the weather, something could have been done about the national debt, but wasn't. Fortunately, unlike The USSR, we have a private economic sector that can function independent of government, so the economic collapse will probably not be as terrible with regard to food and energy. Maybe Japan will help us out the way we helped them after W.W.II.

We have always needed responsible legislators who knew when to spend and when to save. Even if responsible politicians existed, they couldn't get elected. The public will buy a something-for-nothing pitch every time in preference to honesty and responsibility. That's why most candidates campaign on a something-for-nothing platform that says that you can have everything that you want and you don't have to pay for it.

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