Kindergarteners for Fiscal Discipline — UPDATED

I’ve been silent for a long time — not because I’ve been sunning myself, as Fitz recently alleged, but because I’ve actually been busy at the day job some of you insist I don’t have. Sadly, I even worked through most of a family vacation in Lake Tahoe. But during that week in Lake Tahoe, I did have one Great Moment in Parenting.

We were still on Eastern time, and my son, who will start kindergarten in the fall, is an early riser anyway. So we were up before the rest of the clan, walking around and killing time. Changing abruptly from whatever topic we had previously been discussing he looked at me and said — I wrote this down right away so I would remember it — he said:

Dad, I’m beginning to think that the government is lying to the people. Because they say they’re only borrowing the money, but they’re never going to pay it back. It’s a big fake.

That pretty much sums it all up, doesn’t it? I assume his thoughts on this were prompted by a family conversation the day before about the dubious value of lower taxes if we don’t restrain spending. My claim had been that if both major-party presidential candidates were going to spend like drunken sailors, I’d rather vote for the one who was going to tax me for it than the one who was going to leave the bill for my kids. My kids were apparently listening. Too bad they can’t vote.

While I’m on the subject, three related points. First, I also heard in the last month that if the national debt were calculated on an accrual basis –taking account of all the future liabilities created by current law — it would actually be about $80 trillion. My search for a source for this number has been frustrating but not entirely fruitless. As it happens, the Government Accountability Office tried to beat this drum rather loudly under the leadership of former Comptroller David Walker. He noted in 2006 that in the first five years of this century we more than doubled our long-term entitlement liabilities — from about $20 trillion in 2000, to about $46 trillion in 2005. It would be nice if we could shrug this off by comparing it to the size of the national economy, but in fact the liabilities also doubled in proportion to GDP, going from about 200% of GDP to about 400%. So when people talk about a national debt of a staggering $9 trillion, they’re really just warming up for the discussion we ought to be having.

Second, North Country Public Radio recently plugged an interactive budget simulator on its web site. The simulator is called “Budget Hero,” and the idea is to choose from a menu of fiscal policy options in order to shrink the budget deficit and postpone the year in which tax revenue will be insufficient to cover anything except entitlements and interest. (That year, according to the game, is currently 2033.) It’s far from a complete menu of policy options; for example, it gave me the option to cut spending on school lunches, but not to eliminate the Department of Education. It’s also a little weak on detail; for example, I could save $391 billion by “bring[ing] the troops home soon,” but it would actually cost $119 billion more to “bring the troops home gradually.” I’m for “soon” and “gradually,” so if there is a $500 billion difference between them then I surmise that the game makers must be giving these words different meanings than I would. It’s weakest on tax policy; “cut corporate taxes” costs $1.3 trillion, whereas “reform and hike corporate taxes” nets us $28 billion. If those are the choices, who could possibly be for cutting rather than reforming and hiking? But for all its pro-government, pro-federal, pro-tax limitations, I hope many people play the game. It’s more engaging than it is informative, but arguably our fiscal problems owe more to lack of engagement than to lack of information.

Finally, the aforementioned David Walker has recently taken his show on the road with the Concord Coalition’s “Fiscal Wake-Up Tour,” and the tour has apparently spawned a new documentary that will hit theaters August 22. It’s called “I.O.U.S.A.,” and you can watch the trailer here. I hope it’s still playing when I get back to Washington. If it exerts even a little positive influence on the choices we make this November, it’ll be a great public service.

UPDATE: This just in:

The government says the federal budget deficit soared in July, pushed higher by economic stimulus payments and $15 billion in outlays to protect depositors at failed banks.

The Treasury Department reported Tuesday that the deficit for July totaled $102.8 billion, nearly triple the $36.4 billion deficit recorded in July 2007.

We’re borrowing money to give away. I think that makes us officially pathetic. And a fat lot of good those stimulus checks did anyhow.

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6 Responses to “Kindergarteners for Fiscal Discipline — UPDATED”

  1. Mark Esswein Says:

    I.O.U.S.A got a mention on NPR’s Morning Edition this morning. Here’s the link: http://www.npr.org/templates/story/story.php?storyId=93555892

  2. David Fitzgerald Says:

    Two nights ago I was having a farewell dinner here in London hosted by a law firm that shall remain nameless. One of my colleagues is a British citizen but Azerbaijani by birth (her family still lives there). I was sitting between two female partners who do a lot of emerging markets finance work. They were Ghanan and South Asian by ethnicity, respectively. Perhaps inevitably, the conversation turned to the situation in Georgia. Also perhaps inevitably, I was asked what the US might do in response to Russia’s aggression. My answer was, roughly $90 bn every six months off budget to Iraq and Afghanistan. That’s a hard cash hit to the US’s income statement. An additional $30 bn loan to JP Morgan that, in essence, nationalized Bear Stearns. $5 TRILLION in contingent liabilities to support Fannie Mae and Freddie Mac. Finally, without constant and significant Federal Reserve real dollar cash support of the banks our entire financial system would be in meltdown. I think its pretty clear that the US will and, more importantly, can do nothing in Georgia, or anywhere else. Further, I believe that if Putin decides to send tanks to the Soviet Union’s 1989 borders, short of committing nuclear weapons, neither a bankrupt US nor an impotent and dithering Europe could or would stop him. Perhaps we would be forced to fight for Poland and Hungary but only because we really would have no choice.

    Here is a political and moral failure that has many fathers. We find ourselves in a strange situation. At this very minute, the Russian military is carving up America’s strongest democratic ally in central Asia into little pieces (Curious to know what the Russians will rename George W. Bush Blvd in Tblisi). The Russian goal is to gain control of one of the only natural gas pipelines into Europe currently outside of their control in order to tighten the noose around Europe and send more hard western currency into Putin’s and his oligarch friends’ Swiss bank accounts. At the same time, every major western bank is falling over themselves to arrange financing for Russia’s growth and western investors, including Americans, clamor to get a piece of the action because the returns are outrageous. The Teamsters may have funded the mob’s ventures in Los Vegas but at least Citibank had the scrupples not to. Today, all bets are off.

    For a generation, America has made a moral and political choice in favor of almost complete individual freedom in the deployment of capital. We have a tax burden that is uniquely low in the western world and almost absurdly low by any modern standards. Despite the rhetoric, we keep a tremendous amount of what we earn. In addition, there are very few regulatory restrictions on how that capital is deployed. Investors can chase returns almost wherever they are to be found. Unless a government is actively engaging in genocide (Sudan) or happens to be Cuba or Iran, US investors can play in their markets.

    As a result, Iraq’s oil industry is starting to come online (they now have approximately $90bn in USD reserves sitting in the fed in NY, the current administration and the McCain campaign call this a “success”), Halliburton’s shareholders reap huge earnings through US government contracts and ….New Orleans languishes and bridges and cranes collapse in St. Paul and Manhattan. Have you tried to fly out of JFK or O’Hare lately? Now, they’re not Mogadishu International Airport yet but even Fiumicino in Rome (the ITALIANS for godsakes) makes them look and feel like the ancient relics of a glorious past that they are.

    The solution certainly is not to have Congress hoard more of our hard earned dollars and dole out the goodies to special interests. But America desperately needs an economic development blueprint for the 21st century that goes beyond the false dichotomy of “tax and spend” and the Lafer curve. The solution, if it lies anywhere, must lie in a government that develops reasonable and smart regulation about how capital can be deployed and which takes fiscal integrity seriously partnering with the financial, legal and technological expertise which remains the envy of the world. We used to be able to create these types of partnerships to solve our problems. This election desperately needs to be about which candidate has the will, the integrity and the imagination to do so again.

  3. Timothy Peach Says:

    Granulous, come on, you didn’t leave the poor boy hanging, did you?

    Didn’t you tell him about the giant printing press we have? The money we owe is the same kind we make more of every day! If we owe more, we can just print more. It’s easy!

    If you really get into it, the printing press eventually turns out some REALLY fun stuff. Look how much fun they’re having in Zimbabwe these days:

    Unfortunately, with the US economy about to turn as I type this, and with the mainstream media about to report it the day after Obama wins the election (at the earliest), the dollar will rally, tax revenues will firm up, our foreign war bill will start to decline, our equity markets will rally ferociously, we’ll be the envy of the world again, and your son will have to go back to complaining about you.

  4. Mark Grannis Says:

    That’s some photo. Can you give me the name of the guy holding the bill? Because according to Yahoo’s currency converter (http://finance.yahoo.com/currency/convert?amt=100000000000&from=ZWD&to=USD&submit=Convert), that bill is worth about US $7.5 billion.

    Has there been a revaluation? And if so, in which country?

  5. Mark Esswein Says:

    There was 10bn:1 revaluation effective August 1.

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