August 31, 2009
About 50 years ago, Sen. Everett Dirksen (R-IL) uttered his famous quip, "A billion here, a billion there, and pretty soon you're talking about real money."
Today, we're talking about a trillion here, a trillion there—a thousand-fold increase in the scale of government spending, part of which is attributable to the shrunken purchasing power of the dollar due to inflation, and part to the unrelenting expansion of government.
"Trillion" is an easy word to say. It rolls effortlessly off the tongue. This is unfortunate, because the ease with which we talk about trillions of dollars can keep us from grasping how enormous this sum is. Let this sink in: If you had been spending a million dollars a day, 365 days per year, how far back in time would you have to go to have spent your first trillion? Since the founding of our republic in the 1780s? Farther. Since Columbus stumbled upon the New World? Farther still. Since the birth of Christ? Nope, not yet. Two thousand and nine years of spending a million dollars a day wouldn't even bring you three-quarters of the way to your first trillion.
Our country's GDP is in the range of $13-14 trillion. The private sector, from which all the financing for government must come, totals around $10 trillion. As the 2008 "Financial Report of the United States Government" informed us, the private sector was already on the hook for $65 trillion of government liabilities before Barack Obama became president. At a normal growth rate of three percent per year (far above our current growth rate), GDP would increase by around $400 billion this year, generating less than one percent of the wealth needed to pay for those government liabilities (to say nothing of the trillions of personal and corporate debt that Americans owe).
Tragically, at the very time that Uncle Sam needs to be put on a severe fiscal diet, Team Obama is embarking on a gluttonous government spending orgy. On top of $3 trillion of spending in this year's regular budget, Obama added $787 billion in his miscalled "stimulus" package. He wants over $600 billion more as a "down payment" on universal health care, which translates into more trillions in spending in ensuing years to actually achieve that goal. In addition, $3 trillion has already been allocated under the TARP plan—a down payment on what TARP inspector general Neil Barofsky says eventually may total $23.7 trillion to rescue our bankrupt financial system.
The simple fact is that our $10-trillion private sector cannot afford this spending splurge. Our economic future, both near-term and long-term, is being scuttled.
Near-term the biggest threat comes from taxes. The only way to increase consumption today (and whatever government taxes will quickly be consumed) is to devour more of the wealth that has already been produced, namely, consuming capital and transferring assets from those that have them to those who want them (i.e., a socialistic redistribution of wealth). Since capital is our economic seed grain, there will be less business formation, employment, and production in the coming months.
Incidentally, the more the economy shrinks under the burden of new taxes, the lower government tax revenues will fall, and the sooner Social Security and Medicare programs will have their day of reckoning; so, the intermediate-term looks bleak, too.
Let me explain in another way how tax increases will harm us: If a cap-and-trade tax is adopted by the Senate and does what its proponents want it to do (i.e., dramatically raise the price of energy), the current shrinking of the private sector will accelerate. Since virtually everything we consume requires energy to produce and transport, prices in general will rise. That means that most Americans (everyone except the rich) will be able to afford fewer purchases, resulting in less production and fewer jobs. (Speaking of fewer jobs, if Obama's healthcare reforms are passed and taxes are raised on businesses to help pay for them, that can't help but reduce employment, too.)
If taxes will damage the short-term, borrowing money to pay for all these new spending programs will maul the long-term. Massive borrowing would increase the tax burden on Americans far into the future. Many of those who will bear that burden aren't old enough to vote yet, or haven't even been born. That's taxation without representation if there ever was such a thing.
The third possible source of funds for these trillions and trillions of spending plans is to simply have the Fed create trillions of new dollars. Sooner or later, whether in the near term or long term, such a massive inflation of the supply of dollars would depreciate if not destroy the greenback.
In a hyperinflation scenario, savings would be vaporized, markets would be discombobulated, food shortages and economic chaos would ensue, and martial law might supplant our Constitution. We would be reduced to poor serfs under the supervision of some latter-day Caesar or committee of Caesars.
This is the grim future we are facing if government continues to spend trillions and trillions of dollars. We are on a collision course with fiscal disaster.
Dr. Mark W. Hendrickson is an adjunct faculty member, economist, and contributing scholar with The Center for Vision & Values at Grove City College.