The Coming Age of Austerity

The Coming Age of Austerity

By Patrick J. Buchanan

“Are the good times really over for good?” asked Merle Haggard in his 1982 lament.

Then, the good times weren’t over. In fact, they were coming back, with the Reagan recovery, the renewal of the American spirit and the end of a Cold War that had consumed so much of our lives.

Yet whoever wins today, it is hard to be sanguine about the future.

The demographic and economic realities do not permit it.

Consider. Between 1946 and 1964, 79 million babies were born — the largest, best-educated and most successful generation in our history. Bill Clinton and George W. Bush, both born in 1946, were in that first class of baby boomers.

The problem.

Assume that 75 million of these 79 million boomers survive to age 66. This means that from this year through 2030, an average of nearly 4 million boomers will be retiring every year. This translates into some 11,000 boomers becoming eligible for Medicare and Social Security every single day for the next 18 years.

Add in immigrants in that same age category and the fact that baby boomers live longer than the Greatest Generation or Silent Generation seniors, and you have an immense and unavoidable increase coming in expenditures for our largest entitlement programs.

Benefits will have to be curbed or cut and payroll taxes will have to rise, especially for Medicare, to make good on our promises to seniors.

As for the rest of our federal budget of nearly $4 trillion, we have run four consecutive deficits of over $1 trillion. To bring that budget to balance, freezes would have to be imposed and cuts made in spending for defense and other social programs.

From California to Wisconsin to New York, we see the process at work at the state level. Government salaries are frozen, government payrolls are cut, government pensions and programs are scaled back.

California and Illinois are on the precipice of default. Cities like Detroit, Birmingham, Stockton and San Bernardino are already there.

As for national defense, how long can we afford to spend more than the 10 other top nations combined? How long can we continue to defend scores of nations half a world away? How many more trillion-dollar wars like Iraq and Afghanistan can we fight on borrowed money?

Moreover, the day of the great national enterprises is over.

FDR had his New Deal and World War II, Ike his federal highway system, Kennedy his space program, LBJ his Great Society, Reagan his military buildup and tax cuts, Bush his two wars and tax cuts, Obama his Obamacare.

But there is nothing left in the till to do big things. One sees only deficits and debt all the way to the horizon.

Europe has arrived at where we are headed. In the south of the old continent — Spain, Italy and Greece — the new austerity has begun to imperil the social order. In the north, the disposition to be taxed to pay for other nations’ social safety nets is disappearing.

With government in the U.S. at all levels consuming 40 percent of gross domestic product, and taxes 30 percent, taxes will have to rise and government spending be controlled or cut. The alternative is to destroy the debt by depreciating the dollars in which it is denominated — i.e., by Fed-induced inflation.

But you can only rob your creditors once. After that, they never trust you again.

There is another social development rarely discussed.

The workers who are replacing retiring baby boomers in the labor force are increasingly minorities.

Black folks and Hispanics alone account now for 30 percent of the population — and rising rapidly.

Yet these two minorities have high school dropout rates of up to 50 percent in many cities, and many who do graduate have math, reading and science scores at seventh-, eighth- and ninth-grade levels.

Can their contributions to an advanced economy be as great as were those of baby boomers of the ’60s and ’70s, whose SAT scores were among the highest we ever recorded? U.S. scores in global competition have been plummeting toward Third World levels.

Everyone talks about how we are going to raise test scores. But, despite record and rising investments in education per student, no one in decades has found a way to do this consistently.

Moreover, while boomers were almost all born into families where mother and father were married and living together, Hispanics have a 53 percent illegitimacy rate, African-Americans a 73 percent rate.

Among the white poor and working class, the illegitimacy rate is now 40 percent — almost twice as high as it was in black America when Pat Moynihan wrote his 1965 report on the crisis of the black family.

And between the illegitimacy rate and the drug-use rate, dropout rate, crime rate and incarceration rate, the correlation is absolute.

Some of us are often accused of always “crying wolf.”

But it is worth noting that one day the wolf came.

Salad Days of the Public Sector Are Over

By Patrick J. Buchanan

San Bernardino, Calif., has now followed Stockton into bankruptcy.

Harrisburg and Scranton, Pa., and Jefferson County, Ala., home to Birmingham, are already there to welcome them.

Detroit has been taken into receivership by Michigan. A plan under discussion is to level a fourth of the city and reconvert it into the pasture and farmland it used to be a century ago.

On the Web, one may find a pictorial tale of two cities: Hiroshima, a smoking flattened ruin in 1945, now a beautiful gleaming metropolis. And Detroit, forge and furnace of democracy in 1945, today resembling Dresden after Bomber Command paid its visit.

Other American cities are exploring bankruptcy to escape from under the mountain of debt they have amassed or to get out of contracts that an earlier generation of politicians negotiated.

No longer shameful, bankruptcy is now seen as an option for U.S. cities. The crisis of the public sector has come to River City.

What happened to us?

In the Reagan-Clinton prosperity, officials earned popularity by making commitments that could be met only if the good times lasted forever. They added new beneficiaries to old programs and launched new ones. They hired more bureaucrats, aides, teachers, firemen, cops.

Government’s share of the labor force soared to 22.5 million. This is almost three times the number in the public sector when JFK took the oath of office. These employees were guaranteed job security and high salaries, given subsidized health care, and promised early retirement and pensions that the private sector could not match.

The balance between the private and public sectors shifted. As a share of the U.S. population, the number of taxpayers fell, as tax consumers — the beneficiaries of government programs and government employees who run those programs — rose.

The top 1 percent now pays 40 percent of the income tax. The top 10 percent pays 70 percent. The bottom half, scores of millions of workers, pay nothing. They ride free.

This could not go on forever. And when something cannot go on forever it will, by Stein’s Law, stop. The Great Recession brought it to a stop. We have come to the end of the line.

U.S. cities depend on property and sales taxes. But property tax revenue has fallen with the collapse of the housing market. Sales tax revenue has fallen as a result of the recession that has kept the consumers out of the malls.

Revenues down, cities and counties face a choice. Raise taxes, or cut payrolls and services. But if taxes rise or workers are laid off and services decline, Americans in our mobile society move across city and state lines, as they are moving from California to Colorado, Nevada and Arizona.

This does not end the crisis, it exacerbates it.

Bankruptcy not only offers cities relief from paying interest to bondholders, it enables mayors to break contracts with public service unions. Since the recession began, 650,000 government workers, almost all city, county or state employees, have lost their jobs. Millions have seen pay and benefits cut.

The salad days of the public sector are over. From San Joaquin Valley to Spain, its numbers have begun to shrink and its benefits to be cut.

A declaration of bankruptcy by a few cities, however, has an impact upon all — for it usually involves a default on debts. This terrifies investors, who then demand a higher rate of interest for the increased risk they take when they buy the new municipal bonds that fund the educational and infrastructure projects of the solvent cities.

Cities and counties have no way out of the vicious cycle. Rising deficits and debts force new tax hikes and new cuts in schools, cops and firemen. Residents see the town going down, and pack and leave.

This further reduces the tax base and further enlarges the deficit.

Then the process begins anew.

This is what is happening in Spain and Greece, which have reached the early 1930s stage of rioting and the rise of radical parties.

Since the New Deal, Keynesianism has been our answer to recession. As the private sector shrinks, the public sector expands to fill the void until the private sector returns to health. Only Keynesianism is not working.

Obama gave us an $800 billion stimulus and four deficits totaling $5 trillion. The Fed tripled the money supply and put interest rates at near zero. The banks are flush with cash. But the engine will not turn over.

What about supply-side tax cuts? But with the Bush tax cuts still in place, taxes are generating the smallest share of gross domestic product in decades.

How much bigger a deficit should we run?

Liberal economists are saying, deficits be damned, print money and spend. With Republicans blocking tax hikes and Democrats resisting cuts in Medicare, Medicaid and Social Security, all eyes turn to the Fed.

As Milton Friedman said, “Inflation is the one form of taxation that can be imposed without legislation.”

The Roots of Voter Anger Go Back to 1954

By Patrick J. Buchanan

Sixty-nine percent of voters nationwide are angry with the policies of the federal government.

To understand why, it’s important to remember that most voters believe tax cuts and government spending cuts are good for the economy. Collectively, voters have voted for politicians who promised spending cuts and tax cuts in just about every election over the past four decades.

Barack Obama promised tax cuts for 95 percent of all Americans. George W. Bush’s across-the-board tax cuts were the centerpiece of his domestic policy. Bill Clinton promised tax cuts for the middle class. The first President Bush asked the nation to read his lips while promising no new taxes. And Ronald Reagan rode the tax revolt to the White House. Jimmy Carter ran as a fiscal conservative, and Richard Nixon was more fiscally conservative than Hubert Humphrey.

Despite that track record and clear expression of voter preferences, total government spending has gone up in America every single year since Bill Haley was topping the charts with “Rock Around the Clock,” a young singer named Elvis Presley made his first commercial recording, and Hank Aaron hit his first home run as a rookie for the Milwaukee Braves. That was way back in 1954, with Dwight Eisenhower in the White House.

In that bygone era, the average new house cost just over $10,000, a new car was under $2,000, gasoline was under 30 cents a gallon, and you could buy a magazine for 20 cents.

With those numbers in mind, some cynics might assume that government spending has grown over the past 55 years just to keep pace with inflation. Others might point out that there are a lot more Americans for government to serve today than there were back in 1954.

But the truth is that adjusting for population growth and inflation doesn’t even begin to account for the explosion of government spending. Since 1965, the year the Beatles played Shea Stadium and the miniskirt came to America, government spending has grown faster than the combined total of inflation plus population growth every year but one.

If government spending in America had just held pace with population growth and inflation since 1954, government spending today would total $1.3 trillion. Instead, spending this year will top $5.4 trillion.

And while the spending has been going up, it’s not as if voters have been shy about expressing their point of view. The past half-century has included the tax revolt, the Reagan Revolution, the H. Ross Perot movement and Clinton’s declaration that the “Era of Big Government” was over.

It’s important to note that from 1954 to 2010, Republicans controlled the White House for 34 years and Democrats for 22. Democrats controlled Congress for 44 years, and the Republicans for 12. So this long-lasting spending spree was enabled on a completely bipartisan basis.

All of this frustration building among ordinary citizens was finally unleashed in the fall of 2008 with passage of the Wall Street bailout measures. That became the single most hated piece of legislation in modern American history. It was supported by both parties in Washington and opposed by voters from both parties throughout the country.

Still, while the bailouts triggered the voter outrage and have created problems for both parties in Washington, this issue was really just the tip of the iceberg. The frustration has been building for so long that roughly eight out of 10 Americans living today have never been alive when government spending went down.

Fiscal Hawks vs. Security Hawks

By Patrick J. Buchanan

The Republican Party is a stool that stands on three legs: social conservatives, economic conservatives and foreign policy conservatives.

Yet since Ronald Reagan departed and George W. Bush arrived, that coalition has been under a growing strain that may yet pull it apart and redefine what conservatism means in 21st century America.

Is a free-trade globalism that saw America lose 57,000 factories and 6 million manufacturing jobs in the last decade conservatism?

From Abraham Lincoln to Teddy Roosevelt to Calvin Coolidge, that was once economic treason.

Was invading Iraq, which never threatened us, consistent with conservatism? Was a decade of nation-building in Afghanistan something Reagan would have pursued? These neo-imperial wars would have bewildered our founding fathers.

A new clash is ahead that seems fated to split the right into fiscal hawks versus security hawks. It was scheduled for early 2012 by the debt-ceiling deal forced on Barack Obama by Tea Party Republicans.

That deal cuts spending $900 billion in 10 years, with defense cuts coming in at $400 billion. The Pentagon is already at work.

Beyond that, if the new bipartisan, bicameral deficit-and-debt-reduction super-committee of 12 fails to come up with $1.5 trillion in added spending cuts and/or tax revenues, Congress must vote in 2012 to achieve $1.2 trillion in cuts.

And half of that, $600 billion, must come out of defense.

Can the super-committee avoid these defense cuts by coming up with the $1.5 trillion by Thanksgiving, which would have to be approved in up-or-down votes in both houses by Christmas?

Highly improbable, if not politically impossible.

Consider: Should the super-committee vote for new tax revenue, John Boehner’s House would reject it, as the House threatened to shut down the government rather than permit higher taxes in the debt-ceiling deal.

Yet if there are no new taxes in the $1.5 trillion deal, Harry Reid’s Senate would reject it, for that would be a second humiliating defeat for the left, fomenting open rebellion against Reid.

Some in Washington are saying the super-committee was set up to fail. Sen. Mitch McConnell has already said no Republican open to higher taxes will be named to the GOP’s six-member slate.

Thus, in the first major step in a decade-long drive to roll back Big Government, the Pentagon will likely have to contribute $1 trillion, or 8 percent of anticipated defense spending.

And this is only the beginning. For even after the debt-ceiling deal, projected deficits are so huge that a downgrade of the U.S. debt rating and eventual default, even if done through inflation and depreciation of the dollar, seem certain.

Thus, fiscal reality is about to force upon the neocons and national security Republicans like John McCain decisions they have been avoiding since the Cold War.

Eventually, this day had to come. Indeed, we put it off too long.

As far back as the 1950s, John Foster Dulles was recommending an “agonizing reappraisal” of all U.S. alliances. Dwight Eisenhower urged JFK to withdraw U.S. troops from Europe and let Europeans take over primary responsibility for their own defense.

Gen. Douglas MacArthur told JFK not to put his foot soldiers into Southeast Asia. President Nixon said that in future Asian wars, Asian boys, not American boys, must carry the burden of ground fighting.

Robert Gates said on his departure that any future defense secretary who pushed his president to fight another Asian war ought to have his head examined. Common sense, born of painful experience.

But if the Pentagon budget is to be cut, how and where do we cut?

The debate on the right, too long delayed, must begin, for the cuts are coming and the $1 trillion likely to be slashed this year and next is only the beginning.

Wisdom in making these decisions may be found in the Kennedy commitment of 1960 that Reagan copied into the book of notes he kept in his Oval Office desk. Kennedy demanded that in defense America remain first — not first when, or first if, but first, period.

Rather than slash weapons systems or R&D, the United States should begin by ending our three-and-a-half wars, terminating treaties to go to war for nations having nothing to do with U.S. vital interests, closing bases abroad, bringing troops home and staying out of unnecessary wars.

Why are we still committed to defending two dozen nations in Europe when the threat that took us there 60 years ago, the huge Red Army on the Elbe, went home 20 years ago?

Why are thousands of U.S. troops on the Korean DMZ when South Korea has twice the population and 40 times the economy of the North?

Why are Marines still in Okinawa, two-thirds of a century after their grandfathers invaded the island? Bring them home, and put them on the Mexican border, for that is where the future of this republic is going to be decided.