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Do we hate our children?

Posted: January 3, 2013 at 9:45 am   /   by

It certainly seems like we do? After all, we have, for decades, been engaged in a program of systematic theft from them.

In the previous post, we showed a visual demonstrating the absurdity of our current national discussion. Through an ongoing public sleight of hand, the right’s focus on low taxes and the left’s focus on class warfare/higher taxes on the rich have convinced us as a nation that somehow, if we just raise taxes enough on the right people, we can pay for everything. This is nonsense, and this discussion—seen so clearly in the fiscal cliff debate—has distracted us from the truth of what we are really doing.

And what we are really doing is profoundly immoral. We are funding our gross appetite for government-delivered goodies on the backs of our children, and our children’s children.

It’s a problem that has been decades in the making:

These profound changes might have been manageable if they had been accompanied by old-fashioned budget balancing that obliged government officials to make hard choices among competing interests. Instead, the concurrent discovery of the political magic of continuous public borrowing produced something not only new but financially addicting: government as an engine for debt-financed consumption. In retrospect, a key turning point came in the expansion of Medicare to cover prescription drugs. A drug benefit was added during Reagan’s last year in office—but it was, at his insistence, “budget neutral,” funded entirely by program taxes and premiums, and it proved wildly unpopular. Following a senior riot in the streets of Chicago, aimed at Ways and Means Committee chairman Dan Rostenkowski, the program was repealed a year later. George W. Bush and the Republicans learned the lesson well. Their 2003 Medicare drug benefit, costing more than $60 billion annually, was funded mainly (more than 75 percent) by new government borrowing. That proved very popular.

The era of prolonged and growing government debt since the mid-1970s has corresponded with slower and more volatile economic growth as measured by per capita GDP, median and average incomes, and total-factor productivity. This will present an interesting chicken-and-egg question for economic historians: Did the debt-for-consumption project eventually slow rather than stimulate economic growth, or did slowing growth have other causes, and inspire government to increase borrowing in an effort to sustain accustomed levels of income growth? But for now—following the Bush and Obama economic stimulus and financial bailout programs of 2007-2010, the stupendous annual deficits of President Obama’s first term, and the continuing neglect of the huge financial imbalances of our Social Security and Medicare programs, and with the prospect of trillion-dollar deficits for the foreseeable future—we can say with assurance that our national debt has become an impediment to growth and is going to crush the economic expectations of many Americans.

The federal government’s public debt is now about 75 percent of annual GDP and growing rapidly, and already more than 100 percent if one includes the Treasury Department’s intra-government debts to Social Security and other programs. These amounts put us in the range where, historically, government debt has seriously depressed economic growth and risked sovereign defaults and wrenching fiscal contractions, even when interest rates were low. But our true indebtedness is much higher than that, much higher than our peak debt during World War II, and not far behind that of the crisis-wracked EU. Accounting for the chasm between projected Social Security and Medicare payments and revenues (which the government’s official debt figures unfortunately ignore) puts the federal debt at more than five times GDP. Generational accounting suggests that future generations will be paying nearly all of their lifetime incomes in taxes, which obviously cannot happen.

Calculations such as these point to the real harm of financing current consumption with ever-increasing public debt. Substantial segments of the population become accustomed to levels of government benefits that cannot be sustained. With time, an inheritance of continuous stimulus can be withdrawn slowly, permitting private adjustments and, with luck, resumed economic growth. But the longer the stimulus continues, the greater the likelihood that personal expectations will be shattered by an emergency that an insolvent government is no longer in a position to respond to. That will certainly mean widespread losses and hardship, and perhaps political instability as well, and, worst-case scenario, temptations for Kirchner-style confiscations.

It is remarkable that, in our current straits, and with the demographic clock running out on the graduated reforms to our entitlement programs that nonpartisan think tanks have been propounding for decades, the government has shifted its stimulus machinery into overdrive. With the economy still shaky, we are warned, now is not the time to begin consolidating our debts! With interest rates so low, we would be fools not to borrow trillions more while the getting is good! With the states $7 trillion in debt and maxed out on private borrowing, Washington needs to be doing more not less! This is what a pathological fiscal system sounds like when debt stimulus no longer stimulates and its options are running out.

The fiscal cliff will be avoided, or not. We face two other challenges that are much more serious and nearly as immediate. The first is to begin contingency planning for the coming debt crisis—which may arrive as early as next year, when California is the first of our bankrupt states to apply for a massive uploading of debt to the federal government. The second is to establish institutions of public finance with a fair chance of disciplining rather than placating the populist pressures of contemporary politics, and of right-sizing our middle-class welfare state to acceptable levels of middle-class taxation.

These institutional tasks can hope to succeed only after we have developed a new public rhetoric of fairness. It should be a matter of acute national embarrassment that our leaders can pretend to be redistributing from wealthy to average citizens when, in fact, they are redistributing in far greater measure from the young and unborn. Our rhetoric must teach that, although government borrowing is appropriate for certain purposes, the routine redistribution of wealth from future generations to ourselves is undemocratic, corrupting, and ultimately impoverishing. We don’t need to wait for a deadline or a crisis to take this intellectual leap.

The preceding is from a long piece called “The Real Cliff” by Chris DeMuth, which lays out how we have gone from an ethos in which balanced budgets were a goal and debt-financed spending was for emergencies to a situation in which debt-financed spending is the norm.

Demuth also lays out the case that until the middle class are required to pay for welfare-state spending, they will continue to acquiesce to it:

I was working at the White House and OMB in those years, and was party to many a late-night argument over two divergent strategies. “Starve the Beast” held that the public would tolerate only so much deficit spending—so cutting taxes would at some point restrain spending as well. “Serve the Check” held that the only way to limit spending was to charge its full price at retail: Set taxes at an average of 20 percent of individual incomes and we would discover whether the public really wanted federal spending of 20 percent of national income.

Reagan went with “Starve the Beast.” As a loyalist, I will note that, after inflation was tamed and the economy rebounded, he was still engaged in a huge defense buildup that he regarded as an investment—to abolish the Soviet Union. That turned out rather well, but it also turned out that the public’s tolerance for high debt and deficits was much larger than anyone had supposed. Today, one would have to say that tolerance is unlimited so long as the public is faced with abstract numbers in newspaper headlines rather than tangible consequences.

Nevertheless, tax cutting and “no new taxes” became increasingly embedded in Republican electoral strategy. As they did, they took leave of supply-side economics just as completely as demand stimulus had taken leave of its Keynesian origins. Indeed, tax reductions for the masses (but not for the wealthy and corporations) became a matter of bipartisan consensus and competition. Through the tax legislation of the 1980s, 1990s, and 2000s, progressively greater numbers of Americans had their income taxes reduced or were removed from the rolls altogether, and many credits and deductions were added for a variety of favored activities, from children to childcare to energy-efficient appliances.

As Demuth says, we have been moving in the opposite direction from middle-class accountability, as this chart shows vis-a-vis the increasing progressivity of the income tax.

Last week (prior to the fiscal cliff deal), Mark Theissen made a similar point in Why not let taxes rise on the middle class?

Don’t get me wrong: It would be better not to raise taxes on anyone, pursue pro-growth tax reform and cut the size of government instead. But that’s not what the American people voted to do last month. Americans cast their ballots for big government.

Now it’s time to pay for it.

I think this is largely true. It seems clear that, in aggregate, people only react to a fiscal policy when it impacts their bottom line. Helping others (or helping themselves) sounds good to people as long as they don’t have to pay for it. Government has discovered that it can increase spending without asking us to pay for it by selling our children into debt bondage to pay for it. That is a moral crime.

And when I look at my son’s sweet, innocent face, it goes from being an abstract moral crime to an infuriatingly real one.

How selfish can one population be?

Christopher Cook

Christopher Cook

Managing Editor at Western Free Press
Christopher Cook is a writer, editor, and political commentator. He is the president of Castleraine, Inc., a consulting firm providing a diverse array of services to corporate, public policy, and not-for-profit clients.

Ardently devoted to the cause of human freedom, he has worked at the confluence of politics, activism, and public policy for more than a decade. He co-wrote a ten-part series of video shorts on economics, and has film credits as a researcher on 11 political documentaries, including Citizens United's notorious film on Hillary Clinton that became the subject of a landmark Supreme Court decision. He is the founder of several activist endeavors, including (now a part of Western Free Press) and He is currently the managing editor of and principal contributor to
Christopher Cook

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Do we hate our children?