Posts Tagged ‘budget deficit’
The decision by credit agency Standard and Poor’s to downgrade America’s AAA credit rating for the first time in 70 years is a massive blow to the credibility of the Obama administration, and a damning indictment of its handling of the economy. No doubt the White House will pathetically try to blame the Bush Administration, Republicans in Congress, and of course its favourite target, the Tea Party, for the move by S&P. But without a shadow of a doubt, responsibility for the country’s financial mess and staggering levels of debt lie with the current US president and his administration. They have been in charge of running the economy for over 30 months, during which time the United States has witnessed an unprecedented increase in government spending and borrowing.
As the Congressional Budget Office revealed In January, the deficits generated under the Obama administration are the largest since the end of World War Two:
The deficits of $1.4 trillion in 2009 and $1.3 trillion in 2010 are, when measured as a share of gross domestic product (GDP), the largest since 1945—representing 10.0 percent and 8.9 percent of the nation’s output, respectively… Just two years ago, debt held by the public was less than $6 trillion, or about 40 percent of GDP; at the end of fiscal year 2010, such debt was roughly $9 trillion, or 62 percent of GDP.
The implications of this debt downgrade are extremely serious, not least with 46 percent of US Treasuries owned by foreigners. As The Wall Street Journal notes, the United States now has a score that ranks “below Liechtenstein and on par with Belgium and New Zealand”:
the move by S&P could serve as a psychological haymaker for an American economic recovery that can’t find much traction, and could do more damage to investors’ increasing lack of faith in a political system that is struggling to reach consensus on even everyday policy items. It could lead to the prompt downgrades of numerous companies and states, driving up their costs for borrowing. Policy makers are also anxious about the hidden icebergs the move could suddenly reveal. …. Lessons from other countries, such as Canada and Australia, suggest it can take years for a country to win back its AAA rating.
Since President Obama took office in January 2009, the United States has embarked on the most ambitious failed experiment in Washington meddling in US history. Huge increases in government spending, massive federal bailouts, growing regulations on businesses, thinly veiled protectionism, and the launch of a vastly expensive and deeply unpopular health care reform plan, have all combined to instill fear and uncertainty in the markets. Free enterprise has taken a backseat to continental European-style interventionism, as an intensely ideological left wing administration has sought to dramatically increase the role of the state in shaping the US economy. The end result has been a dramatic fall in economic freedom, sluggish growth, poor consumer confidence, high unemployment, a collapsing housing market, and an overall decline in US prosperity, with more than 45 million Americans now reliant on food stamps – that’s over one seventh of the entire country.
These are increasingly dangerous times, with American leadership being challenged across the globe. Only an historic reduction in government spending combined with pro-growth measures including lower business tax rates to stimulate job creation and attract investment can turn the US economy around. Unfortunately, as Standard and Poor’s decision has shown, this is a presidency in extreme denial over America’s towering debts, leading a nation on a precipice while blindfolded to reality. The United States badly needs another Reagan-style revolution to stave off further economic disaster, preserve American leadership on the world stage, and secure the future of a superpower. Ultimately, greater liberty and freedom, not the deathly hand of Big Government, are needed to turn this great nation around.
The Wall Street Journal
By CHARLES G. KOCH
MARCH 1, 2011
Crony capitalism and bloated government prevent entrepreneurs from producing the products and services that make people’s lives better
Years of tremendous overspending by federal, state and local governments have brought us face-to-face with an economic crisis. Federal spending will total at least $3.8 trillion this year—double what it was 10 years ago. And unlike in 2001, when there was a small federal surplus, this year’s projected budget deficit is more than $1.6 trillion.
Several trillions more in debt have been accumulated by state and local governments. States are looking at a combined total of more than $130 billion in budget shortfalls this year. Next year, they will be in even worse shape as most so-called stimulus payments end.
For many years, I, my family and our company have contributed to a variety of intellectual and political causes working to solve these problems. Because of our activism, we’ve been vilified by various groups. Despite this criticism, we’re determined to keep contributing and standing up for those politicians, like Wisconsin Gov. Scott Walker, who are taking these challenges seriously.
Both Democrats and Republicans have done a poor job of managing our finances. They’ve raised debt ceilings, floated bond issues, and delayed tough decisions.
Senior Economics Writer Stephen Moore critiques Washington’s pending budget deal.
In spite of looming bankruptcy, President Obama and many in Congress have tiptoed around the issue of overspending by suggesting relatively minor cuts in mostly discretionary items. There have been few serious proposals for necessary cuts in military and entitlement programs, even though these account for about three-fourths of all federal spending.
Yes, some House leaders have suggested cutting spending to 2008 levels. But getting back to a balanced budget would mean a return to at least 2003 spending levels—and would still leave us with the problem of paying off our enormous debts.
Federal data indicate how urgently we need reform: The unfunded liabilities of Social Security, Medicare and Medicaid already exceed $106 trillion. That’s well over $300,000 for every man, woman and child in America (and exceeds the combined value of every U.S. bank account, stock certificate, building and piece of personal or public property).
The Congressional Budget Office has warned that the interest on our federal debt is “poised to skyrocket.” Even Federal Reserve Chairman Ben Bernanke is sounding alarms. Yet the White House insists that substantial spending cuts would hurt the economy and increase unemployment.
Plenty of compelling examples indicate just the opposite. When Canada recently reduced its federal spending to 11.3% of GDP from 17.5% eight years earlier, the economy rebounded and unemployment dropped. By comparison, our federal spending is 25% of GDP.
Government spending on business only aggravates the problem. Too many businesses have successfully lobbied for special favors and treatment by seeking mandates for their products, subsidies (in the form of cash payments from the government), and regulations or tariffs to keep more efficient competitors at bay.
Crony capitalism is much easier than competing in an open market. But it erodes our overall standard of living and stifles entrepreneurs by rewarding the politically favored rather than those who provide what consumers want.
The purpose of business is to efficiently convert resources into products and services that make people’s lives better. Businesses that fail to do so should be allowed to go bankrupt rather than be bailed out.
But what about jobs that are lost when businesses go under? It’s important to remember that not all jobs are the same. In business, real jobs profitably produce goods and services that people value more highly than their alternatives. Subsidizing inefficient jobs is costly, wastes resources, and weakens our economy.
Because every other company in a given industry is accepting market-distorting programs, Koch companies have had little option but to do so as well, simply to remain competitive and help sustain our 50,000 U.S.-based jobs. However, even when such policies benefit us, we only support the policies that enhance true economic freedom.
For example, because of government mandates, our refining business is essentially obligated to be in the ethanol business. We believe that ethanol—and every other product in the marketplace—should be required to compete on its own merits, without mandates, subsidies or protective tariffs. Such policies only increase the prices of those products, taxes and the cost of many other goods and services.
Our elected officials would do well to remember that the most prosperous countries are those that allow consumers—not governments—to direct the use of resources. Allowing the government to pick winners and losers hurts almost everyone, especially our poorest citizens.
Recent studies show that the poorest 10% of the population living in countries with the greatest economic freedom have 10 times the per capita income of the poorest citizens in countries with the least economic freedom. In other words, society as a whole benefits from greater economic freedom.
Even though it affects our business, as a matter of principle our company has been outspoken in defense of economic freedom. This country would be much better off if every company would do the same. Instead, we see far too many businesses that paint their tails white and run with the antelope.
I am confident that businesses like ours will hire more people and invest in more equipment when our country’s financial future looks more promising. Laying the groundwork for smaller, smarter government, especially at the federal level, is going to be tough. But it is essential for getting us back on the path to long-term prosperity.
Mr. Koch is chairman and CEO of Koch Industries, Inc. He’s the author of “The Science of Success: How Market-Based Management Built the World’s Largest Private Company” (Wiley, 2007).