Economics
The Compromise: The Tea Party Erects a Speed Bump
The battle over increasing the debt ceiling for the United States government ended today when Congress approved and the president signed a bill that would raise the current debt limit by 400 billion dollars. The House vote was 269-161 and Senate approved the measure 74-26. It was a hard fought battle that kept the nation and world on edge for days.
I’m greatly disappointed in the compromise–though pleased with some details–and have been thinking about a phrase that describes the ordeal we have just experienced:
You can’t see the forest for the trees.
Here are a few of the trees: The mainstream media is calling the debt ceiling compromise a huge victory for the Tea Party movement. They say that Barack Obama’s showed strong leadership, politics as usual was demonstrated by both parties, and that the “compromise” was a good thing in the end.
They are wrong.
These are just trees–not the bigger picture.
What’s really happened is that the Tea Party managed to erect a temporary speed bump in front of runaway government spending and begin to re-frame the debate. The “forest” of financial disaster still looms in front of us–dark and foreboding.
We must continue to fight to save our Republic.
Before we discuss the bigger war and battles that lie ahead, let’s look at the “speed bump” that was erected this week.
Here’s how the Family Research Council saw it:
“The framework…would raise the debt limit by at least $2.4 trillion and get Obama and congressional Democrats past their target date: Election Day 2012. In return for this generous political cover, Democrats would agree to a modest $1 trillion in supposed cuts spread out over 10 years; $350 billion of those “upfront” savings come from gutting national security resources.”
“A trillion dollars over 10 years is not sufficient to impress credit rating agencies, which have threatened to downgrade America’s credit status. In fact, Moody’s announced that: “Reductions of the magnitude now being proposed, if adopted, would likely lead Moody’s to adopt a negative outlook on the AAA rating.” The current plan does not improve upon either of those earlier plans.”
“In addition to the $1 trillion, the framework sets up a ‘special’ congressional committee that would seek $1.4 trillion in ‘deficit reduction’ by the end of 2011. Of course, for liberals, ‘deficit reduction’ is synonymous with ‘higher taxes.'”
“If the commission’s recommendations are not enacted, across-the-board spending cuts would be triggered, half of which (nearly $500 billion) would come from national security spending. Every honest observer knows the problem is entitlement spending, not the defense budget or a lack of revenue. Defense spending has been on the decline for decades, as a percentage of GDP. It is currently below its historical average of 5.2 percent of GDP. Meanwhile, entitlements (Social Security, Medicare, and Medicaid) grew from 2.5 percent of GDP in 1965 to over 10 percent today and represent 60 percent of the total federal budget.”
The Heritage Foundation saw the debt ceiling compromise in these terms:
“Unfortunately for taxpayers, most of these cuts are to what the country would have spent, not what we are spending. In other words, the government will keep growing, just at a slower rate. The Left will have the satisfaction of raising our credit limit for six months but spreading the pain of cuts over 10 years. Obviously, we have no way to estimate what inflation will be in 2021, but we can look back on the cost of living over the last 10 years and see that the value of the dollar diminished by about 24% since 2001. If the next decade is similar to the last, then $1 trillion in cuts today will be more like $800 million in cuts tomorrow. “
“To help hold Congress’s feet to the fire on deficit reduction, the deal does asks for a second wave of spending cuts this year. The only hitch is, those cuts would be determined by a select number of congressmen. It’s been dubbed the Super Committee, and judging by the description, there’s a lot to dislike. Twelve members (six from each chamber and six from each party) will have to find ways to slash the deficit by another $1.6 trillion before the end of the year. If they don’t, a surge of cuts to the defense and Medicare budgets would automatically go into effect.”
“On the bright side, the agreement does make a vote on the Balanced Budget Amendment a condition of the final deal. Any victories the GOP can claim in this debate are owed to hard-core conservatives like Reps. Jim Jordan (Ohio), Michele Bachmann (Minn.), Steve King (Iowa), and Louie Gohmert (Texas), who held firm in the face of enormous political pressure. Without their resolve, there would have been little to negotiate.”
So here’s what it all means–to get back to the “forest” analogy. I want to lay this out in stark terms so that you don’t miss the big picture:
Today, the United States government is 14.5 trillion dollars in debt. In less than two years we will be over 17 trillion dollars in debt–and gobbling up 25% of our Gross Domestic Product (GDP). Our historic average is 18%. We are currently running deficits of over 1.5 trillion dollars a year–for as far as the eye can see. We borrow forty- three cents of every dollar that we spend. Next year, the so-called “cuts” will be a measly 22 billion dollars.
That’s six days of federal spending.
A dirty little secret–the true “Satan Sandwich”of our current deficit binge–is that none of the “cuts” that are mentioned above are actual reductions in spending. Federal entitlement programs–currently 60% of the US Budget–increase 7-8% each year. All so-called “cuts” are really cuts in the growth rate of Big Government–nothing more.
Imagine your family bringing in $60,000 a year in income, but spending $100,000. You are $1,000,000 in debt and it’s begun to grow exponentially. To stop the bleeding, you decide to spend $107,000 next year instead of $108,000. And on and on.
If you did that in the real world, you would crash and burn.
Sound crazy?
Well, that’s the Federal Government “dealing with the problem.” There’s no real reckoning with reality–just a slight retarding of a nasty habit that will have devastating consequences in this nation and the world economy if we allow it to continue.
Yes, we do need to give the Tea Party legislators credit. Without 120 courageous members in the House of Representatives, the debt ceiling would have been raised with a yawn–and there would be no discussion of “cuts” of any type. During the first two years of the Obama administration, when the liberals controlled all branches of government, we spent four trillion dollars inflating our National-Debt-and-Government Monster.
Thanks to the Tea Party, a speed bump has been erected. It doesn’t stop the runaway car–it just slows it slightly. It’s a small victory in a big war, but unless we win the war, the United States is finished as a nation.
A black, ugly, destructive forest of financial disaster still looms in front of us. The liberal elements still control the White House and half of Congress. If we do not stop them, the United States as we know it will be added to the ash heap of history.
We will be Greece–times one thousand–and fade into obscurity.
As people of faith and courage, our marching orders remain clear.
1. We must decisively win back control of the United States Senate in the 2012 elections to stop the progressive spending insanity. We must increase our majority in the House of Representatives.
2. We must defeat Barack Obama in 2012 with a conservative candidate with spine and vision to make the hard choices to pare down entitlements.
3. We must pass a responsible balanced budget amendment and have it ratified by the states. Our leaders in Washington will never have the guts to do it.
4. We must change our current tax code from a job-squelching progressive income tax to a fair tax or a flat tax. This would make the United States the investment haven on the world.
5. Over time we need to pay-off our 14.5 trillion dollar debt.
To accomplish the above legislative goals, we need to change ourselves first. As individuals and families, we need to reject irresponsible debt and live within our means. We need give up our entitlement mentality and take more responsibility for our own lives.
The government does not owe us a certain standard of living. It owes us an “honest money–just society” that gives equal opportunity to all people and protects us from our enemies.
And to accomplish that, we need more of God in our hearts and practices.
This coming Saturday, August 6, “The Response” is taking place in Houston, Texas, and many cities around our nation. I encourage you to participate. It’s a national call, led by Texas Governor Rick Perry, for America to return to its God-fearing roots.
The Tea Party erected a speed bump–a warning.
But only a prayerful, repentant response to God can get us completely turned around and moving in the right direction as a nation.
It’s Not the ATMs, Mr. President!
I was tempted to use a different head-line on this one:
“It’s Not the ATMs, Stupid!”
That would be a take-off on Bill Clinton’s famous slogan against President George H.W. Bush during the 1988 presidential campaign when he remarked, “It’s the Economy, Stupid!” while trying to frame the most important issue of that presidential campaign cycle.
But I don’t want to be be disrespectful to the president of the United States. I don’t believe he’s stupid and I greatly respect the office.
Yet, he sure said a dumb thing on the NBC Today Show on on June 15, 2011 that will come back to haunt him during the 2012 presidential campaign.
It also revealed a lack of understanding of basic economics.
Here’s what he said…
In a Today show interview with Ann Curry, President Obama talked about one of the reasons he thought employment numbers have been slow to rebound–self-service automation–specifically kiosks and ATMs.
In the interview, he said, “There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM, you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate. All these things have created changes in the economy. “
According to the Washington Examiner’s Philip Klein, ATM Industry Association CEO Mike Lee sent him an email response that said, in part, that “President Obama should never use ATMs as an example of how technology replaces human labor because ATMs today play a critical role in providing extensive employment in the ATM and cash-in-transit industries.”
Economics 101: Innovation multiplies jobs–it doesn’t shrink them.
No, it’s not the ATMs, Mr. President!
It’s bad economic policies. In the past three years we have done all the wrong things to try and create jobs. Government intervention and growth doesn’t do it.
And it’s pretty scary that at the highest levels of our current government, they just don’t seem to understand how wealth is created, how jobs are made, and what economic drivers are essential for prosperity.
Now I will be the first to admit that economic theory in its various forms can be hard to understand. That’s why so many people call it an imperfect science.
But for the past twenty-five years, Shirley and I have home-schooled our kids on the tenets of modern free enterprise capitalism. Those basics include:
- It is individuals, and the businesses they start, that create wealth. Government doesn’t create wealth. It only distributes it according to its goals and desires.
- Tools are essential to increasing productivity. The more-and-better tools that man creates (including ATMs), the more wealth (capital) can be generated.
- Over the past five hundred years, the creation of the middle class–which has grown exponentially worldwide–has been due to the wonderful development in technology which has increased jobs– never taken away opportunities to get ahead.
Yes, it is true, whenever man innovates, or new technologies are created, then older jobs and trades go away. Certain jobs are lost when new technologies are introduced.
For example, there are millions of people in America today named “Smith.” They wear that surname because many of their ancestors were “back smiths” who worked with metals that were essential to an agricultural society. They made horseshoes, plows, and other metal objects that were vital for industry for hundreds of years.
But machines eventually took their place–did a better job of making metal objects–and all the “smiths” of the world had to move on to other professions.
Did the “Smith Family” suffer from these changes in technology? Maybe for a time. But I can guarantee that there are more wealthy, employed and prosperous “Smiths” in America today than in any other historical period. Innovation didn’t create long-lasting job loss. It actually became a vehicle for greater wealth among the Smith clan.
There are two classic examples of economic change–producing more jobs not less jobs–in the past few hundred years. The first was the Industrial Revolution.
The Industrial Revolution
The Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, transportation, and technology had a profound effect on the economic and cultural conditions of the times. It began in England, then subsequently spread throughout Europe, North America, and eventually the world.
The Industrial Revolution was a major turning point in human history; almost every aspect of daily life was influenced in some way. Most notably, average income and population began to exhibit unprecedented sustained growth. In the two centuries following 1800, the world’s average per capita income increased over 10-fold, while the world’s population increased over 6-fold. In the words of Nobel Prize winner Robert E. Lucas, Jr., “For the first time in history, the living standards of the masses of ordinary people have begun to undergo sustained growth. … Nothing remotely like this economic behavior has happened before.”
In other words, using machines to do more for human beings did not decrease jobs or prosperity. It greatly multiplied job opportunities for billions of people. World population actually exploded because it was easier for people to live and work.
Starting in the later part of the 18th century, there was a transition in parts of Great Britain’s manual labour and animal–based economy towards machine-based manufacturing. It started with the mechanization of the textile industries, the development of iron-making techniques and the increased use of coal. Trade expansion was enabled by the introduction of canals, improved roads and railways.
The introduction of steam power produced dramatic increases in production capacity. The development of all-metal machine tools in the first two decades of the 19th century facilitated the manufacture of more production machines for manufacturing in other industries. The effects spread throughout Western Europe and North America during the 19th century, eventually affecting most of the world, a process that continues as industrialization. The impact of this change on society was enormous.
What are those impacts? More wealth, a higher standard of living, more jobs, and greater opportunities for all.
The Information Revolution
The second great quantum leap in job creation and increased prosperity has been the Information Revolution that has taken place in our lifetime–in the past thirty or forty years. Much of it took place through the invention of one tiny object: the micro-chip.
Arthur Laffer, Stephen Moore and Peter Tanous share the amazing benefits of that little innovation in their groundbreaking book, The End Of Prosperity: How Higher Taxes Will Doom the Economy If We Let It Happen:
“The dawning of the age of the microchip and all the attendant, fabulous technological advances have played a vital role in this wild and wonderful ride. Ingenious and daring entrepreneurs from Bill Gates to Fred Smith (there’s that name again!) to Larry Ellison to Google founders Sergey Brin and Larry Page launched whole new industries and made billions of dollars for themselves and billions more for workers and society. More wealth was created in the United States in the past twenty-five years than in the previous two hundred. In 1967 only one in 25 families earned an income of $100,000, whereas now, almost one in four families do.”
And millions of new jobs were created as a result of the Information Revolution. The tiny machines didn’t take jobs away–they exploded the opportunities for people to create wealth.
I sometimes wonder what many men and women did a hundred years ago when there was no such thing as hardware and software–or electronics. Think how many “geeks” have come into their own because one little mechanical innovation allowed them to use some God-given abilites that the hoe and plow never offered.
The lesson is extremely clear: Improved technology grows jobs if you’re willing to look for the possibilities.
And here’s where we get down to the troubling aspect of President Obama’s comments. Producing jobs and prosperity is really the result of a worldview–a “faith” that is always dreaming of more opportunities and improvements in life, family, and human culture.
Because what is really multiplied when technology enhances human life, even taking away some short-term job occupations in the process, is that it gives human beings a greater opportunity to be creative–to think through how the latest innovation can be enhanced and expanded. Greater leisure through better tools produces more time for creative thinking–and that valuable activity greatly multiplies human activity (i.e. jobs).
Better tools–like ATM machines–give us the time to use our creative imaginations to explore new ideas, make new applications, and create more products. We’re not enslaved to the ancient technologies or limitations.
Machines multiply creativity–if we believe there’s a Creator to follow and a world to improve.
That’s where the worldview is crucial: God. Man made is His creative image. A mandate to improve the world. Faith to do so by his power and grace. Innovation. Improvement. Jobs. Prosperity.
We need to say to ourselves “It’s the worldview, stupid!”
Then have faith and imagination to keep improving that world for our benefit and his glory.
Finally–A Serious Plan to Save the American Dream
Today, the accumulated debt of of 235 years of American civilization reached 14.3 trillion dollars–over $46,000 for every man, woman, and child in the United States.
For the next few weeks or months, Congress will fiercely debate whether to keep adding to that debt, or make some radical choices to control spending which could save the American Dream.
That Dream is not personal peace and affluence. It’s a commitment to human liberty, centering on freedom to worship God, that made the United States a very special nation for centuries–and produced an amazing degree of blessing and prosperity.
Exceptional application of biblical principles built an exceptional nation.
Can that nation and its economy be saved?
I believe the answer is yes if we believe and act wisely.
The Heritage Foundation has produced a serious economic plan to save the American Dream. It will require much prayer,, corporate repentance, courageous senators and congressmen, and a new American president to implement it.
But it is totally necessary. As Heritage points out, our national economy is in decline and could actually collapse unless we deal ruthlessly with our careless addiction to government largesse and indebtedness.
Representative Paul Ryan has also produced a Congressional road map to economic solvency. But the Heritage plan is more realistic, detailed, and politically possible if we vote in a good slate of leaders in the 2012 elections.
But we also need to understand that election results and the economies and laws they produce are a reflection of the hearts of a people. In the coming months, millions of American hearts need to:
- Seek the face of God for forgiveness for our personal and national sins. We need a renewal of the American spirit that will be the wind behind societal change.
- Become again a people of faith. Faith in God, faith in his principles, and faith in economic freedom that is not based on government dependency, regulation and bail outs.
- Restore a sense of morality and self-control to their personal and public lives. Our runaway spending and deficits are a reflection of personal bad habits and uncontrolled desires. There will be little change at the “top” if there is not fundamental realignment at the “bottom.”
- Accept some suffering and sacrifice to clean up our national economic mess. Just as individuals and families must cut back, work hard, and persevere over time to overcome their poor business decisions, so we as a nation must do the same. No pain, no gain.
But there’s hope on the horizon. Please read Heritage Foundation President Ed Feulner’s announcement below and click on the link to gain a perspective on Saving the American Dream.
Then pray and do your part to make it a reality. RB
Saving the American Dream – May 10, 2011
By Ed Feulner
Fellow Americans:
Today, I am excited to announce the release of The Heritage Foundation’s comprehensive agenda that sets a new course for the size and scope of the federal government. The new report, “Saving the American Dream: Heritage’s Plan to Fix the Debt, Cut Spending, and Restore Prosperity,” lays out specific policy recommendations in Social Security, Medicare, Medicaid, health insurance, the tax code and federal spending. Saving the American Dream envisions real solutions for staving off America’s potential decline while strengthening the economy for current and future generations.
We are doing this because we have come to a time of decision in America. For far too long, Congress has been on an unsustainable binge of spending, taxing, and borrowing. Our nation is going broke, and we are passing the costs of these misguided policies to our children and their children.
Over time, our national government has become bloated, overextended and unrestrained, oblivious of its core functions, operating far beyond its means and vastly outside of its proper constitutional bounds. Unchecked, the course we are on now will cripple our economy, undermine our prosperity, and lead to fiscal insolvency. By robbing the future of opportunity and freedom, it will destroy the American Dream for future generations.
Already, we are living through the shame of being publicly lectured by our Communist Chinese creditors, who have contempt for our profligacy. The day it was announced that Standard and Poor’s had lowered the outlook on our economy, a collective gasp went through the international community. If our elected leaders keep it up, we are certain to face financial crises like Greece or Portugal.
America is on the verge of becoming a country in decline—economically stagnant and permanently debtbound, heavily regulated and bureaucratic, less self-governing and less free.
But this fate does not have to be our future. We can get spending under control, balance the budget, and shrink our debt. We can limit the size of government and set free once again the unlimited genius of Americans to create wealth and jobs. We can turn the tide and change our nation’s course.
Saving the American Dream is our plan to fix the debt, cut spending and, above all, restore prosperity. It balances the nation’s budget within a decade—and keeps it balanced. It reduces the debt and cuts government in half. It eliminates government-mandated health care and fully funds our national defense. In order to get our fiscal house in order, we must address Social Security, Medicare, and Medicaid, the three so-called entitlement programs which together account for 43 percent of federal spending today. Far too many seniors still lack enough help to avoid poverty. Saving the American Dream therefore does not end these programs; instead it focuses them on those who need them.
Our plan also encourages Americans to become more fiscally responsible themselves. It redesigns our entire tax system into an expenditure tax that will have a single flat rate. This is a structure that will promote savings, therefore benefiting individual Americans, our body politic, and the economy. Greater savings mean stronger capital formation and thus a more robust economy, which means real jobs for Americans.
This plan substantially reduces the size and scope of the federal government, fundamentally increases the role of the states in choosing their own practices, and brings decision-making closer to the people rather than unelected administrators. These are crucial steps that will get our nation on a path of fiscal, political, and constitutional responsibility. It is part of our larger effort to get our country back on track, reclaim its truths, conserve its liberating principles, and build an America where freedom, opportunity, prosperity, and civil society flourish.
At the end of the day our plan, while economic in nature, has a higher moral purpose. If entitlements are not reformed, the next generation and future ones will have to pay punitive tax rates that will end liberty as we have known it. Our proposal aims to preserve America’s promise bequeathed to us by past generations.
Edmund Burke reminds us to think of our time on this earth not as an individual and temporary event, but rather as a partnership “between those who are living, those who are dead and those who are yet to be born.” Keeping faith with this partnership is what we aim to do with Saving the American Dream.
We have been here before, and every time the American people have always risen to the occasion and seized the moment. In 1776 we were told that no upstart colonists could defeat the strongest nation in the world, and we decided to change the course of history. In 1860 we were told the Union could not hold and that America was over, and we brought forth a new birth of freedom. In 1980 we were told that the American century was at an end, and we launched a great economic expansion, rebuilt our military, and revived our national spirit.
Hard times demand tough choices. The future of our nation is at stake.
All that is required, as my hero Ronald Reagan once said, is “our best effort, and our willingness to believe in ourselves and to believe in our capacity to perform great deeds; to believe that together, with God’s help, we can and will resolve the problems which now confront us.”
Together, let us seize the moment, change our country’s course, and save the American Dream.
Edwin J. Feulner
President, The Heritage Foundation