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Tuesday, August 24, 2004
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LIFE IN THE BANANNA REPUBLIC OF THE TWENTY-FIRST CENTURY
Regardless of who is elected president of the United States on November 2, the economic consequences of that choice will be ultimately disasterous. And that's if either of them are actually telling the truth about their policy priorities. Reasonable people in both parties can conclude that both are lying. And God knows what they actually have in mind. The thought of what is likely to happen should be chilling for everyone who reads this, whether they are American citizens or not.
Ever since the dawn of the industrial, and particularly since the end of World War Two, the global economy has been largely dependant on the American dollar and remains so even today. It has always been the case that the US economy can remain healthy in the event of a regional economic crisis (ie, Mexico in 1995 and Asia in 1997), but when the American economy goes into shock, it takes the rest of the world with it. As the global economy is so closely tied into US domestic spending, which is, in turn dictated by political considerations, this campaign should rightly scare the hell out of anyone with a wallet, regardless where they live.
If this article is anywhere near correct, both parties are complicit in what will most likely be the total meltdown of the world economy sometime in the next 40 years.
Program spending (or as it commonly called, non-discretionary "entitlement" spending) has been a political tool since the 1930's. Before the New Deal, the federal government had virtually no role in social welfare programs. But the Roosevelt administration created massive program spending to counter the consequences of the Great Depression. According to his statements of the time, FDR intended Social Security as a temporary remedy to an immediate problem. As a matter of fact, so were the income taxes implimented by the Wilson administration.
But the political reality is much different. Massive programs are much easier to create than dismantle. Particularly programs that benefit specific blocs of voters. It has been clear for years that ethanol is not now, nor is ever likely to be, a plausible substitute for gasoline. Yet it is still subsidized to the tune of hundreds of millions of dollars every year, so fearful are the parties of the political price to be paid in the farm states should the booty be stopped.
The Democratic Party in particular has stayed competetive for years by warning seniors that if the Republicans become a true majority party, their Social Security and Medicare benefits will be threatened. The Republicans can reasonably be expected to use their new prescription drug benefit as a wedge program as well. Prior to 1990, the Republicans would go into a state like Florida and tell voters that if the Democrats were elected, they would irresponsibly shut down the military bases that the state is so dependant on. Both parties are equally guilty of campaigning on federal largesse.
Republicans have often described themselves as "the party of smaller government." History does not particularly bear this out. Entitlement spending grew in the Eisenhower, Reagan and first Bush administrations. President Nixon created several other programs and went so far as to propose a "national minimum income" for all families of approximately four thousand dollars in 1970 dollars. The current President Bush has presided over the greatest expansion of program spending since Lyndon Johnson was president.
President Clinton declared that "the era of big government is over" and pointed to his 1996 Welfare Reform measures as proof of this. The statement is highly misleading. Essentially, what welfare reform did was download the bulk of the financial burden to state and local governments. As is true with President Bush's tax cuts of 2001 and 2002, federal funding from the federal government to the states was cut and had to be made up somewhere. This lead to increses in state income taxes, sales taxes, property taxes or cuts in social services at the state level.
That President Bush cut federal taxes to the tune of $1 trillion while massively increasing entitlement spending can reasonably be described as irresponsible. To maintain the tax cuts and program spending following 9/11, the War on Terror and the occupation of Iraq (which alone will likely cost hundreds of billions of dollars over the next decade) is insane. All the while, the twin demons of Social Security and Medicare grow more menacing.
When Social Security was created in 1936, there were 14 workers paying taxes for every retiree collecting benefits. By the time the last of the Baby Boomers retires in 2020, there will be slightly more than 2 workers for every retiree. The same applies to Medicare and will also apply to the prescription drug benefit. There are essentially two approaches to averting disaster, massively increase taxes to fund the programs or fundamentally restructure the programs themselves. The political consequences of both guarantee that neither will happen until it is too late.
Given the geopolitical realities of today and the forseeable future dictate that cuts cannot be made to the military. This is particularly true in Iraq. What Ralph Nader proposes (withdrawl of all American forces within six months) and Senator Kerry (a large scale drawdown of forces within a year) are almost certainly result in an Iraqi civil war. This would not remain local for long. Iran, Syria and Turkey would find themselves drawn in within weeks. The threat to American fuel needs would necessitate US forces to build in Saudi Arabia to protect their reserves, which would serve to intensify the threat of al-Qaeda. Furthermore, the rise of fuel costs resulting from such a war would be sufficent to throw the American economy into a severe recession. That the United States is in Iraq is unavoidable for years to come.
There are also still serious threats posed by Iran and North Korea. Any serious cuts to the military budget would make war with either (or both) more, rather than less likely.
These realities should prove promising to Senator Kerry's propects, right? Actually, no. Kerry has said that he will keep most of the Bush tax cuts, rolling back only those cuts given to workers earning over $200,000. This should bring in about $90 billion. Unfortunately, Kerry intends to institute a heath care plan that will cost approximately $650 billion. And this is only one his proposals for new spending. Kerry's program of miniscule plugs in the tax code will bring nowhere near the money his proposals will cost.
Neither candidate has seriously proposed any cuts to program spending, and neither has mentioned Social Security of Medicare, other than the president's fantasy of partial privatization which will never pass Congress.
Whoever is elected in November, both candidates have committed themselves to continued tax cuts and increased program spending. Both have said that they will cut the deficit in half by 2009. Both candidates are clearly and blatantly lying.
Budget deficits are paid for with borrowed money. That money must be repaid someday. The current budget deficit is projected to be 3.8% of GDP. At the current rate of growth, it will be 20% by 2040. No country can maintain a debt equalling a fifth of it's economy. It is at the point that the economy will completely collapse. A meltdown of an ecomony the size of America''s would likely take large segments of the world's banking system with it. Fortunately, by this point both Social Security and Medicare will be long bankrupted by then. Of course, if they somehow manage to survive untouched, those two programs will consume 14% of GDP.
The likely social consequences of such a collapse would be far worse than those seen in Latin America in the 1980's. All of the affected countries had the US economy to rely on for bail-out aid. They were also all military dictatorships which could maintain a modicum of social order. None of those circumstances would apply in the event of an American collapse. And there are more guns in the United States than people. The likelihood of complete chaos is not unimaginable.
Both national parties seem committed to destroying the economy for temporary political benefit. Of course, they only fufill the expectations of the electorate. So long as voters resist fundamental political reform, the problems -and the likely damage resulting from them- will only grow more serious.
Happy voting.
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