Governed to Death

  by Tom Licata

"The fault, dear Brutus, lies not in our stars, but in ourselves…" so said Shakespeare.

We have lived beyond our means and the answer to this economic problem is this:  We must methodically manage an orderly reduction in our standard-of-living.  Without such action, a disorderly reduction is inevitable.

Let me explain just how integrated and sobering our world economy has become.

“In 1980, the total value of global financial assets was roughly equal to world gross domestic product (GDP)."  In 2007, these same financial assets increased to 356% of world GDP; most of the increase coming from private and government debt.  Why does this matter?  Foreigners hold some 50% of U.S. public debt.  Should their capacity (or willingness) to lend diminish, who would fund the U.S.’s projected $10 trillion deficits over the coming 10 years?  One-third of Vermont’s total budget is provided by the U.S. federal government.  Should their capacity to grant this diminish, who would fund Vermont’s shortfall?

 
Simply put, there’s not enough money – by consumers, families, businesses or governments - to payback all this debt.  Much of this deleveraging, or reduction of debt, will occur through bankruptcy. If proper truth-telling and policies are not realized, the social unrest witnessed in Greece will wash upon our shores.
 
Think of this as an (economic) journey across the U.S. of A.  Departing from New York, on day three you blow out a tire in Chicago and are forced to use the only available spare-tire.  That’s where the U.S. and world economies are today.  In the U.S., after nearly $2 trillion of monetary stimulus (think printing of money) and roughly $1 trillion of fiscal stimulus (think government spending and bailouts), our available “spare-tire” is exhausted.  At this journey’s juncture, the printing and spending of money we don’t have is a fool’s errand.
 
Some call me a "doomsayer."  I call myself a "realist."  It’s simple math.  Two quick examples:  (1) Since 1990, inflation-adjusted U.S. debt grew 155% while GDP grew 54%.  Why does this matter?  With debt growing three-times faster than GDP, a greater number of (inflationary) U.S. dollar-claims will be chasing a relatively shrinking production of U.S. goods and services. (2) U.S. health-care expenditures, driven mostly by the baby-boom demographics that retire some 10,000 citizens’ per-day, are projected to grow two-percentage points per-annum above projected U.S. GDP.  Why does this matter?  This two-percentage point disparity in health-care expenditures will eventually crowd-out almost all other U.S. expenditures.  I love math, don’t you?
 
A society cannot consume and not produce:  Since 1990, Vermont inflation-adjusted government spending rose 131% compared to Vermont medium household income growth of just 9.7%.  During this past decade, Vermont government payroll, benefits and education spending rose roughly 70%, while Vermont private-sector job growth rose at a pre-recession 2000-2007 rate of 0%.  Ouch!
 
How does Vermont alleviate this inevitable reduction in our standard-of-living?  How does Vermont eventually grow and prosper out of its profligate ways?

Ours is a spending, land-use and growth problem.  Not a revenue (think more taxes) problem.

Ours is a problem of freedom.  Ours is a problem of culture.

Vermont has become almost paralyzed “by the political dependency culture it has created.”  Government isn’t society.  Government is to provide the framework for which civil society occurs.  Always under the disguise of compassion and fairness, Montpelier’s policies have consistently created the very economic stagnation that is responsible for much of our citizen’s impoverishment and lack of adequate employment.

Dorothy Canfield Fisher, writing of Vermont’s 1778 motto of "Freedom and Unity" stated:  "The Vermont idea grapples energetically with the basic problem of human conduct – how to reconcile the needs of the group, of which every man or woman is a member, with the craving for individual freedom to be what he really is."

 “With the craving for individual freedom to be what he really is:” This, my fellow Vermonters, is what Montpelier’s policies have consistently deprived its citizens of; as it’s ever-more difficult to succeed and grow in a culture that’s become increasingly hostile to business, land-rights and ultimately to job creation.

 

Comments

[Jim Minetti]

Thank you Tom for those sobering statistics. Now if only these numbers didn't simply fall on deaf ears.

Vermont has been digging its grave for 30 years and now the feds are following in kind.

It's time to plant a garden.

[Glenn Eno]

Sobering indeed. Unfortunately, our state (and federal) government is treating this like 18 year old kid with 6 maxed out credit cards; maybe if I turn the light off no one will see me and they will go away....

These moments of denial are digging our hole deeper. We make the minimum payment but our balance keeps going up. I guess this true with property taxes as well. We've reduced some school budgets but the taxes continue to go up. This is not sustainable.

[David Usher]

Tom has laid bare the facts that may yet bury us. Sadly, those in Montpelier and Washington prefer to believe they can spend their way to a healthy economy and a caring society while piling up debt that makes the U.S. a serf of those who buy it.

Less spending by government and increased private sector jobs and the tax base is the only realistic approach to a future that is not doomsday.

[Vermont Woodchuck]

What we are witnessing in Greece, Europe and soon in a neighborhood near you is the death spiral of Socialism.

All the promises made to remain in power, of "Free this" and "The People's That", are now due to the aging populace; the tax money long ago squandered on other voting blocs, playing the class envy/race card each election cycle.

Greece cannot have the bailout loot until they make the jump from Socialism to self sufficiency. You're viewing, in realtime, the reaction of people now to fend for themselves; the government exposed for the lie it is. NO MORE OPM!

The perfect Socialist Nanny State MUST be a Police State, otherwise you can't enforce the Nanny rules. Look at it!

[John]

Hi Tom -

You have an interesting view of the world and you've shared some rather sobering statistics. And, while our federal government may be printing money, the state of Vermont is not allowed to do so. When our state spends beyond its means, it's because we are spending dollars we've received from the federal government - to help defray the costs of schools, road repairs, energy conservation, etc.

The sobering statistics you've presented are all very short sighted. If you turn back the hands of time to when we had a president named Jimmy Carter, our public debt was quite reasonable for a country of our size. The public debt more than doubled while Reagan and Bush I were in office, rose a tiny bit and then decreased while Clinton was in office, and then spiked while Bush II was our president. And, if you look at Ben Cohen's Oreo presentation, you'll see that most of debt is due to spending on the military and related contractors, not due to Medicaid, Medicare, repairing roads, laying Fiber optics, hiring teachers, or paying retirement benefits.

I think it will be quite easy for most of us to adapt to a society that spends less money, although folks at Halliburton and GE might have to do a lot more belt tightening than the rest of us.

[Tom Licata]

John,

Your facts are simply wrong.

It is health-care spending - Medicare and Medicaid - along with Social Security that is driving our deficits and debt burdens.

In the mid-1960's, military spending accounted for nearly 50% of the U.S. budget. Today, it is slightly over 20%.

In the mid-1960's, Medicare, Medicaid, Social Security accounted for about 20% of the U.S. budget. Today, it is slightly under 50%.

My statistics are anything but "short sighted." Rather, they are far-sighted. And, they are not my "view of the world." They are the view of the Congressional Budget Office, the White House's Office of Management and Budget, to name a few of these sources

While I agree with you that we could shave some spending off of our military's roughly $700 billion budget - which includes the cost of our two current wars - there isn't nearly enough savings here to even dent our future fiscal challenges.

Demonizing private-sector companies such as GE can only lead to lower tax revenues and is counter-productive. As well, playing the blame-game card of past administrations is just as fruitless.

[Cheshire Cat]

And John, one might add, Presidents don't create debt, the House does.
All appropriations originate there; the President may or may not sign or may veto and be overridden.

This is the first time in our history we've had total control of the Country by one party. Bush was too feckless to stand up to Congress. The result is the fiscal disaster ongoing in DC now.

[Tom Licata]

John and All,

You want sobering?

Read this:

"But there is another more sobering reading of the Great Depression.

"It is that painful and once unthinkable changes are made only under the pressure of acute crisis.

"Against that backdrop, today's unresolved problems -- over the welfare state, leadership in the global economy -- become more ominous.

"They suggest that major adjustments won't be made until they're compelled by some sort of crisis.

This possibility defines the present economic drama."

Its remaining, found here:

http://www.realclearpolitics.com/articles/2010/05/12/depression_2010_105530.html

As well, from former U.S. Comptroller General, David Walker:

http://www.usatoday.com/news/opinion/forum/2010-05-12-column12_ST1_N.htm

[Audrey]

Tom, Thank you for the important work you continue to do with regards to the fiscal crises confronting us on both the state and national levels. It is unfortunate that this work is ignored by both the political and media elites within Vermont. Both have had the chance to have a positive impact onthe outcome but have chosen to serve as cheerleaders for the unsustainable welfare state.

[John]

Tom,
KEEP UP THE GOOD WORK! Your analysis is so sound that the tickled ears of the lemming-like gov't statists cannot hear it- but the rest of the reasoning public can- LIVE WITHIN OUR MEANS!!! The voice of reason is always the last one heeded when irrational rhetoric, feigned good-intentions and smoke and mirrors rule the day.
John
(not the same John as earlier)

[John]

Tom,
I forgot to add that in support of our nations' purposful founding that our wise forefathers considered, and found wanting, the nannying of a population with the presumptuous idea that the government was conceived to take care of the citizen. This idea is the feckless, pointless presumption of the Marxist and has already been proven wrong in complete failure wherever it's been tried around the globe.
"Any society that would give up a little liberty to gain a little security will deserve neither and lose both." Benjamin Franklin
"I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them."
Thomas Jefferson
Again Tom, keep up the good work!
John (the other John)

[Pat]

Tom:

Thank you for your hard work! Keep it coming...keep telling people and don't stop. Sometimes things don't click for some people until they have heard it two or three times, sometimes more!