04.30.2010 0

ALG in the News: Kicking The Can Right Off The Cliff

  • On: 05/25/2010 23:29:50
  • In: Economy
  • ALG Editor’s Note: In the following featured op-ed by ALG Chairman Howard Rich in Investor’s Business Daily, prioritizing political party electoral advantage before paying the bills is bringing Western civilization to its knees:

    Kicking The Can Right Off The Cliff

    By Howard Rich

    The desire of politicians to obtain instant electoral gratification at the expense of long-term financial security has reached epidemic proportions.

    In fact, this “party now, pay later preference” has pushed the global economy to the brink of what could be a broader, deeper and more sustained fiscal collapse than anything we have witnessed in recent years — perhaps ever.

    Already a debilitating problem for dozens of democracies, this mentality has grown exponentially worse over the past three years, with trillions of borrowed dollars being pumped by the world’s richest democracies into new entitlements, “quantitative easing” and select private-sector bailouts.

    Yet as many rightly decry the anti-democratic, anti-free-market bent of government’s unprecedented interventionism, the truth is that this preference has its roots in our current conception of democracy — where politicians aim to stay in power by delaying the inevitable.

    In addition to their ingrained eagerness to please voters in the shortest of “short term” scenarios, nearly every politician is also upwardly mobile — aspiring to higher elected office, a more influential committee assignment or a lofty leadership position. As they say, “Every representative looks in the mirror and sees a senator, while every senator looks in the mirror and sees a president.”

    This upward mobility is achieved by dispensing as much taxpayer largesse as is humanly possible now, no matter what the impact on the nation’s future financial security. Not surprisingly, this concept forms the basis of the recent health care takeover championed by President Obama — as well as the “stimulus” bill, the Fannie and Freddie bailouts, student loan guarantees, agriculture subsidies, housing handouts, food stamps, welfare expansion, the minimum wage increase, etc.

    Not only have these reckless credit extensions failed to turn the economy around — they have added explosive power to a ticking time bomb of soaring debts and skyrocketing unfunded liabilities. When will this time bomb explode?

    Obviously, it is not just our American democracy that’s afflicted with this “party now, pay later preference.” The refusal of politicians around the world to deal with steadily worsening financial realities has become a global epidemic. Already drowning under the weight of subsidies they cannot afford, in the name of “economic stimulus” these governments have created newer and larger subsidies — all while simultaneously draining a depleted private sector of its capacity to shoulder such costs.

    Soaring debts, new entitlements, higher taxes and an aging population — no matter how you compute this math, the outcome of the equation won’t be pretty. And yet amazingly, putting this failed approach on steroids is being touted by the world’s political leaders as an integral part of the “road to recovery.”

    In truth, it’s more of the same denial of reality. In fact, America and other free nations around the world are well past the point of “kicking the can down the road” — they’ve kicked it completely off the cliff, and are now saddling future generations of taxpayers with obligations that may prove insurmountable no matter how high tax rates eventually climb.

    According to a January 2009 paper from the National Center for Policy Analysis, the average European Union nation needs to place more than four times its current gross domestic product in the bank (earning interest) just to fund current obligations. In fact, the NCPA report found that by 2020, the average EU nation will have to raise its tax rate from 40% to 55% of the national income just to cover existing benefits.

    In Japan — which has the world’s highest percentage of debt to GDP — fiscal policy is “out of control,” according to Harvard economist Kenneth Rogoff, who predicted the 2008 U.S. bank failures. According to the latest estimates from the International Monetary Fund, total Japanese borrowings will soar to 204.3% of the nation’s economic output in 2011.

    Meanwhile in America, total public debt will exceed GDP for the first time since the World War II era, part of a massive borrowing spree that has seen the nation more than double its debt over the last six years. “The U.S. is in a state of paralysis in its fiscal policy,” Rogoff said last month. “When they start tightening monetary policy even a little bit, it’s going to send shock waves through the system.”

    In addition to this brewing global and national crisis, U.S. states and municipalities are facing similar ticking time bombs. A March 2010 Northwestern University report discovered that the total unfunded liability of state government pension funds was $3.2 trillion — or more than $2.2 trillion higher than government officials estimated.

    So why haven’t democratic politicians awakened to these realities? And why has no corrective action been taken? Simply put, the current configuration of the democratic political system doesn’t allow for it.

    Thanks to the “party now, pay later preference,” no real solutions are ever offered to these fundamental problems. All we see is more spending in the short term and larger deferred liabilities down the road.

    And in America, even though both political parties have won legislative majorities based on their promises to clamp down on the other party’s fiscal recklessness, the only thing that ever seems to change is whose paws are on an increasingly uncontrollable spigot. Only “divided” government, curiously, seems to slow things down — and that only slightly.

    Reversing this progression — assuming it’s even possible — is clearly a process that will take decades, not years. But assuming we will somehow be able to navigate our way through the current (and coming) global financial crises without first fundamentally rethinking the very nature of democracy at home and abroad is the sort of wishful thinking that landed us in this mess to begin with.

    Howard Rich is chairman of Americans for Limited Government.

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