and the need to face them
by
Tom Licata
Thank you for inviting me to speak here today.
I would like to thank all those who have helped organize today’s event. I would especially like to thank Kristin, Jon and Jessica for their efforts. Freedom and prosperity are inexorably linked and – in part – it is why we gather here today.
The mission of Vermonters for Economic Health is simple: To promote economic health and fiscal responsibility in Vermont. In a recent WSJ/NBC News poll, Americans were asked which economic issue facing the country concerned them most. Respondents chose deficit reduction over health care by a ratio of 2 to 1.
In addition to celebrating the principles of freedom and independence on this July 4th holiday, it is the promotion of economic health that draws me here today.
After listening to Jon Wallace’s interview on Vermont Public radio, I took note of his two points when asked the question of why have Tea Parties at all, since the original Tea Party was about “taxation without representation” and today that just isn’t the case.
Among Jon’s arguments, he spoke of our Representatives as being both inattentive and dismissive of us – no – I mean inattentive and dismissive of we - as in We The People.
Of yesterday’s many commemorative writings on today’s July 4th celebration, one in particular caught my eye and it made me think of Jon’s interview.
Peggy Noonan, a former presidential speech writer, begins her story on July 1st, 1776, with John Dickinson of Pennsylvania, counseling caution on declaring independence from Britain, the gentleman from Pennsylvania states: “Slow down, separation from Britain is “premature,” to declare independence now would be “to brave the storm in a skiff made of paper.”
Then John Adams rose to make his case for independence, and I quote: “Now is the time, the facts are inescapable, the people are for it, we are not so much declaring as acknowledging reality.”
Let me pick up on this story a little later, as we all know its final outcome, and let me hone in on John Adam’s statement that “Now is the time, the facts are inescapable…we are not so much declaring as acknowledging reality.”
So let’s fast forward from 1776 and back to 2009. Let’s frame-out today’s “inescapable facts; let us not declare but acknowledge today’s reality.
These facts and realities cannot be dismissed no matter how hard our Representatives choose not to listen:
David Walker, former Comptroller General of the United States, estimates that Social Security, Medicare and Medicaid have unfunded liabilities of some $83 trillion; when state and local government unfunded liabilities are included; this number exceeds $100 trillion.
For fiscal year 2009, almost half of the U.S.’s nearly $4 trillion budget will be paid for with deficit spending that approaches $2 trillion. Think of it this way; taxes would have to double to pay for the current level of spending. The Congressional Budget Office projects nearly $1 trillion annual deficits for the next 10 years. This causes the U.S. debt to GDP ratio to climb from roughly 40% to nearly 100%. In addition, the U.S. government has guaranteed some $12 trillion in private debt. Think General Motors and AIG.
According to the Financial Times, "The ratio of U.S. public and private debt to GDP reached 358 percent in the third quarter of 2008." The previous all-time high of 300 percent was reached in 1933, during the Great Depression.
While American household debt has reached 130% of income (compared to just 83% in 1995); American households have lost some $15 trillion or 20% in wealth since early 2007. With consumer spending making up some 70% of the U.S. economy, New York Times columnist Bob Herbert may have said it best: “How do you put together a consumer economy that works when the consumers are out of work?” The U.S. unemployment rate of 9.5% or some 15 million unemployed climbs to 16.5% or 30 million when those too discouraged to seek employment or those working part-time in lieu of full time work are accounted for.
America’s demographic headwinds are considerable. Some 80 million baby boomers began retiring last year; and 10,000 of these boomers turn 50 years old every day; and you think medical costs are high today?
Adding fuel to the fire, our Federal Reserve Bank has been monetizing our debt (i.e. printing money) as China and others call for a reordering of the U.S. dollar as the world’s reserve currency.
Drilling down to Vermont’s economic health, going into this recession, Vermont’s private-sector job growth is 0% this decade. Vermont has some $2 billion of unfunded liabilities from pension and health care commitments; another $1 billion or so in transportation infrastructure expenses; and hundreds of millions of dollars in Medicaid unfunded liabilities. Nearly 1 in 4 Vermonters are on some form of Medicaid. Our youth leave our state at four times the national average as we are the second oldest state in the nation. Vermont is consistently voted as one of most heavily taxed and least favorable climates for business.
Despite avoiding the sub-prime mortgage meltdown that brought on our economic crisis, the Nelson A. Rockefeller Institute for Government says Vermont’s 33% drop in income tax revenues from January through April was exceeded only by four other states. Relying on 50% of your income tax from 5% of your tax filers isn’t good policy. I could go on, but you get the point.
Returning to that day on July 1st, 1776, after nine hours of debating whether or not to declare independence from Britain, there were more noes than expected, so it was agreed to move to a final vote the next morning.
That night word reached Philadelphia that the British fleet, a hundred ships, had been sighted off New York. The next day, July 2, the final voting began. Facing the realities of a hundred ships, these facts could not be ignored.
The vote was completed: 12 for independence, New York abstaining, no one opposing. The American colonies declared independence.
Whether the vote would have been different without those hundred British ships appearing in New York, we will never know. But those ships were certainly not ignored.
As such, the many economic facts and realities I have laid out here today also can no longer be ignored.
Mohamed El-Erian, CEO of Pimco (the world's largest bond fund) and former president of Harvard's endowment fund recently stated that the markets - and world - are on a volatile journey to a "new normal." Mr. El-Erian is one of the most sought-after economic thinkers.
This "new normal" includes much slower rates of economic growth, resulting in higher levels of sustained unemployment and greater strains on both our government coffers and standard of living. It also includes greater geo-political risk.
Our Representatives can no less ignore the facts and realities laid out here today than they can from the calls of those like Jon, Kristin, Jessica and all of you here today.
Shakespeare said: "The fault, dear Brutus, lies not in our stars, but in ourselves…” We have lived beyond our means and difficult decisions must be made. Old ways of doing business, political and otherwise, must end.
The economic facts laid out here today are the equivalent of those hundred ships spotted off New York’s coast on the night of July 1st, 1776.
As John Adams said: “Now is the time, the facts are inescapable, the people are for it, we are not so much declaring as acknowledging reality.”
Thank you.
(Tom Licata, founder of Vermonters For Economic Health, delivered this Tea Party address in Barre on July 4th.)
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