What They Are Not Talking About When They Talk About Politics

One thing that seems to be true of recent elections, in the U.S. and in Europe, is how innocent they are of any concern, let alone debate, over the real issue facing all of us. One may say of the argument between the Obama and Romney campaigns over proposed changes in welfare regulations that it at least concerned a real issue. That is more than one can say about the quarrels over Romeny's business history. Still, this is not the problem that ought to be concentrating our attention.

You might think that the real issue is climate change. I don't think so for the simple reason that there is nothing we do about it; but if you are right you would still have to agree with my point. Whatever Obama and Romney are talking about right now, it isn't carbon emissions.

Here is the real issue that we are scrupulously ignoring, from Martin Hutchinson at Slate:

Uncle Sam just can't seem to stop living beyond his means. While U.S. consumer credit failed to match its June 2008 peak, outstanding debt of domestic U.S. non-financial sectors still stands at nearly 250 percent of GDP, against 232 percent just before the financial crisis hit. While the consumer has deleveraged a bit, business debt is flat and government borrowing has soared. At some point, this just has to end.

Economists Carmen Reinhart and Kenneth Rogoff demonstrated that recessions preceded by a financial crash can be exceptionally deep and long, because of the reduction of debt that needs to occur before normal growth returns. Since 2008, with unprecedented levels of fiscal and monetary stimulus, no net U.S. deleveraging has occurred; rather the liabilities of non-financial sectors have grown faster than GDP. While households have cut back (partly through defaulting on mortgages and credit cards) from 97 percent of GDP to 83 percent, business debt kept pace with GDP and the government's balance sheet has soared from 57 percent of GDP to 89 percent.

If that is correct, all the stimulus spending we have been doing is only delaying the inevitable and ensuring that it will be more painful and injurious. Perhaps we can't return to previous periods of steady economic growth until we pay down the burdensome debt. I think that this is common sense.

The first stop will be the federal deficit, which inevitably must come down. The corporate sector will likely need more equity, which would dent stock prices generally. Though anathema to policymakers, higher real interest rates would allow consumers to rebuild savings and discourage further indebtedness. Whatever the solution, it's hard to see a trifecta of negative real interest rates, rising stock prices and trillion-dollar deficits lasting too much longer.

Okay. But what will have to happen for the federal deficit to be brought under control? Gabriel Horwitz and David Kendall writing in The Politico have a suggestion.

Democrats launched two great economic initiatives in the 1960s that would change the country. President Lyndon B. Johnson's Great Society declared a war on poverty and ushered in two of the nation's most crucial entitlement programs – Medicare and Medicaid. A few years earlier, President John F. Kennedy embarked on the New Frontier, an investment agenda to make the United States the world leader in space, communications, science, education and infrastructure.

Fifty years later, these two children of Democratic presidents have taken radically different paths. The younger child, the Great Society, has grown to be fat and happy. Counting Social Security, the three major entitlements grew from 15 percent of federal spending in the '60s to nearly 50 percent today. The older child, investments, is starved. NASA, the New Frontier's crown jewel, is a shell. Total spending over all federal investments, from highways to space stations to defense, has declined from one-third of our budget to one-seventh today. Is it any wonder our schools are average, our roads clogged and our scientists mostly imported?

It's time for Democrats, as parents of entitlement programs, to put them on a diet. And soon — because time is not on our side. Entitlements are set to go on a decades-long growth spurt starting this year, as baby boomers start retiring. At the same time, the Budget Control Act passed by Congress will further shrink investments. How much? Today, there is a $1 trillion gulf between spending on major entitlement programs and the money we devote to public investments. In 2022, the gap is expected to be $2.6 trillion.

This, of course, is the biggest problem we face. Our entitlement programs are on an unsustainable course even if you don't mind that they are starting to squeeze out all other spending. The fiscal crises that driving municipalities across the map into bankruptcy are not only microcosm of the macro-problem, they are more weight on the scale.

It is no wonder that this is not a campaign issue. Who wants to run for office by telling the public that everyone has to lose weight? I don't have any confidence that Mitt Romney, if he wins the White House, will have the courage or wisdom to address the problem. I am not even sure that any courage or wisdom would suffice, until the really grizzly crisis is upon us.

The only thing I am sure of is that the current occupant of the White House will spend the next four years, if he gets them, doing what he has been doing for the last four. He will ignore it. I am also pretty sure that the Democrats, if they retain control of the Senate, will continue to do what they have been doing for the last three years: failing to produce a budget.

Comments

[Donald Pay]

You're kidding, of course. These fiscal non-issues get brought every election. I remember them being brought up in 1964, and every year since. We've had 50 years of conservative whining about the dire consequences we face with any, I mean any, small deficit. It's not surprising that the American public tunes conservative muttering about deficits and entitlements off. They've been wrong consistently for fifty years!!! And it's really not that hard to fix the problem, but not if conservatives insist on letting the rich steal from grandma, children and the disabled.

[Dave]

Ah yes, that nice car you drive has a few miles on it, and dang if you don't still have to pay for gas and upkeep. I mean, eventually it's gonna rust or get stolen or crash or something. Right? So my advice to you is that you get yourself out of this unsustainable arrangement and find a nice bridge abutment to take out an about 70mph. Problem solved! And you'll never have to worry about new tires again...

[Bill Fleming]

Sorry to be contrary, KB but the big issue IS climate change, and there IS something we can do about it. Let's get crackin', whaddya say? http://www.rollingstone.com/politics/news/global-warmings-terrifying-new-math-20120719

[Dave]

I just love that dog whistle. "Entitlement"... It's used to imply that people expect something for nothing. Except that most of us are paying into these "entitlement programs" all of our working lives. The exception being high earners and of course the "investment class".
Seeing as how the investment class feels (no, insist) on having ultra low tax rates, and more than 50% of CAPITAL GAINS go to millionaires, who also insist on having enough loopholes at their disposal to further avoid rates paid by Joe Sixpack.

It's not hard to see who really feels "entitled" in America. It ain't Joe Sixpack.

[Bill Fleming]

Dave, I agree. The folks who have been paying into SS all their lives and Medicare are not stupid. Most are willing to chip in for the good of the nation as long as we're all doing it.

[Ken Blanchard]

You guys are hilarious. Is Obama talking about climate change? What, precisely, does he intend to do about it? He couldn't get cap and trade past his own Senate! Maybe on Oz or Planet Pay you could get real legislation, but that would mean folks willing to do with lights out for long periods of time just because Al Gore said so from his enormous house boat. Good luck with that.

But I have to love Donald's comment. Just ignore the deficits. It's all silly. Look up "oblivious" in the picture dictionary if you want to see what Donald looks like. His picture will be right there.

[larry kurtz]

Under a President Romney South Dakota will still be a leaky chemical toilet receiving even more from DC than it sends, where Monsanto owns the legislature; and, spiking spontaneous abortions due to agricultural chemicals will surge.

Oh, and KB will still have tenure.