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THE PASSING OF A SUPERPOWER
America is in unprecedented decline.1—ROBERT PAPE, 2008
The National Interest
The United States is declining as a nation and a world power, with mostly sighs and shrugs to mark this seismic event.2—LESLIE H. GELB, 2009
President Emeritus, Council on Foreign Relations
At no time in human history has a nation of diminished economic vitality maintained its military and political primacy.3—BARACK OBAMA, 2010
"If money isn't loosened up, this sucker is going to go down," said the president of the United States.4
The place was the cabinet room. The occasion: the September 2008 meeting of Bush and the congressional leadership—to persuade recalcitrant Republicans to approve a $700 billion bailout of America's imperiled banks to prevent a panic after Treasury Secretary Henry Paulson let Lehman Brothers collapse.
The "sucker" that was going down was the global financial system.
Nine months earlier, CNBC's Lawrence Kudlow, in a column titled, "Bush Boom Continues," had rhapsodized about the Bush economy: "You can call it Goldilocks 2.0."5 A few months can make quite a difference.
This generation of Americans has been witness to one of the most stunning declines of a great power in the history of the world.
In 2000, the United States ran a surplus. In 2009, it ran a deficit of $1.4 trillion—10 percent of the economy. The 2010 deficit was almost equal, and the 2011 deficit is projected to be even higher. The national debt is surging to 100 percent of GDP, portending an eventual run on the dollar, a default, or Weimar-like inflation. The greatest creditor nation in history is now the world's greatest debtor.
In 2010, Republican Senator Judd Gregg, the fiscal conservative Obama wanted in his cabinet, went home to New Hampshire with a warning: "This nation is on a course where if we don't … get … fiscal policy [under control], we're Greece":
The Tea Party is in the mainstream of where political thought is right now. We've had a radical explosion in the size of government in the last two years: You've gone from 20 percent of GDP to 24 percent of GDP headed toward 28 percent of GDP. That has to be brought under control or … we're going to bankrupt the country.6
According to the International Monetary Fund, America's GDP has fallen from 32 percent of world product in 2001 to 24 percent.7 As Leslie Gelb, president emeritus of the Council on Foreign Relations, has written, "[N]o nation with a massive debt has ever remained a great power":
[U.S.] heavy industry has largely disappeared, having moved to foreign competitors, which has cut deeply into its ability to be independent in times of peril. Its public-school students trail their peers in other industrialized countries in math and science. They cannot compete in the global economy. Generations of Americans, shockingly, read at a grade-school level and know almost no history, not to mention no geography.8
Even the establishment has begun to get the message.
Political science professor Robert Pape, of the University of Chicago, echoes Gelb:
The self-inflicted wounds of the Iraq war, growing government debt, increasingly negative current-account balances and other internal economic weaknesses have cost the United States real power in today's world of rapidly spreading knowledge and technology. If present trends continue, we will look back at the Bush administration years as the death knell of American hegemony.9
When Pape correlated the rise of the nineteenth-century powers with the growth in their shares of world product, he found America's decline in the Bush years to be almost without precedent:
America's relative decline since 2000 of some 30 percent represents a far greater loss of relative power in a shorter time than any power shift among European great powers from roughly the end of the Napoleonic Wars to World War II.… Indeed, in size, it is clearly surpassed by only one other great-power decline, the unexpected internal collapse of the Soviet Union in 1991.10
In the first decade of what was to be the Second American Century, a net of zero new jobs was created. Average households were earning less in real dollars at the end of the decade than at the beginning. The net worth of the American family, in stocks, bonds, savings, home values, receded 4 percent.11 Fifty thousand plants and factories shut down.12 As a source of jobs, manufacturing fell below health care and education in 2001, below retail sales in 2002, below local government in 2006, below leisure and hospitality (restaurants and bars) in 2008—all for the first time.13 Be it shoes, clothes, cars, furniture, radios, TVs, appliances, bicycles, toys, cameras, computers, we buy from abroad what we used to make here. Our economic independence is history. In April 2010, three of every four Americans, 74 percent, said the country is weaker than a decade ago, and 57 percent said life in America will be worse for the next generation than it is today.14
Who did this to us? We did it to ourselves.
We abandoned economic nationalism for globalism. We cast aside fiscal prudence for partisan bidding for voting blocs. We ballooned our welfare state to rival the socialist states of Europe. We invited the world to come and partake of the feast. And we launched a crusade for democracy that has us tied down in two decade-long wars.
WHAT GLOBALIZATION WROUGHT
In 2009, Paul Volcker, former chairman of the Federal Reserve, told Congress the cause of the financial crisis was trade-related imbalances. Pressed by Senator Chris Dodd, Volcker added, "Go back to the imbalances in the economy. The United States has been consuming more than it has been producing for many years."15
Starting in the 1980s and accelerating with NAFTA and GATT, the United States set out to meld its economy with those of Europe and Japan and create a global economy. We decided to create the interdependent world envisioned by such nineteenth-century dreamers as David Ricardo, Richard Cobden, Frédéric Bastiat, and John Stuart Mill.
That experiment did not work out well for the free-trade British in the nineteenth century, who were shouldered aside in the struggle for world primacy by America. But our generation would make it work for the world.
What happened was predictable and was, in fact, predicted. With the abolition of tariffs and with U.S. guarantees that goods made in foreign countries would enter America free of charge, manufacturers began to shut plants here and move production abroad to countries where U.S. wage-and-hour laws and health, safety, and environmental regulations did not apply, countries where there were no unions and workers' wages were below the U.S. minimum wage. Competitors who stayed in America were undercut and run out of business, or forced to join the stampede abroad.
After Japan and Europe had carted off their shares of the U.S. market, the Tigers of Asia queued up: South Korea, Taiwan, Malaysia, and Singapore. But the big winner was Beijing. In 1994, China made a brilliant strategic move. She devalued her currency 45 percent, cutting in half the already cheap cost of labor for companies relocating to China, and doubling the price of U.S. goods entering China. The result? Those "imbalances" to which Volcker referred.
For decades, Japan's trade surplus with the United States was the largest on earth. In the 21st century, China's trade surplus with the United States began to dwarf Japan's. In 2008, China exported five times the dollar volume of goods to America as she imported and her trade surplus with America set a world record between any two nations—$266 billion.16 In August 2010, China's trade surplus with the United States set a new all-time monthly record of $28 billion, and was headed for a new annual record.17
Nor was the trade surplus all in toys and textiles. In critical items that the Commerce Department defines as advanced technology products (ATPs), the U.S. trade deficit with China in 2010 hit a record $95 billion. During President Bush's eight years, total trade deficits with China in ATPs exceeded $300 billion.18 China today has the trade profile of an industrial and technological power while the manifest of U.S. exports to China, aircraft excepted, reads like the exports of the Jamestown Colony back to the Mother Country.
What was the impact of this tsunami of imports on employment? During the first decade of the twenty-first century, U.S. semiconductors and electronic component producers lost 42 percent of their jobs; communications equipment producers lost 48 percent of their jobs; textile and apparel producers lost, respectively, 63 percent and 61 percent of their jobs.19
In that same first decade of the twenty-first century, the United States issued 10,300,000 green cards inviting foreigners to come compete for the remaining jobs of U.S. workers. In fiscal year 2009 alone, the first full year of massive layoffs and soaring unemployment in the Great Recession, 1,130,000 green cards were issued, with 808,000 going to permanent immigrants of working age.20
What in the name of patriotism are we doing to our own people?
At every election, politicians decry America's deepening dependence on foreign oil. But the U.S. trade deficit in manufacturing, $440 billion in 2008, was $89 billion larger than the U.S. deficit in crude oil. Why is our dependence on the oil of Canada, Mexico, Venezuela, Nigeria, Saudi Arabia, and the Gulf states a greater concern than our dependence on computers and vital components of our high-tech industries and weapons systems produced by a rival power run by a Communist politburo? As Auggie Tantillo, executive director of the American Manufacturing Trade Action Committee, argues:
Running a trade deficit for natural resources that the United States lacks is something that cannot be helped, but running a massive trade deficit in man-made products that America easily could produce itself is a choice—a poor choice that is bankrupting the country and responsible for the loss of millions of jobs.21
What have been the consequences for our country of these trade "imbalances"?
The deindustrialization of America. A growing dependence on China for the necessities of our national life and the loans to pay for them. A loss of millions of the best jobs Americans ever had. A median wage and family income that have been stagnant for a decade. A steep decline in the global purchasing power of the dollar. A loss of national dynamism. A debt bomb that went off in our face in September 2008.
And permanent peril to our national security. As South Carolina's "Fritz" Hollings, the economic patriot of the Senate for four decades, writes:
The defense industry has been off-shored. We had to wait months to get flat panel displays from Japan before we launched Desert Storm. Boeing can't build a fighter plane except for the parts from India. Sikorsky can't build a helicopter except for the tail motor from Turkey. Today, we can't go to war except for the favor of a foreign country.22
FRUITS OF FREE TRADE
Though Bush 41 and Bush 43 often disagreed, one issue united them and Bill Clinton: protectionism. Globalists all, they rejected any measure to protect America's manufacturing base or the wages of U.S. workers. They enacted NAFTA, created the World Trade Organization, abolished tariffs, and granted China unrestricted access to the U.S. market.
Charles W. McMillion, of MBG Information Services, has compiled the results of two decades of this Bush-Clinton-Bush embrace of globalism. His compilation might be entitled "An Index of the Decline and Fall of Industrial America."23
• From December 2000 through December 2010, U.S. industrial production fell for the first time since the Depression, and America lost over 3 million private sector jobs, the worst record since 1928 to 1938.
• In that same decade, 5.5 million U.S. manufacturing jobs, one of every three we had, disappeared. Manufacturing, 27 percent of the U.S. economy in 1950, is down to 11 percent and accounts for only 9 percent of the non–farm labor force.24
• In traded goods, we ran up $6.2 trillion in deficits, $3.8 trillion of that in manufactured goods.
• The Bush II era was the first in U.S. history in which government began to employ more workers than manufacturing.
• U.S. trade surpluses in advanced technology products ended in Bush's first term. From 2007 through 2010, the United States ran trade deficits in ATP totaling $300 billion with China alone.
• The cumulative U.S. trade deficit with China in manufactured goods was $2 trillion. China now holds the mortgage on America.
• From December 2000 to December 2010, New York and Ohio lost 38 percent of their manufacturing jobs. Over the same period, New Jersy lost 39 percent, and Michigan lost 48 percent.
• The cumulative current account deficit of the United States from 2000 through the third quarter of 2010 exceeded $6 trillion. To finance it, we had to borrow $1.5 billion abroad every day for ten years.
Stephen Moore contrasts the America of 2011 with a country some of us still remember:
Today in America there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5 million). This is an almost exact reversal of the situation in 1960, when there were 15 million workers in manufacturing and 8.7 million collecting a paycheck from the government.25
"More Americans work for the government," writes Moore, "than work in construction, farming, fishing, forestry, manufacturing, mining and utilities combined. We have moved decisively from a nation of makers to a nation of takers."
This is our reward for turning our backs on the economic nationalism of the men who made America, and embracing the free-trade ideology of economists and academics who never made anything.
In early 2010 it was reported that Detroit, forge and furnace of the Arsenal of Democracy in World War II, was considering razing a fourth of the city and turning it into pastureland. Did that $1.2 trillion trade deficit we ran in autos and auto parts in the Bush 43 decade help to kill Detroit?
If our purpose in negotiating NAFTA was to assist Mexico, consider this: textile and apparel imports from China are now five times the dollar value of those same imports from Mexico and Canada combined.
America's trade deficits are "selling the nation out from under us," said Warren Buffett back in 2003.26 U.S. trade deficits that have averaged $500 to $600 billion a year for ten years represent the single greatest wealth transfer in history and the single greatest factor raising China up and pulling America down. As astonishing as these indices of American decline is the feckless indifference of our political class. How to explain it?
Ignorance of history is surely one answer. Every nation that rose to world power did so by protecting and nurturing its manufacturing base—from Great Britain under the Acts of Navigation, to the United States from the Civil War to the Roaring Twenties, to Bismarck's Germany before World War I, to postwar Japan, to China today. No nation rose to world power on free trade. From Britain after 1860 to America after 1960, free trade has been the policy of powers that put consumption before production, today before tomorrow.
The historical record is clear. Nations rise on economic nationalism. They descend on free trade.
Ideology is another explanation. Even a (Milton) Friedmanite free trader should be able to see the disaster around us and ask: What benefit did our country receive from these mountains of imported goods, and was that benefit great enough to justify the terrible damage done to our economic independence and vitality? Can not the free-trade ideologues see the direct correlation between trade deficits and national decline?
"Free trade! Free trade!" mocked Henry Clay, architect of the American System, in the great tariff debate of 1832–33. To Clay, the benefits of free trade were illusory: "The call for free trade is as unavailing as the cry of a spoiled child, in its nurse's arms, for the moon or stars that glitter in the firmament of heaven. It never existed. It never will exist." Instead of liberating America, free trade would, said Clay, place us "under the commercial domination of Great Britain."27
We have spurned the economic patriotism of Hamilton, Jackson, Clay, Lincoln, Teddy Roosevelt, and Coolidge to embrace free trade. And so it is that we now find ourselves under the commercial domination of the People's Republic of China.
"Thank you, Hu Jintao, and thank you, China," said Hugo Chávez, as he announced a $20 billion loan from Beijing—to be repaid in oil.28
The Chinese had thrown Chávez a life preserver. Venezuela was reeling from 25 percent inflation, government-induced blackouts to cope with energy shortages, and an economy that shrank by 3.3 percent in 2009.
Where did China get that $20 billion? From consumers at Walmart and all of us who purchase goods made in China. That $20 billion is just 1 percent of the $2 trillion in trade surpluses Beijing has run up with the United States over two decades. And Beijing is using its trillions of dollars in cash reserves to cut deals to lock up strategic resources for the coming struggle with America for global hegemony. China has struck multibillion-dollar deals with Sudan, Brazil, Kazakhstan, Russia, Iran, and Australia to secure a steady supply of oil, gas, and minerals to maintain the 10 to 12 percent growth China has been racking up since Deng Xiaoping dispensed with Maoism and launched China on the road to capitalism.
America has not built a nuclear power plant in thirty years. China has dozens under way. America built Hoover Dam and Grand Coulee Dam in Franklin Delano Roosevelt's first two terms. China just completed Three Gorges Dam, the largest power source on earth. China used its stimulus money to tie the nation together with light rail, bullet trains, and highways in infrastructure projects. America used much of her stimulus money to save government jobs. The United States has retired the space shuttle and her astronauts will hitchhike to a U.S.-built space station aboard Russian rockets. China is headed for the moon.
Even before the Gulf of Mexico oil spill in mile-deep waters, we had declared vast swaths of our country and continental shelf closed to drilling and declared war on fossil fuels to save the planet. Given the power of the environmental lobby to tie up projects in seemingly endless litigation, America could never today build the Interstate Highway System, the TVA, or the Union Pacific railroad.
China puts savings ahead of spending, capital investment ahead of consumption, and manufacturing ahead of finance. Before the collapse of 2008, the U.S. savings rate stood at zero percent of income. In China the savings rate ranges from 35 to 50 percent. In two decades, China has grown from a vast undeveloped country into the second largest economy on earth, ahead of Japan, and the world's leading exporter, ahead of Germany. China is now the factory to the world and the banker to America.
Since the Cold War, America has been playing empire—punishing evil-doers and advancing democracy—in Panama, Somalia, Haiti, Bosnia, Kosovo, Kuwait, Iraq, Afghanistan, and Libya. China has fought no one but built up her military power and developed ties to an expanding number of nations at odds with America, from Russia to Iran to Sudan to Venezuela.
The Chinese today call to mind nineteenth-century Americans who shoved aside Mexicans, Indians, and Spanish to populate a continent, build a mighty nation, challenge the superpower of the day, the British Empire, and sweep past her to become the most powerful nation on earth. Men were as awed by America then as they are awed by China today.
During the Cold War, China was in the grip of a millenarian Maoist ideology that blinded her to her true national interests. Today, it is America that is the captive of an ideology that is becoming perilous to the republic.
The people sense this danger, and the politicians are responding. The election of 2010 featured a series of inflammatory political ads that reflected the nation's anxiety about high unemployment and painted China as profiting from America's pain. In late October, the Washington Post reported:
On the campaign trail, both Democrats and Republicans are slinging mud at China. Currently, 250 ads targeting China are being aired in just under half of the 100 competitive districts, such as the battle for the Senate seat in Pennsylvania between Republican Pat Toomey and Democrat Joe Sestak. Sestak's ads come equipped with a gong and this line: "Pat Toomey—he's fighting for jobs … in China. Maybe he ought to run for Senate … in China."
At a news conference in October 2010, Democrat Alexi Giannoulias accused Republican Mark Kirk—with whom he was locked in a tight race in Illinois for President Obama's old Senate seat—of "economic treason" for raising money from American businessmen based in China.
Said Evan Tracey, president of the Campaign Media Analysis Group, "political ads are the leading indicator of the next set of policies."29
HOW CHINA FIGHTS—AND WINS
At the Walmart in Albany, Georgia, tires made in China were selling for less than tires made at the Cooper Tire plant just down the road. Unable to compete, Cooper Tire shut down its Albany plant, and 2,100 Georgians lost their jobs. How could tires made on the other side of the world, shipped to the USA, then moved by rail or truck to Albany, Georgia, be sold for less than tires made in Albany, Georgia? The Washington Post's Peter Whoriskey solves the mystery: at Cooper, the wages were $18 to $21 per hour; in China, a fraction of that. The Albany factory was subject to U.S. health-and-safety, wage-and-hour, and civil rights laws, from which Chinese plants are exempt. At the Cooper plant, environmental standards had to be met or the factory would be shut down. China's factories are notorious polluters.
China won the competition because the Fourteenth Amendment's "equal protection of the laws" does not apply to the People's Republic. China can pay its workers little, force them to work longer, and operate plants whose health, safety, and environmental standards would have their U.S. competitors shut down as public nuisances. Beijing also undervalues its currency to keep export prices low and import prices high. Thus did China, between 2004 and 2008, triple her share of the U.S. tire market from 5 percent to 17 percent, and put Cooper Tire of Albany out of business.
Having seen the future, Cooper Tire is now opening and acquiring tire plants in China and sending its former Albany workers over to train the Chinese who took their jobs. Welcome to twenty-first-century America, where globalism has become the civil religion of our political and corporate elite.30
WHO BUILT THE DEBT BOMB?
Neither a borrower nor a lender be, said Shakespeare's Polonius. But when the Greatest Generation passed the torch to the baby boomers, we became both.
Auto loans were made at zero interest for sixty months by the lending arms of GM, Ford, and Chrysler, to people who could not afford what they drove off the lot. Student loans were lavished on high school graduates with little prospect of finishing college. Unsolicited credit cards were sent to college seniors. States strapped for cash issued bonds to cover current expenditures. Under Bush II, the U.S. government ran up $2.5 trillion in deficits to finance tax cuts, two wars, Medicare drug benefits, No Child Left Behind, and what Fred Barnes celebrated, two decades ago, as "big government conservatism."
But it was the housing bubble that burst on Bush's watch and brought down the stock and bond markets and almost took down the U.S. economy with it. The housing bubble began with an innovation called the subprime mortgage. These mortgages were blessed and given impetus by George W. Bush after he discovered a new inequality in society. To address it he called a White House Conference on Increasing Minority Homeownership and, on October 15, 2002, at George Washington University, Bush, in echo of JFK pledging to put a man on the moon by decade's end, announced a new national goal:
We have a problem here in America because fewer than half of the Hispanics and half the African Americans own their home. That's a home ownership gap … we've got to work together to close for the good of our country, for the sake of a more hopeful future.
We've got to work to knock down the barriers that have created a home ownership gap.
I set an ambitious goal … that by the end of this decade we'll increase the number of minority homeowners by at least 5.5 million families. (Applause.) … And it's going to require a strong commitment from those of you involved in the housing industry.31
What was wrong with this plan?
First, it was based on a superficial analysis. While Hispanics had a homeownership rate of 47 percent to whites' 75 percent, the difference was only 5 percent if one compared white Americans and native-born Hispanics. Immigrants have traditionally had a lower rate of home ownership. And as columnist Larry Elder points out, "The 1990 Census … found Chinese immigrants approximately 20 percent more likely than whites to own their own home in San Francisco, Los Angeles, and New York."32 Were banks discriminating against whites in favor of Chinese?
As to those "barriers" to black homeownership, writes Elder:
Bush failed to address the primary reason that some blacks fail to qualify for homes—poor credit records. U.S. News & World Report found that the Fed's own Freddie Mac released a report in 1999 showing that 48 percent of blacks are likely to have bad credit histories—almost twice the 27 percent rate of whites. That same year, the Washington Post found that the credit rating for blacks earning between $65,000 and $75,000 stood lower than that of whites earning $25,000 a year or less. Even National Urban League president Hugh Price said, "If people have bad credit, they'll be denied loans, end of story."33
Ignoring the real causes of racial disparity in home ownership—age, income, length of residency, and the credit ratings of mortgage applicants—the Bush administration plowed ahead in the same suicidal direction the Congress had set out on years before with the Community Reinvestment Act. Local banks were pressured to make mortgages to home-buyers who could not qualify under standards set from decades of experience. Millions of these sub-prime mortgages were then sold by the banks that made them to Fannie Mae and Freddie Mac. The banks thus had fresh money to go out and make more risky mortgages and sell those to Fannie and Freddie. The mortgages were then bundled into securities and sold to Wall Street banks anxious to have on their balance sheets income-producing paper backed by real property in America's booming housing market. As Bloomberg's Betty Liu and Matthew Leising reported:
The debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks grew an average of $184 billion annually from 1998 to 2008, helping fuel a bubble that drove home prices up by 107 percent between 2000 and mid-2006, according to the S&P/Case-Shiller Home-Price Index.34
By mid-2006, not yet four years after Bush's speech, minority home ownership had grown by 2.7 million, trumpeted the Weekly Standard, in "Closing the Gap: The Quiet Success of the Bush Administration's Push for Home Ownership."35
New York-based AIG, among the world's largest financial and insurance institutions, launched a program to insure the banks against losses should the housing market crash. As the risk seemed minuscule, so were the premiums. But payouts, should it come to that, were far beyond the capacity of AIG. In its financial products division in Connecticut and London, young wizards were at work creating credit default swaps to guarantee against losses.
The Federal Reserve kept the game going by keeping interest rates low and money gushing, creating a bubble that saw home prices surging annually at 10, 15, and 20 percent.
As the economy began to heat up, the Fed began to apply the brakes. Money became tighter, mortgage terms tougher. Housing prices stabilized, then began to fall. Homeowners with subprime mortgages found they could not "flip," or sell, their houses and had to start paying down principal. People began to walk away from homes. The bubble popped. Folks awoke to the reality that housing prices can fall, as well as rise, and word went out that all that mortgage-backed paper that had been bought by banks all over the world was overvalued and that a good bit of it was worthless. As housing prices began to fall below the face value of mortgages, more and more homeowners mailed the keys back to the bank. And so the crash came and the panic ensued.
Who is to blame for the greatest crash since 1929–1933?
Their name is legion. The banks that made the subprime mortgages. The politicians who pushed them to make loans they would never have made without threats, promises of political favor, or the ability to offload the paper onto Fannie Mae and Freddie Mac. Fannie and Freddie, who bought up the subprime paper, massaged the politicians with campaign contributions, and walked away from the wreckage leaving taxpayers with a bill of hundreds of billions of dollars.
Then there are the Wall Street bankers who bought up the securities backed by subprime mortgages and were too ignorant, indolent, or just plain greedy to inspect the paper. There are the ratings agencies like Moody's and Standard & Poor's who gazed at the paper and graded it AAA prime. In short, the political and financial elite of a generation revealed itself to be unfit to lead a great nation. We have a system failure rooted in a societal failure. For behind the disaster lay greed, stupidity, and incompetence on a colossal scale. "Avarice, ambition," warned John Adams, will "break the strongest cords of our Constitution as a whale goes through a net. Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other."36
FAT CITY IN LEAN TIMES
"It's time to stop worrying about the deficit—and start panicking about the debt," the Washington Post editorial warned. "The fiscal situation was serious before the recession. It is now dire":
In the space of a single fiscal year, 2009, the debt soared from 41 percent of the gross domestic product to 53 percent. This sum, which does not include what the government has borrowed from its own trust funds, is on track to rise to a crushing 85 percent of the economy by 2018.37
Focusing on the "public debt"—the debt held by citizens, corporations, pension funds, and foreign governments—understates the true national debt, which is well over $14 trillion. But even that figure does not reflect the "structural deficit" the nation faces from legislated commitments to Social Security, Medicare, and government and military pensions. According to David Walker, former head of the General Accounting Office, these unfunded liabilities total $62 trillion.38 With the first wave of baby boomers reaching eligibility for full Social Security benefits in 2011, and the entire boomer generation moving onto the rolls by 2029, an Everest of debt will become visible to the world. What are the risks of the exploding U.S. public debt?
Chinese, Japanese, and Persian Gulf governments and sovereign wealth funds will come to suspect, as some already do, that they are holding U.S. paper on which America will one day default or cheapen by inflation. As their fears rise, our creditors will either stop buying and start selling U.S. debt or demand a higher rate of interest commensurate with their rising risk. The Fed will have to raise rates to attract borrowers, and this increase in rates will push the economy into recession. Once the vicious cycle begins, warns Walker, interest on the U.S. debt will become the largest item in the federal budget.
Is Congress aware of the peril? In 2009, Congress was surely not. The lead story in the December 14 edition of the Washington Post began thus: "The Senate cleared for President Obama's signature on Sunday a $447 billion omnibus spending bill that contains thousands of earmarks and double-digit increases for several Cabinet agencies." The total cost of the Senate bill was enormous—"$1.1 trillion, including average spending increases of 10 percent for dozens of federal agencies."39
That last figure bears repeating. Staring at trillion-dollar deficits to the horizon, a Congress dominated by Democrats, the Party of Government, had voted all federal agencies an average budget increase of 10 percent. Bad times for America are the best of times for D.C.
Democrats claimed the gusher of money was needed to make up for the neglect of the Bush years. But the Bush years had been the fattest years for federal spending since LBJ's Great Society and Bush had added his trillion-dollar wars and trillion-dollar tax cuts. By the end of his presidency, conservatives were calling Bush our first Great Society Republican.
Yet Senator Dick Durbin said in 2009 that more spending was needed "to keep cops on the street.… so that families feel secure.… Money spent to help our first responders, firefighters and policemen is a critical investment."40 But are not cops, firemen and first responders a state and local responsibility?
"It is business as usual, spending money like a drunken sailor," said John McCain.41 But when sailors get drunk on shore leave they spend their own money. When they get back aboard ship, they sober up. Congressmen never stop spending. It is what they do. But the money they are spending now must be paid back by future generations.
The Democrats were following rule one of White House chief of staff Rahm Emanuel: "Never allow a crisis to go to waste. They are opportunities to do big things."42 Small things, too. According to Taxpayers for Common Sense, there were 5,200 earmarks in that Senate bill, which averages out to twelve projects for every House member and fifty for every senator.43
The Party of Government exploited the crisis of 2008–2009 to grow the government. Between the passage of Obama's stimulus bill in 2009 and September 2010, millions of private sector jobs disappeared but 416,000 new government jobs were created.44 "Although 85 percent of Americans work for private employers, the administration's own Recovery Act database reveals that four of every five jobs ‘created or saved' were in government."45 As a matter of political self-interest this made sense, for the vast majority of bureaucrats vote Democratic as do the vast majority of beneficiaries of government programs. The same week the Post editorial ran, Dennis Cauchon's lead story on page one of USA Today reported:
Federal employees making salaries of $100,000 or more jumped from 14% to 19% of civil servants during the recession's first 18 months—and that is before overtime pay and bonuses are counted.
Federal workers are enjoying an extraordinary boom time—in pay and hiring—during a recession that has cost 7.3 million jobs in the private sector.46
When the recession began, the Department of Defense had 1,868 civilian employees earning $150,000. By December 2009, Defense had 10,100 employees earning $150,000 or more. When the recession began, the Department of Transportation had one person earning $170,000. By 2010, Transportation had 1,690 employees earning above $170,000.47
Between 2005 and 2010, the number of federal workers earning more than $150,000 soared tenfold, and it doubled in the first two years of the Obama administration, during "the worst recession since the Great Depression."48
The three congressional districts north and west of the District of Columbia, Maryland's Eighth, and Virginia's Eleventh and Eighth, are among the ten most affluent congressional districts in America. And of the ten major metropolitan areas in the nation, the D.C. metro area ranks first in per capita income.49
The financial crisis was the work of Washington and Wall Street, but Washington never saw better days. As USA Today reported in August 2010, in the first decade of the twenty-first century U.S. government workers left their fellow Americans in the dust.
Federal workers have been awarded bigger average pay and benefit increases than private employees for nine years in a row. The compensation gap between federal and private workers has doubled in the past decade.
Federal civil servants earned average pay and benefits of $123,049 in 2009 while private workers made $61,051 in total compensation.… The federal compensation advantage has grown from $30,415 in 2000 to $61,998 last year.50
Remarkable. U.S. government workers, who enjoy the greatest job security of any Americans, receive twice as much in annual pay and benefits as the average American. This is not the D.C. some of us grew up in.
Is this the kind of government our fathers envisioned, or the kind of government they took up arms to overthrow?
After his "shellacking" in 2010, Obama, reacting to public rage over federal pay, proposed a two-year freeze. But as USA Today reported, this freeze involved the use of smoke and mirrors. Across-the-board pay hikes would be frozen, but "many federal workers will receive other pay hikes—longevity increases (called steps), promotions in grade, bonuses, overtime and other cash payments":
Most federal employees are ranked at a general schedule (GS) grade from 1 to 15, and each grade has 10 steps within it. Step raises are largely automatic, based on longevity, but merit can hasten a step pay raise or even move a worker up multiple steps. Not every worker gets a step raise every year, but the raises average about 2% per year for workers as a group.51
Like Sandburg's "Fog," socialism came in on little cat feet.
In his 1938 "The Revolution Was," Garet Garrett, who had spent his life fighting federal encroachments, began, "There are those who still think they are holding the pass against a revolution that may be coming up the road. But they are gazing in the wrong direction. The revolution is behind them. It went by in the Night of Depression, singing songs to freedom."52
Garrett wrote of a revolution within the form. To the world, America seemed the same country. But within, he argued, an irreversible revolution had taken place. One need only glance at where we were before the New Deal, to where we are today, to where we are headed to see how far we are off the course set by the Founding Fathers.
Taxes drove the American Revolution, for we were a taxaphobic people who believed in severely limited government. That government governs best that governs least is an American axiom. When Coolidge left the White House in March 1929, the U.S. government was spending 3 percent of the gross national product.
And today? Obama's first budget consumed one-fourth of the gross domestic product. The deficit was 10 percent of GDP. Fiscal year 2010 produced a deficit of nearly equal magnitude. Obama sought to repeal the Bush tax cuts on the top two percent of earners and raise the top rate to nearly 40 percent. This does not include state and local income taxes which, in California and New York, can take another 10 or 12 percent. Nor does it include payroll taxes for Social Security and Medicare, which add up to 15.3 percent on most wages and salaries, half of it coming out of workers' pay. The Tax Foundation estimates that New Yorkers could face a combined income tax rate of 60 percent. Added to this are sales taxes that can run to 8 percent, property taxes, gasoline taxes, excise taxes, and "sin taxes" on booze, beer, cigarettes, and, soon, hamburgers, hot dogs, and soft drinks.
"Tax Refugees Staging Escape From New York," ran the headline on a New York Post story that revealed that 1.5 million people had left New York State between 2000 and 2008, "the biggest out-of-state migration in the country." Those departing Manhattan earned, on average, over $93,000 a year while those arriving earned less than $73,000.53
A 2011 Marist poll found that 36 percent of all New Yorkers under thirty planned to leave the city within five years. Two-thirds gave high taxes as a principal reason.54
In the Declaration of Independence, Jefferson indicted George III as a tyrant for having "erected a multitude of New Offices, and sent hither Swarms of Officers to harass our people and eat out their substance." What did King George do with his Stamp Act or tea tax to compare with what America's rulers are doing to Americans today?
After receiving the IRS figures for 2007, the Tax Foundation did an analysis of who pays the U.S. income tax—and who does not.55
Share of Income Tax Paid
Top 1 percent
Top 10 percent
Top 25 percent
Top 50 percent
Bottom 50 Percent
The hardest-working and most productive Americans are being bled, and Obama plans to increase the number of free riders. In 2007, not only did one-third of all wage earners carry none of the federal income tax load, 25 million got an Earned Income Tax Credit from the Treasury. Half the states are now sending out checks to people who pay no income taxes.56
How large is the EITC program? Writes Edwin Rubenstein, an economic analyst formerly with Forbes and National Review:
Since the Earned Income Tax Credit (EITC) became part of the income tax code in 1975, it has quietly become the largest cash transfer program in the United States.… EITC spending dwarfs that of the traditional welfare program … and food stamps combined.…
From 1985 to 2006, EITC payments grew from $2.1 billion to $44.4 billion, or by an eye-popping 2,014 percent.… [T]he number of returns claiming the EITC rose from 6.4 million to 23.0 million.57
Tax credits, paid in cash to people who pay no taxes, are welfare.
The EITC helps explain a startling discovery. According to the Tax Policy Center, 47 percent of all wage earners in the United States would "pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability."58 In May 2011, Congress's Joint Committee on Taxation revised that figure—upward. Fully 51 percent of all households in the United States in 2009 had paid no federal income taxes.59 More than half the nation was now free-riding on the taxes of the other half.
The free society has become the Entitlement Nation. Everyone is entitled to health care, housing assistance, food stamps, welfare, earned income tax credits, and a free education, from kindergarten through grade 12. And soon, college, with Obama's promise "to put a college education within reach of every American."60
The whole world is coming to feast at the banquet table.
More than a million immigrants, legal and illegal, arrive each year. They come with less education and fewer skills than U.S. citizens and consume three times as much in benefits as they pay in taxes. As most immigrants are people of color, they and their children quickly qualify for racial and ethnic preferences in hiring, promotions, and admissions.
And as America's richest states, California and New York, are buckling and breaking under this burden, so, too, must the United States.
FOOD STAMP NATION
"The lessons of history … show conclusively that continued dependence upon relief induces a spiritual and moral disintegration fundamentally destructive to the national fibre. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the human spirit."61
These words about Depression-era welfare are from President Roosevelt's 1935 State of the Union address. FDR feared that formerly self-reliant Americans might come to depend permanently upon government for the necessities of their daily lives. And, as with narcotics, such a dependency would destroy individuals'—and the nation's—fiber and spirit.
Seventy-five years later in 2010 came news that 41.8 million Americans were on food stamps and the White House was predicting that the number would grow to 43 million in 2011. It did: by February 2011, 44.2 million Americans, one in seven, were on food stamps. In Washington, D.C., more than a fifth of the population was receiving food stamps.62
To chart America's decline, the explosion in the food stamp program is a good place to begin. A harbinger of the Great Society, the Food Stamp Act was signed into law in 1964 by LBJ. Initially, $75 million was appropriated for 350,000 individuals in forty counties and three cities. Ironically, the Food Stamp Act became law half a decade after John Kenneth Galbraith in his best-seller of the same name had declared America to be the world's "affluent society."
However, no one was starving in the 1960s. There had been no starvation since Jamestown, with such exceptions as the Donner Party, who were caught in the Sierra Nevada mountains in the winter of 1846–47 and who took to eating their dead.
In May 1968, however, CBS ran "Hunger in America," narrated by Charles Kuralt, who held up an emaciated baby, dead of starvation. Senator George McGovern was jolted and began hearings. In The Manipulators: America in the Media Age, Robert Sobel would charge CBS with deceiving the nation and exploiting a baby that had died after being born prematurely. But the documentary had given real impetus to the Great Society program. When Nixon took office in 1969, three million Americans were receiving food stamps at a cost of $270 million a year. When he left in 1974, the program was feeding sixteen million people at a cost of $4 billion a year.
Fast forward to 2011. The cost to taxpayers of the U.S. food stamp program hit $77 billion, more than doubling in four years. First among the reasons is family disintegration. Forty-one percent of America's children are born out of wedlock. Among black Americans it is 71 percent. Food stamps feed children abandoned by their fathers. Taxpayers are taking up slack for millions of deadbeat dads.
Have food stamps made us healthier? Consider New York City: there, 1.7 million people, one in every five in the city, rely on food stamps for daily sustenance. Forty percent of the kids in the city's public schools from kindergarten through eighth grade are overweight or obese. Among the poor who depend on food stamps, the percentage of obese children is even higher. Mothers in poverty use food stamps to buy their kids sugar-heavy soda pop, candy, and junk food. When Mayor Michael Bloomberg proposed to the U.S. Department of Agriculture that recipients not be allowed to use food stamps to buy sugar-rich soft drinks, however, he ran into resistance.
"The world might be better … if people limited their purchases of sugared beverages," said George Hacker, of the Center for Science in the Public Interest. "However, there are a great many ethical reasons to consider why one would not stigmatize people on food stamps." In 2004, the Department of Agriculture denied a request by Minnesota that would have prevented the use of food stamps to buy junk food. To grant the request, said the department, would "perpetuate the myth" that food stamp users make poor shopping decisions.64 Is that a myth or the simple truth?
What a changed country we have become. A less affluent America survived a Depression and world war without anything like 99 weeks of unemployment insurance, welfare payments, earned income tax credits, food stamps, rent supplements, government day care, school lunches, and Medicaid.
In the past, public or private charity were thought to be necessary but were viewed as temporary fixes until the breadwinner could find work or the family could get back on its feet. The expectation was that almost everyone, with hard work and perseverance, could make his or her own way and support a family.
This expectation has changed radically. Today we have accepted the existence of a permanent underclass of scores of millions who cannot cope and must be carried by society—fed, clothed, housed, tutored, and medicated at taxpayer's expense their entire lives. We have a dependent nation the size of Spain in our independent America. We have a new division in our country, those who pay a double or triple fare, and those who ride forever free.
There has been a precipitous decline in the character of our people. We are not the people our parents were. We are not even the people we used to be. FDR was right about what would happen if we did not get off the narcotic of welfare. Our country has undergone a "spiritual and moral disintegration, fundamentally destructive to the national fiber."
In 2010, The Education Trust gave us a glimpse into how far our young have fallen. Because they are physically unfit, have a criminal record, or have failed to complete high school, 75 percent of America's young, ages seventeen to twenty-four, do not even qualify to take the exam to enter the army. Of recent high school graduates who do take the test, nearly one-fourth fail to get the minimum score needed to join a branch of the military, though the questions "are often basic such as, ‘If 2 plus x equals 4, what is the value of x?'"64
HOW GOVERNMENTS STEAL
In his The Economic Consequences of the Peace, written after the Paris conference of 1919 that produced the Treaty of Versailles, John Maynard Keynes wrote, "Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens." Keynes agreed:
Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.65
* * *
Thinking back on what a nickel could buy years ago, and what a dollar buys today, calls to mind the insight of Lenin and Keynes. In 1952, a Coke cost a nickel as did a candy bar. Movies cost 25 cents, as did a gallon of gas or a pack of cigarettes, though you could pick up a carton for two dollars. On the Internet, a Kentucky-based retailer recently offered smokers a bargain: "Cut your smoking costs by as much as 60 percent. On an annual basis the savings are enormous. Premium Brand Name cigarettes like Camel and Marlboro as low as $43.99 per carton."66
Even at a 60 percent discount, cigarettes cost twenty times what they did in the 1950s. Cokes and candy bars cost ten times as much, movies thirty or forty times. Today's four-dollar gallon of gas costs sixteen times as much. While the prices have soared and taxes help explain the cost of cigarettes and gas, what has happened is the debauching of the dollar, which has lost more than 90 percent of its purchasing power. In 1947, this writer's father, an accountant, became a senior partner in his firm and bought a new Cadillac—for $3,200. The same car today would cost over $50,000.
Who is guilty of this debauching of the dollar? Well, who has had custody of the currency since 1913?
Many have felt the lash of public anger for the financial crisis that wiped out trillions in wealth and dumped us into the deepest recession since the 1930s. The Bush Republicans and Barney Frank Democrats who prodded banks into making subprime mortgages to people who could not afford the houses they were buying. Fannie and Freddie. The Wall Street banks. The AIG geniuses. Yet, the Federal Reserve, though it controls the money, and every financial crisis is a monetary crisis, has escaped indictment.
"[T]he very people who devised the policies that produced the mess are now posing as the wise public servants who will show us the way out," writes Thomas E. Woods Jr., whose Meltdown traced the Fed's role in every financial crisis since the creature was spawned at a meeting on Jekyll Island, off the coast of Georgia.67
The "forgotten depression" of 1920–21 was brought on by the Fed's printing of money for Woodrow Wilson's war. When, at war's end, the Fed tightened its monetary policy, production fell 20 percent between mid-1920 and mid-1921. Why is that depression so little known? Because President Harding refused to intervene. He let businesses and banks fail and prices fall. The fever broke, and America, after slashing Wilson's wartime tax rates, took off into the Roaring Twenties.
Then, as Milton Friedman related in A Monetary History of the United States, which contributed to his Nobel Prize, the Fed began to expand the money supply in the mid-1920s. Cash poured into equity markets where stocks could be bought on 10 percent margin. The market soared. When the market stalled and stocks began to fall, margin calls went out. Americans ran to the banks to get their savings. Panic ensued. Banks closed by the thousands. Stock prices fell by almost 90 percent. A third of the money supply was wiped out. Thus did the Federal Reserve cause the Depression. Smoot and Hawley were framed.
Though myth attributes the Great Depression to the innate conservatism of President Herbert Hoover, the man was no economic conservative. He abandoned laissez-faire, raised taxes, launched public works, extended emergency loans to failing businesses, and lent money to states for relief programs. Hoover did what Obama did eight decades later.
During the 1932 campaign, Roosevelt accused Hoover of presiding over the "greatest spending administration in peacetime in all of history." FDR's running mate, "Cactus Jack" Garner, claimed Hoover was "leading the country down the path to socialism."68 On taking office, however, FDR, terrified of falling prices, ordered crops destroyed, pigs slaughtered, and business cartels created to cut production and fix prices. Roosevelt mistook the consequences of depression, falling prices, for its cause. But prices were merely returning to where they belonged in a free market. The drop in prices was really the first step to a lasting cure.
Of the Depression, Paul Krugman wrote: "What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy's needs."69
Krugman may have a Nobel Prize, writes Woods in Meltdown, but his analysis is a "stupefying and bizarre misunderstanding of what actually happened."70 Obviously, with 29 percent of the labor force conscripted into the armed forces, their jobs taken by older men, by women, and by teenagers, unemployment will fall. But how could the economy be growing 13 percent a year, as economists claim it did, when there was rationing, declining product quality, an inability to buy homes and cars, a longer work week—and shortages everywhere? How can the economy be booming when the cream of the labor force is in boot camp, on military bases, aboard ships, storming beaches, or flying planes over enemy territory?
Ironically, it was 1946, a year the economists predicted would bring on a postwar depression because federal spending fell by two-thirds, that proved to be the biggest boom year in U.S. history. Why? The real economy was producing what people really wanted: cars, TVs, and homes. Businesses were responding to consumer desires, not to a government run by dollar-a-year men who wanted tanks, guns, ships, and planes to blow things up.
Backing Woods up, author Robert Dell wrote in 2011:
Between 1945 and 1947, federal spending was cut from 41.9 percent of GDP to 14.7 percent. Yet the unemployment rate over that period stayed below 3.6 percent and real GDP grew by 9.6 percent. According to [economist David] Henderson, "The postwar bust that so many Keynesians expected to happen never did."71
Of the financial collapse that brought on the recession of 2008–2010, Woods writes, "The Fed was the greatest single contributor.… more dollars were created between 2000 and 2007 than in the rest of the republic's history."72 When the Fed tightened, that bubble burst. Many argue that were it not for the independence and vision of Fed Chairman Ben Bernanke, the economy might have gone into the abyss after the Lehman Brothers collapse. But who brought us to the edge of the abyss?
"In questions of power … let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution," wrote Jefferson.73 A century ago, we forgot Jefferson's warning when Congress and Wilson ceded to a Federal Reserve of anointed bankers the power to control the supply of America's money. That year, 1913, a twenty-dollar bill had the same value and purchasing power as a twenty-dollar gold piece. The twenty-dollar gold piece is today worth 75 twenty-dollar bills. The dollar has lost 98 to 99 percent of its purchasing power while in the custody of a Federal Reserve whose sworn duty it is to protect the purchasing power of the dollar.
For four generations, Americans have been subtly and systematically robbed of their savings by a Federal Reserve that has steadily inflated the money supply to accommodate politicians who wished to wage wars and win applause by an endless expansion of government that now consumes a fourth of the economy and taxes and regulates people in ways George III never dreamed of. "The first panacea for a mismanaged nation is inflation of the currency; the second is war," said Ernest Hemingway. "Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists."74
In late 2009, Bernanke, frustrated by fourteen months of unemployment above 9.5 percent, terrified of deflation, even though gold and commodity prices were hitting record highs, signaled that the Fed would start printing money, because inflation was "too low."75
A DEADLOCK OF DEMOCRACY
We were blindsided. We never saw it coming.
So said Goldman Sachs's Lloyd Blankfein of the financial crisis of 2008, likening the probability of such a collapse to the probability of four hurricanes hitting the East Coast in a single season. Blankfein was reminded by the chairman of the Financial Crisis Inquiry Committee that hurricanes are "acts of God." But Blankfein was supported by Jamie Dimon, of JPMorgan Chase: "Somehow, we just missed … that home prices don't go up forever."76
The Wall Street titans conceded they did not foresee that the housing bubble might burst and that they never factored in the possibility of a collapse in value of the subprime mortgage securities they had piled up on their books. Backing Blankfein's plea of ignorance is this undeniable truth: the crisis that killed Lehman Brothers would have killed them all, had not the Treasury and Federal Reserve given America's "too big to fail" financial institutions cash transfusions of hundreds of billions in bailout money.
Yet, before the crisis, there were Americans who warned that a housing bubble was being created. Some predicted that what William Bonner called the Empire of Debt was coming down. Today we are hearing new warnings—that the United States, with deficits running at 10 percent of GDP, is risking a run on the dollar or default on the national debt. Among those cautioning us to beware the consequences of huge deficits are Rudolph Penner, former head of the Congressional Budget Office, and David Walker, former comptroller general.
With the public debt—that share of the national debt held by citizens, corporations, pension funds, sovereign wealth funds, and governments—having risen by 2009 from 41 to 53 percent of GDP, Penner and Walker believe that it is imperative that we get the deficit under control. And to convince the world America is not Greece writ large, America must soon produce a credible plan for closing that deficit. There are three ways to do it. The first is through rapid economic growth that increases tax revenue and reduces outlays for safety-net programs such as unemployment insurance. But growth comes slowly and can take us only so far. To close a deficit of 10 percent of GDP, major cuts in federal spending and tax hikes seem unavoidable.
Now, consider the politics. The five largest items in the federal budget are Social Security, Medicare, Medicaid, defense spending, and interest on the debt. But with trillion-dollar deficits projected through the Obama years, even if he serves two terms, interest on the debt, which must be paid, must go up.
And with seniors angry over Medicare cuts to finance health coverage for the uninsured, it would seem suicidal for the Democrats to cut Medicare again. The same holds for Medicaid. Are Democrats, defeated in the congressional election of 2010, going to cut health benefits for the people who stood loyally by their party in defeat? Are Democrats going to grab the third rail of American politics and cut Social Security?
Any significant cuts in major entitlement programs by House Republicans would require the acquiescence of Harry Reid's Democrat-controlled Senate and Barack Obama's White House. And how likely is that?
As for defense, Obama has himself deepened America's involvement in Afghanistan, doubling troop presence to 100,000. The Pentagon has to replace weaponry and machines destroyed or depreciated in a decade of war. And any major defense cuts would meet with ferocious Republican resistance.
Where, then, are the big budget cuts to come from?
Will Congress or the White House slash spending for homeland security, the FBI, or CIA, after the near disaster over Detroit on Christmas Day 2009, and the failed bombing of Times Square? Will Democrats and Republicans come together to cut veterans' benefits, spending for our crumbling infrastructure of roads and bridges, or for education, when Obama is promising every child a chance at a college degree?
Will Reid's Senate approve of cuts in food stamps, unemployment insurance, or the Earned Income Tax Credit when joblessness is still near nine percent? Will a Senate that increased the budget of each department by an average of 10 percent for 2010 agree to take a knife to federal agencies or salaries when federal bureaucrats and the beneficiaries of federal programs are the most loyal and reliable voting blocs in the Democratic coalition?
Not only has Obama promised not to raise taxes on the middle class, any broad-based tax increase would be poison for him and his party and never be approved by a Republican House. Obama is caught in a dilemma from which there appears to be no escape. Democrats are the Party of Government. They feed it and it feeds them. The larger government becomes, the more agencies established, the more bureaucrats hired, the more citizens receiving benefits or checks, the more deeply entrenched is the Party of Government.
For eighty years, this has been the Democratic formula for success. "Tax and tax, spend and spend, elect and elect" was the pithy depiction of that policy attributed to FDR aide Harry Hopkins. And herein lies Obama's dilemma. How does the leader of the Party of Government preside over an era of austerity, in which federal employees and federal benefits are radically reduced, to avert a default on the national debt? How can the leader of the Party of Government shrink the government?
Republicans, too, have drawn a line from which they cannot retreat. They will not vote to raise taxes. Not only would that violate a commitment almost all Republicans have made to the people who elected them, it would seem suicidal. Republicans who sign on to tax hikes cannot go home again. For allied to the party today are Tea Party irregulars who shoot deserters in Washington's tax battles and budget wars.
Republicans are not going to cross these people, for they have before them examples of what happens to those who do. Senator Arlen Specter of Pennsylvania voted for the Obama stimulus and faced an instant primary challenge from former Representative Pat Toomey. Toomey took a twenty-point lead, forcing Specter to switch parties to keep his candidacy alive. Specter is gone and Toomey now serves in the Senate. Tea Party people are not schooled in the Gerald Ford politics of compromise and consensus.
Former Senator Alan Simpson, co-chairman of President Obama's National Commission on Fiscal Responsibility, has challenged the patriotism of fellow Republicans who plant their feet in concrete on tax increases:
There isn't a single sitting member of Congress—not one—that doesn't know exactly where we're headed.… And to use the politics of fear and division and hate on each other—we're at a point right now where it doesn't make a damn [bit of difference] whether you're a Democrat or a Republican, if you've forgotten you're an American.77
Republicans did go along with Bush's spending for trillion-dollar tax cuts and trillion-dollar wars, and for prescription drug benefits for seniors and No Child Left Behind. But Simpson was wrong in implying that "fear and hate" are behind conservative opposition to tax increases.
History and principle are the drivers of conservative opposition to raising taxes. Ronald Reagan, who consented to tax increases in the 1982 Tax Equity and Fiscal Responsibility Act, told this writer he had been lied to by Congress. Promised three dollars in spending cuts for each dollar in tax increases, he got the opposite. George H. W. Bush won in 1988 by telling the nation, "Read my lips! No new taxes!" His breach of faith on that pledge left his loyal followers disheartened and deceived and cost him the presidency in 1992.
Conservatives are resisting tax hikes because they believe government has grown too immense for the good of the nation. If that means putting the beast on a starvation diet—no new tax revenue—so be it. Indeed, many prefer to run the risk of a debt default rather than transfer more wealth from the people and the private institutions that produce that wealth to a ravenous government that cannot control its appetite.
Where does that leave President Obama—and us?
If tax cuts are off the table, defense and war costs are rising, and cuts in Social Security, Medicare, Medicaid, and other entitlement programs are political poison, how do we reduce a deficit of $1.5 trillion? How do we stop the public debt from surging to 100 percent of GDP and beyond? America is facing not just a gridlock in government, but a deadlock of democracy, a crisis of the system and of the state itself.
On November 2, 2010, for the third time in four years, Americans voted to be rid of a ruling regime. The nation is taking on the aspect of the French Fourth Republic, which shifted from one party and premier to another until the call went out from an exasperated nation to General Charles de Gaulle to come and take charge of affairs. Now both parties have lost the mandate of heaven. America is in uncharted waters. The country is up for grabs.
Ours is the world's oldest constitutional republic, the model for all that followed. But if our elected leaders are incapable of imposing the sacrifices needed to pull the nation back from devaluation or default, is democracy really the future of mankind? Or is the model for the future the state capitalism of a China that weathered the storm better, spent its stimulus money more wisely, and has returned to double-digit annual growth?
How do we get off this highway to default?
America's fiscal crisis is a test of whether democracy is sustainable. John Adams, like other Founding Fathers, did not think a democracy could be long-lived. "Remember, that democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide."78
WHAT HAPPENED TO US?
How did the republic that came through a Depression to win World War II, rebuild Europe and Japan, put a man on the moon, lead the world into an age of prosperity, and triumph over the Soviet Empire after a half century of Cold War come to this?
Where did we make the wrong turn? How did we lose our way?
How, in a generation, did we reach a point where a majority of our people believe America is headed in the wrong direction, that our children will not know the good life their parents had, that the American Dream may never become reality for scores of millions of our countrymen?
The answer: the failure of our system is rooted in a societal failure.
We are not ruled by the same ideas nor do we possess the same moral character as our parents did. Today, freedom takes a back seat to equality. "One nation, under God, indivisible" has become an antique concept in an age that celebrates diversity and multiculturalism. Our intellectual and cultural elites reject the God our parents believed in and the moral code they lived by.
Our fathers warned that, should this happen, the republic would fall. "Virtue, morality, and religion," said Patrick Henry, "this is the armor, my friend, and this alone that renders us invincible.… If we lose these, we are conquered, fallen indeed."79
"'Tis substantially true," said Washington, "that virtue or morality is a necessary spring of popular government." And the source of virtue and morality, Washington believed, was religion:
Let us with caution indulge the supposition that morality can be maintained without religion.… Of all the dispositions and habits which lead to political prosperity, Religion and Morality are indispensable supports. In vain would that man claim the tribute of patriotism, who should labor to subvert these great pillars of human happiness, these firmest props of the duties of man and citizens.80
Tocqueville found that Americans, half a century later, still shared Washington's conviction that religion was the pillar of the republic.
I do not know whether all Americans have a sincere faith in their religion—for who can search the human heart?—but I am certain that they hold it to be indispensable for the maintenance of republican institutions. This opinion is not peculiar to a class of citizens or a party, but it belongs to the whole nation and every rank of society.81
"[O]ur ancestors," said Daniel Webster in his famous Plymouth Rock speech of 1820, "established their system of government on morality and religious sentiment. Moral habits, they believed, cannot safely be on any other foundation than religious principle, nor any government be secure which is not supported by moral habits."82
Religion is the foundation of morality and only a moral people can sustain a free republic, these men were asserting. Without religion, morality withers and dies, the community disintegrates, the nation falls. Our fathers' insight goes far toward explaining the current crisis of the republic, for America has ceased to be the Christian country they and we grew up in.
Copyright © 2011 by Patrick J. Buchanan