Friday, January 25, 2013
Our Nation’s Crushing Debt as a Moral Hazard
For most of us as Catholics, we probably associate “stewardship” with that time of the year when the priest or parish council ask us to commit to making contributions to the parish for the coming year.
Stewardship is not only about giving money away, but about making wise use of the resources to which we are entrusted. And an essential part of that stewardship is to preserve resources for use by the next generation. As a nation, we are failing that responsibility — and failing miserably.
Each person in America today — every man, woman, and child — owes more than $30,000 in national debt. And it will only get worse, rising above $100,000 per person over the next two decades.
If nothing is changed — indeed if there is not dramatic change — the next generation will drown beneath a sea of the debt.
Simply put, America faces no greater danger today than the crushing national debt. No greater threat to a secure safety net for all Americans exists than the uncontrolled growth in entitlements, which eventually will crowd out all other discretionary spending and, in any event, is itself unsustainable. No greater obstacle to prosperity for the next generation of Americans is before us than leaving them with the bill for out-of-control federal spending.
But you wouldn’t know it from hearing President Obama’s inaugural speech this week. He could barely spare a word for the deficit, other than to argue against any meaningful spending cuts and apparently pledging his vociferous opposition to any reform of Social Security, Medicare, and Medicaid.
And you wouldn’t know it from President Obama’s concerted actions since the election, as he has steered away from the balanced approach that he promised during the campaign. Yes, President Obama campaigned for higher taxes on higher-income individuals. But he promised to combine tax increases with spending reductions. When the fiscal cliff approached, however, President Obama demanded only tax increases while refusing to agree to any limits on spending.
Immediately following the election, I was optimistic that President Obama would seize this opportunity to move toward meaningful reform of entitlements and to arrest runaway deficits. As I wrote here on Mirror of Justice, I thought that he would want to be remembered as a President who got the nation’s fiscal house in order, rather than the President who bankrupted the country. The President appears determined to prove me wrong.
Commenting on the inaugural address, Peter Wehner at Commentary writes:
He is fully at peace with running trillion dollar deficits as far as the eye can see. He not only won’t lift a finger to avoid America’s coming debt crisis; he will lacerate those who do.
In the end, though, President Obama’s concern for the less fortunate is at war with his insouciance about trillion dollar deficits:
* The greatest opportunity for those of lower-income and the strongest hope for a secure safety net is a growing national economy. The huge national debt is a constant downward pressure on the economy, suppressing growth below what it otherwise would be and leaving more Americans unemployed (and underemployed) and incomes stagnant. A weaker economy also means greater demands on social services with fewer resources available to meet those demands.
* This year, the United States is projected to spend $224 billion of taxpayer money for interest on the national debt. With President Obama’s deficit spending, the interest due will more than double to $524 billion in a decade. That’s more money than the federal government spends on education, transportation, veterans affairs, etc. And that’s money not available to help anyone or strengthen any social welfare program. Think of what we could accomplish today if we could use that money, instead of transferring it to China and other holders of American debt beyond our shores.
* The Obama trillion-dollar deficits are simply not sustainable. Unless entitlements are reformed, and President Obama has signaled retreat from his earlier acknowledgment that such reform is essential, we will reach a point in which the government has no money left to spend on any programs other than Social Security, Medicare, and Medicaid. The current projection is that we’re only about twenty years away from a situation where all federal revenues are consumed by these three programs, as they are further extended by Obamacare.
* When the day of reckoning arrives on the national debt, the poor will be in the most vulnerable position. When the desperate scramble comes over the shrinking revenues available for anything other than entitlements and interest on the national deficit, the poor and disabled and otherwise disadvantaged are likely to end up on the short end.
President Obama hopes to be remembered for enhancing social justice and equality. I have no doubt that he is sincere in that hope. But unless he faces fiscal reality and becomes an energetic advocate for entitlement reform and deficit reduction, he instead will be remembered for his out-of-control spending and doubling the national debt during his time in office. This period in American history will be held up as an object lesson for reckless spending and economic delusion, likely followed by an era of severe economic and fiscal retrenchment that maydepress the American dream for a generation.There is still time for President Obama to show leadership and secure his social justice vision by meaningful entitlement reform and reduction of deficit spending. Based on the President’s words and actions since election day, I am no longer sanguine about the prospects.
I see the inability of America's poor to gain access to adequate health care, food, shelter and education as a far greater moral hazard to us all than future debt. While I agree that future debt is a problem that must be resolved, it would not be acceptable to me to resolve it in whole or in part on the backs of the poor, which is what will happen if so-called "entitlement reform" is implemented.
Posted by: Ellen Wertheimer | Jan 26, 2013 9:08:11 AM
Entitlement reform is inevitable, because the current trends are simply unsustainable. The moral hazard question is whether we accomplish it now through careful deliberation and protection of the vulnerable or wait until it is forced on us by fiscal realities, economic retrenchment, and refusal of creditors to loan further money to a bankrupt federal government. If we continue the delusion that trillion-dollar deficits are inconsequential, entitlement reform could occur in crisis mode, as the system collapses. At that point, all bets are off, as a chaotic battle ensues over the scraps left on the table. We do no favor to the disadvantaged to fail in this effort, while simultaneously saddling the next generation with a debt burden unlike anything ever experienced in the history of the nation.
Moreover, do not buy in to the assumption that entitlements primarily benefit the poor or that entitlement reform would worsen the position of the poor. Entitlement spending beyond the amounts paid in to the fictional "trust fund," such as Social Security and Medicare, involve a substantial transfer of wealth from young workers -- who are more likely to be poor, who have yet to build a nest egg of a paid-for house and savings, and who are taxed by regressive payroll tax regardless of income -- to the elderly -- who as a demographic group are the wealthiest in our society. Because these entitlements contain little means-testing, provide far more generous benefits than are attributable to contributions paid in, are constantly increased by cost-of-living adjustments that are not tied to actual inflationary effects on the products and services consumed by retired persons, etc., the benefits of these entitlement programs disproportionately flow to the higher income levels -- and certainly not to those on the lower end.
Posted by: Greg Sisk | Jan 26, 2013 11:18:33 AM
Ellen, there will be none of the things you (or I for that matter) desire unless the fiscal realities are faced and acted upon.
One could argue that health care could easily be paid for if our government wasn't busy spending money on everything under the sun. I will posit that public education gets worse the more the federal gov gets involved and I would prefer they step aside.
Our career politicians spend our hard earned tax dollars keeping people fat & happy (bread & circuses!) rather than on essentials such as infrastructure and protecting our borders (and I don't mean foolish wars overseas...I mean our borders, just as the constitution explains).
In the end I have little hope any of these fiscal issues will be addressed because there are no serious adults in Washington.
Posted by: John | Jan 26, 2013 3:01:10 PM
What is the point of this post? Who exactly is going to be convinced by a mashup of Heritage and Commentary talking points? Are there any different views of the fiscal/budgetary decisions Sisk describes? (Keynes, anyone?) Sisk doesn't say.
Is it possible that Obama is merely one political actor, in a complex and interdependent web of political actors (inside and outside of government), with a seriously constrained ability to make fiscal/budgetary decisions? Obviously, that's so, yet Sisk's post don't bother to mention it. Effectively, Sisk's point seems to be that if we don't consider or analyze the political or economic context that Obama is operating in, then Obama is clearly wrong.
Posted by: WmBrennan | Jan 26, 2013 3:20:56 PM
Ummm, how do we derive the trend line in your first chart given the second chart? The UK and the EU also hit the panic button over debt - how has that worked out?
I will agree that the payroll tax is regressive but breaking the inter-generational compact is hardly a good solution (perhaps if we raised the cap?).In an environment where younger workers face a future with multiple jobs as a given and no pensions, we need a stronger social safety net.
Unemployment is still too high, taxes are still too low, folks are willing to loan us $ long term for bupkis and we have an infrastructure in serious need of repair and upgrading. The last thing we need is to imitate the UK.
(Seriously, look at the two charts and understand why Heritage is not to be taken seriously.)
Posted by: al | Jan 26, 2013 4:46:45 PM
The problem for me is that when government officials or aspirants to status in the government speak of "entitlement reform," they inevitably mean cutting benefits to the poorest and least self-sufficient among us, including (but not limited to) disabled persons who are entitled to SSI. I have yet to see any plan for reducing national debt that does not include such cuts--in other words, that avoids making housing, food, and medical care even more unavailable than they already are to those who (not coincidentally) have no political clout. The wealthy can afford to pay higher taxes, but making any tax increase contingent upon including a plan to make the poor even poorer (as many demand) seems utterly repellent to me.
Posted by: Ellen Wertheimer | Jan 27, 2013 11:51:01 AM
Ellen, though you are correct that the wealthy can afford to pay higher taxes, it is not the case those who the wealthy employ and with whom they engage in commerce can afford for the wealthy to pay higher taxes.
Yes, Thurston Howell III can afford to pay more taxes and thus curtail the number of private jet flights he takes every year from 10 to 8. But his pilot loses 20% of income and the mechanics come less often. Are they better off? But they are never included in the rhetorical gamesmanship of class envy that should never be employed in the same sentence with "Catholic Social Thought," unless it's mentioned in contrast.
On a philosophical note, the fact that X has more than Y and that Y would be better off if he had some of X's liquid assets, can't be the only grounds of justifying that transfer of wealth. For if it were, then theft would not be prima facie wrong if it accomplished the same end.
Posted by: Thomas Aquinas | Jan 27, 2013 1:44:04 PM
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