by John Hawkins | June 1, 2010 12:10 am
“The trouble with socialism is that eventually you run out of other people’s money.” — Margaret Thatcher
Guess what, folks? “Eventually” is here for Greece and it may soon be for Ireland, Portugal, Spain, and Italy as well. So, when does “eventually” come for us? Last week, congressman Mike Pence told me that unless something changes, “eventually” may only be a decade away,
I don’t think there’s any question that unless we produce national leadership that is willing to confront our mounting fiscal crisis head-on, that America will be Greece within 10 to 15 years.
Does that sound like grim news? Well, it may be optimistic. Last week in a teleconference, Senator Tom Coburn told us he thinks it may only take four years for us to end up in the same situation as Greece.
If the United States can’t finance its debt, the government would be unable to pay its bills; we could see runaway inflation, a worldwide economic crisis, a new “Great Depression” — and unlike Greece, there is no nation or collection of nations big enough to bail us out.
Compounding the problem is the fact that while both political parties have helped get us into this situation, the Democratic Party is run by people every bit as blind to reality as the Greeks who are protesting attempts by their government to control spending. Their country is broke and living on the charity of other nations and their response is to throw Molotov cocktails and riot. Expect to see the same attitude from Nancy Pelosi, Barney Frank, Barack Obama, the SEIU, MoveOn, the Daily Kos, and the rest of the gang that’s driving this country’s future off a cliff right now.
Back in the real world, we need to start taking serious, painful, and potentially politically unpopular steps right now if we want to prevent an economic disaster that would make our economic woes today look like a vacation at the Grand Canyon. What do we need to do?
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Freeze all discretionary spending indefinitely and then start paring it back: The first rule of holes is to stop digging. In our case, we need to simply freeze our discretionary spending for the foreseeable future. The baseline budget? It should be scrapped. Government salaries? They should be frozen until they reach a lower average wage than the private sector. Any government employees who don’t like that should take Chris Christie’s advice to a New Jersey teacher and quit if they don’t like the pay. There’s nothing more easily replaceable than a government worker. Any and all stimulus and TARP funds that haven’t been expended yet? They should never be spent. Spending on all departments, including education AND the military? Welcome to the North Pole, because it’s deep freeze time.
If the government wants to spend more in any one area, including extending unemployment benefits, they should actually have to take that money out of somewhere else in the budget. In other words, PAYGO should actually apply to new spending as opposed to being nothing more than political cover for politicians who want to pretend to care about the deficit. If we go even that far, it’ll quite naturally lead to something that’s often talked about, but seldom done: slashing fraud, waste, and non-functional programs out of the budget. Let’s kill Head Start. Let’s stop throwing away money on PBS, NPR, and the National Endowment for the Arts. Let’s stop forcing the Pentagon to spend $2.9 billion for aircraft engines it doesn’t want or need. There’s a lot to cut — so, let’s get started.
Reform Medicare and Social Security: Since about 2/3 of our budget is made up of “non-discretionary spending,” there simply is no way to get our spending under control without reducing costs in those areas. At a minimum, we obviously need to raise the eligibility age for both programs up to at least 70. That may seem like a big jump, but it’s worth noting that Greece just raised its retirement age 14 years from 53 to 67 — and it’s probably still not enough. Also regrettably, we probably need to raise the tax rate across the board for both programs. Given that both programs are in the red right now and are likely to only get deeper in the hole, we simply need to increase the amount of revenue being generated for both programs. Of course, we should also cut waste and fraud in both programs, move towards small investment accounts with Social Security money and Medicare vouchers that would allow recipients of the program to shop around and reduce costs. That being said, the problems besetting these programs are simply too big to fix by nibbling around the edges. One way or the other, we must make painful choices. Either we do it voluntarily or eventually, we’re going to run out of money to fund these programs and changes will then be forced upon us.
Finance a much higher percentage of the debt with long-term bonds: Given the increasing worldwide worries about the amount of debt the U.S. is running up and the problems Europe is having, we’re able to currently finance our debt at interest rates that are considerably lower than they will be in the coming years. Yet, we’re still financing a very large portion of our debt with short term Treasury securities sales. We desperately need to change over as much of our debt as possible to 10-year and 30-year Treasury securities. The downside is that we’ll have to pay out higher interest rates; so that will actually increase the deficit in the short term. However, by financing most of our debt over a much longer term, it will keep us from having to constantly turn over our short-term debt at what will likely turn out to be skyrocketing interest rates.
Repeal Obamacare: Oh, I know Barack Obama claims Obamacare will save us money — but if you believe that, you probably believe that Hillary Clinton actually came under sniper fire in Bosnia. Just since the bill has been passed the cost estimate has already climbed from 788 billion to over a trillion dollars and if Obamacare ever gets into the real world, as opposed to just being cost estimates done by an agency that admits it constantly underestimates the cost of entitlement programs, then the numbers are really going to explode.
Long story short, at the moment, we don’t even know how we’re going to pay for our Social Security and Medicare obligations. So, how in the world can we add another massive entitlement program? It’s sheer insanity, which is why Obamacare was, is, and remains so deservedly unpopular.
Grow the economy: We hear that the “rich don’t pay their fair share.” But how can that be when 47% of Americans don’t pay any income tax at all? You hear a lot of talk about Washington “creating jobs” and “improving the economy,” but the only way they can actually do that is by getting out of the private sector’s way instead of demonizing it.
Here’s the reality: to get out from under all the debt our politicians have run up, we desperately need to grow our economy. We need to give corporations and the rich an incentive to do business here. As John McCain noted during the campaign, we have the 2nd highest corporate tax rate in the world. We need to cut it. We also need to get rid of the capital gains tax and move towards a flat tax, fair tax, or national sales tax — any of which would likely lead to massive economic growth. Granted, that won’t be popular with the people who care more about taking revenge on the wealthy for being successful than growing the economy, but coincidentally, those seem to be the same people who’ll happily spend this country into oblivion if we let them.
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