The Flight to Serfdom

(Part III of a series. Part I was "The Good Old Days," and Part II was "Two Years That Changed the World.")

Flight USA is on its way to the Land of the Lost. Lost decades. Lost growth. Lost freedom. Why? Because we already lost our minds.

Things can be spun to look good right now. Real Gross Domestic Product, the inflation-adjusted measure of the overall economy, has been growing since June 2009. The Congressional Budget Office expects it to grow 3.0% in 2010 and to grow between 2.1% and 4.1% per year through 2020. Nice numbers, if true. And if true, there is no "recession" to "fix" anymore. The stimulus did its job, supposedly.

(Curiously, 78% of the $814-billion stimulus was, and will be, applied after FY 2009. So if the stimulus is what got the economy growing in 2009, then $180B would have done the trick. The rest of the stimulus, $634 billion's worth, is to stimulate an economy not needing a stimulant, if we are to believe the numbers coming from our government.)

Yet despite that rosy outlook, the CBO expects federal deficits to average over $1 trillion per year from 2010 through 2020 under President Obama's proposals. The lowest deficit the CBO foresees is $724 billion in 2014. By 2019, quadruple digits as far as the eye can see. Why such deficits in a growing economy?

In Parts I and II of this trilogy, I explained the state of our economy and our federal finances in fiscal years 2007 and 2009. In 2007, everything looked rather peachy. In 2009, it had all gone to pot. Using the analogy of a commercial airplane flight, all systems on Flight USA were normal in 2007. But by 2009, Flight USA had hit bad weather and was having mechanical difficulties. And the crew had been completely swapped out: from Captain Bush and his Republican crew to Captain Obama and his Democrat crew.

Captain Obama tried everything. He increased thrust. Then...he increased thrust. Finally, considered the smartest man to ever pilot such a craft, he increased thrust. He also distributed a chit to each passenger promising access to the First Aid kit when needed, as long as each and every passenger paid for it. Then he increased thrust.

But things just kept going wrong. Virtually every system on Flight USA was leaking money. Social Security Disability Insurance will be empty in 2018. The U.S. Post Office is already broke and beyond repair. Medicare will be empty in 2017. Social Security can hang on a bit longer, but it too is leaking money. State governments cannot take any of the load because they are going broke, too. Car companies went bankrupt. Housing collapsed. Car sales sputtered. Everything sputtered.

As the smoke in the cockpit clears, real GDP is still down 1.3% from its peak. Unemployment is stuck at 9.6%. Over seven million jobs remain lost. And the stock market is down 30% from its peak. As I write, the Federal Reserve just released its latest Beige Book findings.

Reports from the twelve Federal Reserve Districts suggested continued growth in national economic activity during the reporting period of mid-July through the end of August, but with widespread signs of a deceleration compared with preceding periods. [Emphasis added.]

"Deceleration" from already slow (1.6% annual rate in the quarter ending in June) means really slow. Sputter, sputter. The CBO might have to revise its optimistic assumptions.

All those spending thrusts and we still have not attained our pre-turbulence altitude. It is not even clear we have the ability to climb any more. The only thing climbing is our debt.

By 2020, federal debt held by the public will be 90% of GDP -- under the CBO's optimistic assumptions. In 2009, three of the "PIIGS" had smaller debts: 77% in Portugal, 64% in Ireland, and 53% in Spain. A debt above 60% is considered out of bounds by the rules of the European Union. A debt of 90% is considered the breaking point, where it has serious consequences on economic growth (like lost decades or anemic growth in perpetuity). The PIIGS are considered economic threats to the whole EU right now due to their debts. Yet we are in PIIGS territory right now at 63%, and we will be in the 90% red zone by the end of the decade -- assuming things go well.

Look at the years beyond 2020 only at your peril. Here is what the CBO says.

Using CBO's "textbook growth" model, it is not possible to simulate the effects of the alternative [likely] fiscal scenario after 2058 because deficits become so large and unsustainable that the model cannot calculate their effects. [Emphases added.]

That is to say, as best as the CBO and its computers can calculate, that the world ends in 2058. (For the End-Times inclined, Isaac Newton is claimed to have predicted that the apocalypse would occur in 2060 based on his studies of the Bible.)

The good news is that it doesn't have to be this way. That is, Flight USA is not beyond recovery. We do not have to defy the laws of physics. Congressman Paul Ryan introduced legislation he calls the Roadmap. It is comprehensive. It even ensures universal coverage of health insurance. But it reforms entitlements while doing so, especially Medicare.

It is not a radical plan. Its plan for Medicare, for example, is similar to what the Republican Congress proposed and passed in 1995, and what the bipartisan Breaux Commission proposed in 1999 -- both killed by President Clinton and the Democrats. The CBO, in fact, scored Ryan's Roadmap. Here is what the CBO had to say about it.

The Roadmap would put the federal budget on a sustainable path, generating an annual budget surplus of about 5 percent of GDP by 2080.  According to CBO's textbook growth model ... real potential gross national product per person would continue to grow over the entire 75-year period. The economy would be considerably stronger under the proposal (as analyzed by CBO) than it would be under the alternative fiscal scenario. Real gross national product per person would be about 70 percent higher in 2058 under the proposal than under the alternative fiscal scenario. [Emphases added.]

Remember, 2058 is when the world will otherwise end according to that same "textbook growth model." The CBO depicted the situation in a chart.




Which path in that chart do you think Obama and the Democrats are on?

So much for the good news. The bad news is that the Roadmap has all of thirteen cosponsors. Republicans are generally ignoring it, with no other proposal in its place. And here is how Democrats view it, according to Politico.

Democrats accused the Wisconsin Republican of trying to privatize Social Security, cut taxes for the rich and increase them for the middle class. Medicare would be allowed to "wither on the vine." Here we go again, Rep. Xavier Becerra (D-Calif.) said Thursday of Ryan's proposal.

In case you didn't know, ObamaCare cuts about half a trillion dollars from Medicare over the next ten years. It's going to be cut one way or another; that's what "unsustainable" means. One way is for the government to ration health care, to have bureaucrats define all the rules for medical ethics and patient-doctor decisions. (Here's a hint: the government is just as expert in medicine as it is in Gulf oil spills.)

Another way is to let patients, maybe some with government vouchers, seek their own solutions in a market of multiple competing health care providers and insurers. Yes, my friends, I'm talking of the dreaded free market.

Even Republicans are afraid of a free market. As a party, the GOP has no plan. During the ObamaCare debate, Republicans were saying hands off my Medicare.

As upset as many people are about Obama and the Democrats now, I'm betting a solid chunk of those people also don't want any specific alternative to them. They sure don't want a free market. Republicans are ahead in the polls right now for the simple reason that they aren't Democrats. 

When polled in April 2009, only 53% of Americans thought capitalism was better than socialism. Twenty percent thought socialism was better, and 27% were not sure. Among those under 30, 33% preferred socialism and 30% were unsure, leaving only 37% preferring capitalism.

Those views approximately match Obama's job approval ratings. As of September 7, 2010, his approval rating was 45%, with 27% strongly approving. That 45% roughly matches the 47% who would not say capitalism is better than socialism. And that 27% strong approval is not that far off of those who outright believe socialism is better, 20%. Obama also has stronger approval among the young.

The picture should be clear to you now. Even if you could prove that Obama is a socialist, it would have no effect on about 47% of the voters; they either want socialism or don't care. And that, my friends, is why Obama's approval rating stays around 45% or better as long as he keeps his hardcore leftist base happy.

And how good is the news that a mere 53% think capitalism is better? Especially when only 37% of those under 30 do? After a few more of that 53% die off, more of that 63% of those now under 30 will replace them in voting booths.

In short, we are on the "path to socialism" described by Gus Hall (via the CPUSA website), leader of the Communist Party USA from 1959 until his death in 2000.

We say that it may be possible in the U.S. to bring socialism through peaceful means. Perhaps through the ballot box. One thing is clear, there won't be socialism in the U.S. until the majority of the American people want it.

I like to say that when workers enter the corporate board rooms to take over and the ruling class says: O.K. you're right, we made a mess of things and now you should run it all. Well then there won't be any trouble.

Nope, no trouble. Unless you think the world ending in 2058 is trouble.

Randall Hoven is the creator of Graph of the Day. He can be contacted at randall.hoven@gmail.com or via his website, randallhoven.com.
(Part III of a series. Part I was "The Good Old Days," and Part II was "Two Years That Changed the World.")

Flight USA is on its way to the Land of the Lost. Lost decades. Lost growth. Lost freedom. Why? Because we already lost our minds.

Things can be spun to look good right now. Real Gross Domestic Product, the inflation-adjusted measure of the overall economy, has been growing since June 2009. The Congressional Budget Office expects it to grow 3.0% in 2010 and to grow between 2.1% and 4.1% per year through 2020. Nice numbers, if true. And if true, there is no "recession" to "fix" anymore. The stimulus did its job, supposedly.

(Curiously, 78% of the $814-billion stimulus was, and will be, applied after FY 2009. So if the stimulus is what got the economy growing in 2009, then $180B would have done the trick. The rest of the stimulus, $634 billion's worth, is to stimulate an economy not needing a stimulant, if we are to believe the numbers coming from our government.)

Yet despite that rosy outlook, the CBO expects federal deficits to average over $1 trillion per year from 2010 through 2020 under President Obama's proposals. The lowest deficit the CBO foresees is $724 billion in 2014. By 2019, quadruple digits as far as the eye can see. Why such deficits in a growing economy?

In Parts I and II of this trilogy, I explained the state of our economy and our federal finances in fiscal years 2007 and 2009. In 2007, everything looked rather peachy. In 2009, it had all gone to pot. Using the analogy of a commercial airplane flight, all systems on Flight USA were normal in 2007. But by 2009, Flight USA had hit bad weather and was having mechanical difficulties. And the crew had been completely swapped out: from Captain Bush and his Republican crew to Captain Obama and his Democrat crew.

Captain Obama tried everything. He increased thrust. Then...he increased thrust. Finally, considered the smartest man to ever pilot such a craft, he increased thrust. He also distributed a chit to each passenger promising access to the First Aid kit when needed, as long as each and every passenger paid for it. Then he increased thrust.

But things just kept going wrong. Virtually every system on Flight USA was leaking money. Social Security Disability Insurance will be empty in 2018. The U.S. Post Office is already broke and beyond repair. Medicare will be empty in 2017. Social Security can hang on a bit longer, but it too is leaking money. State governments cannot take any of the load because they are going broke, too. Car companies went bankrupt. Housing collapsed. Car sales sputtered. Everything sputtered.

As the smoke in the cockpit clears, real GDP is still down 1.3% from its peak. Unemployment is stuck at 9.6%. Over seven million jobs remain lost. And the stock market is down 30% from its peak. As I write, the Federal Reserve just released its latest Beige Book findings.

Reports from the twelve Federal Reserve Districts suggested continued growth in national economic activity during the reporting period of mid-July through the end of August, but with widespread signs of a deceleration compared with preceding periods. [Emphasis added.]

"Deceleration" from already slow (1.6% annual rate in the quarter ending in June) means really slow. Sputter, sputter. The CBO might have to revise its optimistic assumptions.

All those spending thrusts and we still have not attained our pre-turbulence altitude. It is not even clear we have the ability to climb any more. The only thing climbing is our debt.

By 2020, federal debt held by the public will be 90% of GDP -- under the CBO's optimistic assumptions. In 2009, three of the "PIIGS" had smaller debts: 77% in Portugal, 64% in Ireland, and 53% in Spain. A debt above 60% is considered out of bounds by the rules of the European Union. A debt of 90% is considered the breaking point, where it has serious consequences on economic growth (like lost decades or anemic growth in perpetuity). The PIIGS are considered economic threats to the whole EU right now due to their debts. Yet we are in PIIGS territory right now at 63%, and we will be in the 90% red zone by the end of the decade -- assuming things go well.

Look at the years beyond 2020 only at your peril. Here is what the CBO says.

Using CBO's "textbook growth" model, it is not possible to simulate the effects of the alternative [likely] fiscal scenario after 2058 because deficits become so large and unsustainable that the model cannot calculate their effects. [Emphases added.]

That is to say, as best as the CBO and its computers can calculate, that the world ends in 2058. (For the End-Times inclined, Isaac Newton is claimed to have predicted that the apocalypse would occur in 2060 based on his studies of the Bible.)

The good news is that it doesn't have to be this way. That is, Flight USA is not beyond recovery. We do not have to defy the laws of physics. Congressman Paul Ryan introduced legislation he calls the Roadmap. It is comprehensive. It even ensures universal coverage of health insurance. But it reforms entitlements while doing so, especially Medicare.

It is not a radical plan. Its plan for Medicare, for example, is similar to what the Republican Congress proposed and passed in 1995, and what the bipartisan Breaux Commission proposed in 1999 -- both killed by President Clinton and the Democrats. The CBO, in fact, scored Ryan's Roadmap. Here is what the CBO had to say about it.

The Roadmap would put the federal budget on a sustainable path, generating an annual budget surplus of about 5 percent of GDP by 2080.  According to CBO's textbook growth model ... real potential gross national product per person would continue to grow over the entire 75-year period. The economy would be considerably stronger under the proposal (as analyzed by CBO) than it would be under the alternative fiscal scenario. Real gross national product per person would be about 70 percent higher in 2058 under the proposal than under the alternative fiscal scenario. [Emphases added.]

Remember, 2058 is when the world will otherwise end according to that same "textbook growth model." The CBO depicted the situation in a chart.




Which path in that chart do you think Obama and the Democrats are on?

So much for the good news. The bad news is that the Roadmap has all of thirteen cosponsors. Republicans are generally ignoring it, with no other proposal in its place. And here is how Democrats view it, according to Politico.

Democrats accused the Wisconsin Republican of trying to privatize Social Security, cut taxes for the rich and increase them for the middle class. Medicare would be allowed to "wither on the vine." Here we go again, Rep. Xavier Becerra (D-Calif.) said Thursday of Ryan's proposal.

In case you didn't know, ObamaCare cuts about half a trillion dollars from Medicare over the next ten years. It's going to be cut one way or another; that's what "unsustainable" means. One way is for the government to ration health care, to have bureaucrats define all the rules for medical ethics and patient-doctor decisions. (Here's a hint: the government is just as expert in medicine as it is in Gulf oil spills.)

Another way is to let patients, maybe some with government vouchers, seek their own solutions in a market of multiple competing health care providers and insurers. Yes, my friends, I'm talking of the dreaded free market.

Even Republicans are afraid of a free market. As a party, the GOP has no plan. During the ObamaCare debate, Republicans were saying hands off my Medicare.

As upset as many people are about Obama and the Democrats now, I'm betting a solid chunk of those people also don't want any specific alternative to them. They sure don't want a free market. Republicans are ahead in the polls right now for the simple reason that they aren't Democrats. 

When polled in April 2009, only 53% of Americans thought capitalism was better than socialism. Twenty percent thought socialism was better, and 27% were not sure. Among those under 30, 33% preferred socialism and 30% were unsure, leaving only 37% preferring capitalism.

Those views approximately match Obama's job approval ratings. As of September 7, 2010, his approval rating was 45%, with 27% strongly approving. That 45% roughly matches the 47% who would not say capitalism is better than socialism. And that 27% strong approval is not that far off of those who outright believe socialism is better, 20%. Obama also has stronger approval among the young.

The picture should be clear to you now. Even if you could prove that Obama is a socialist, it would have no effect on about 47% of the voters; they either want socialism or don't care. And that, my friends, is why Obama's approval rating stays around 45% or better as long as he keeps his hardcore leftist base happy.

And how good is the news that a mere 53% think capitalism is better? Especially when only 37% of those under 30 do? After a few more of that 53% die off, more of that 63% of those now under 30 will replace them in voting booths.

In short, we are on the "path to socialism" described by Gus Hall (via the CPUSA website), leader of the Communist Party USA from 1959 until his death in 2000.

We say that it may be possible in the U.S. to bring socialism through peaceful means. Perhaps through the ballot box. One thing is clear, there won't be socialism in the U.S. until the majority of the American people want it.

I like to say that when workers enter the corporate board rooms to take over and the ruling class says: O.K. you're right, we made a mess of things and now you should run it all. Well then there won't be any trouble.

Nope, no trouble. Unless you think the world ending in 2058 is trouble.

Randall Hoven is the creator of Graph of the Day. He can be contacted at randall.hoven@gmail.com or via his website, randallhoven.com.

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