The Day the Debt Comes Due


Monday March 28th, 2011   •   Posted by Emily Skarbek at 7:14am PDT   •  

“My fellow Americans, I come to you today with a heavy heart. We have a crisis on our hands. It is one of our own making. And it is one that leaves us with no good choices.

For many years, our nation’s government has lived beyond its means...We have not faced the hard reality of budget arithmetic.

The seeds of this crisis were planted long ago, by previous generations. Our parents and grandparents had noble aims. They saw poverty among the elderly and created Social Security. They saw sickness and created Medicare and Medicaid. They saw Americans struggle to afford health insurance and embraced health care reform with subsidies for middle-class families.”

This is an excerpt from today’s New York Times article by Greg Mankiw, coming to you from the year 2026, as a Presidential address to a nation that failed to confront the debt while there was still a chance.

Americans refused to cut entitlement spending, the baby-boomers retired, and instead of paying the cost of these programs, politicians found it convenient to push the problems into the future. Until now.

“This morning, the Treasury Department released a detailed report about the nature of the problem. To put it most simply, the bond market no longer trusts us.”

Mankiw goes on to paint a picture by which the IMF (newly located in Beijing) will make structured loans to the United States based on the following conditions:

  • Dramatic cuts in Social Security, especially for the high-income bracket
  • Limits to Medicare and Medicaid
  • Cut health insurance subsidies to middle class
  • Eliminate inessential government functions, like agricultural subsidies
  • Raise taxes on everyone except the poorest Americans
  • Raise the gas tax

The article does a nice job of painting a picture important for Americans to think about. Avoiding regret in the future is a powerful prompt to taking costly action in the present. However, two primary issues seem to be missing from the 2026 picture: the dangerous and costly military aggressions in which the U.S. continues to be active and the economic growth possible if dramatic cuts to the budget and to the debt are adopted sooner rather than later.

The budget proposal MyGovCost has put forth includes measures that address these problems:

  • Raising the Social Security eligibility age to 70
  • Raising the Medicare and Medicaid eligibility age
  • Repealing Obamacare
  • Eliminating inessential government programs, not limited to just agricultural subsidies but including subsidies to the arts, higher education, science, public broadcasting, postal service, etc
  • Ending the disastrous, dangerous and costly military actions of the US government in Afghanistan, Iraq, (and now the military operations in Libya) as well as the closure of over 150 military bases abroad.

In calling for these changes now, the future of 2026 could look much better than the picture Mankiw paints. Of course many of these changes would require sacrifice, change and adjustment. None of these policies would ensure that the economy experiences an immediate explosion of economic growth.

Nevertheless, implementing these policies now would mean that the children of today’s college graduates would enter a world where the economy was growing stronger than it otherwise would. Their opportunities for employment would not depend primarily on the government. They would not have huge portions of their income taken away to pay for the bureaucratic administration of kidney transplants and hip replacements. In fact, they might actually live in a world where markets are allowed to tackle these problems and go on to work for the Market for Organ Donors Organization (MODO), a non-profit that facilitates market pricing of organ transplants or administers the AIDS vaccine to their children.

Of course these are conjectures about an uncertain and unknowable future. But they are conjectures based on the basic truth that the engine which produces progress and advances well-being is the market process, not government administration. This underlying market process is weighed down by government spending, debt, and increases in the scope of the state and government administration has costs. Much of these costs are unseen because they are forgone opportunities. But just because they are unseen does not make them less real. Future prosperity is contingent on today’s policy choices.




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