Take a look at this video featuring David Walker, the comptroller general of the US. It’s worth 11 1/2 minutes of your time. If you have trouble viewing it, you can read about it here. And visit the GAO’s website, which includes the schedule for the Fiscal Wake-up Tour along with a pdfs of the presentations. And here is Walker’s presentation (Windows Media format).
I agree with Mike – this stuff should be required viewing for everybody. Hell, I may have to load it up on YouTube myself!
VIVIAN J. PAIGE | All Politics is Local 
Vivian – one of the things I’ve learned in life is to listen to accountants. Walker’s crusade is chilling. More so because there is virtual partisan agreement on what he warns about.
Well, of course you should listen to accountants (says the CPA 🙂 )
The video on the GAO website should be on Youtube so that everyone can see it. Unfortunately, it can’t be posted there. Now why would the GAO deny that kind of exposure?
The only thing I’m worried about is this talk of “reforming” social security. Social security is the only solvent part of our federal government. If only the surplus funds from social security taxes had been placed in the infamous “lock box” instead of being used to cover endless tax cuts for the wealthy. The program may need minor tweaking at the margins (penalizing early retirment; increasing the cap at which incomes are subject to social security taxes).
However, the disastrous consequences of revenue shortfalls (thanks to Bush’s tax policies) combined with the vast expansion of wasteful government spending and, of course, the fiscal impact of the health care crisis can not be understated!
The question is, what would we do with the money in the “lock box”? Theoretically, the surplus has been in just such a “lock box,” which is the Social Security Trust Fund. This money is invested in special U.S. Government Bonds. To pay these bonds, of course, will require that the money come back out of the general revenue. In essence, it’s a scam. However, if we had invested that money, perhaps in stocks or other countries’ bonds, we would have had to borrow that money back to pay for our overspending. (Or we would have had to cut spending.)
Tax cuts for the wealth? What tax cuts for the wealthy? The federal government took in $1.783T in 2003 (16.5% of GDP) and $2.407T in 2006 (18.4% of GDP).
We also see that the tax burden is shifting even further onto the highest quintile in this CBO report, while the share of the tax burden borne by the lower four quintiles (except the 4th in 2008) continues to decline.
So please explain how increased revenue (and a greater share of GDP) with the burden shifting away from the lower four quintiles and onto the highest quintile, constitutes “endless tax cuts for the wealthy”?
“The wise speak only of what they know.” -Gandalf the White
Vivian –
What do you mean, it can’t be posted there?
Mark – I asked Kenton (the whiz kid from 750 Volts) to load it up on YouTube, which he did. When I went to view it, it said tht it had been removed for a “terms of service” violation. My guess is that the video is copyrighted. Like I said, why not put it up there?
As for the SS lockbox – the fact is that the lockbox is empty, filled with IOUs from the government. When they raised the contribution rates, it was to mitigate the cost of the retiring baby boomers. Sorry – but there ain’t no way to fund SS with IOUs. The government should have been forced to either increase revenues or cut spending. They did neither. And yes, the tax cuts exacerbated the problem.
Anonemouse – Nice comment. But here’s what I take away from this post: The US is headed toward economic collapse mainly because of its inability to manage healthcare costs. Your comment focuses on the partisan political issues surrounding social security and whether the rich are paying their fair share. Who cares? Bickering about the sceanry while you fall may be entertaining, but it’s the landing that’s going to kill you. The Presidents’ plan for privatizing social security was rejected – for a number of reasons. Personally, I believe there may be some room for privatization. And I look at the revenue numbers you provided & the CBO and what I take from it is that the rich have gotten richer and the poor have gotten pooer in an inflationary economy – not your conclusion that tax cuts for the wealthy have actually resulted in the rich paying more in taxes (adusted for inflation) and that the rich are consequently assuming a larger GDP burden.
Maybe you’re right and maybe I’m wrong. But I think the real issue is what is laid out by Walker. Healthcare costs need to brought under control at nearly any political price because unmanaged healthcare presents a real and imminent economic threat to the US.
Here’s the video on YouTube (it’s just part one – the second part should be linked in the sidebar to the video). Work prepared by the Federal government isn’t subject to copyright protection.
(Kenton, if you’re reading this, ask(demand) that YouTube explain the nature of the TOS violation. I suspect they’ll just restore it, instead of answering.)
A sobering message.
“Your comment focuses on the partisan political issues surrounding social security and whether the rich are paying their fair share. Who cares?”
Mike, seank make an ignorant comment about “endless tax cuts for the wealthy.” I provided data to counter his ignorance. The “tax cuts” take MORE of our GDP, and the rich are paying a LARGER share of that.
“I look at the revenue numbers you provided & the CBO and what I take from it is that the rich have gotten richer and the poor have gotten pooer in an inflationary economy…”
First, we have very low inflation, historically. Second, there is nothing in the CBO report about bracket mobility. Some poor become rich, some rich become poor, and there’s a whole lot of movement in the middle quintiles. Yes, the income distribution curve is flattening. This is a consequence of our transformation to a service economy, and bears directly on the problem. Many of the jobs that are being created in our economy require minimal skills. As such, many do not provide health insurance.
We are facing a stark reality — that socialism is economically unsustainable.
I bet you also have in your hand a list of Communists working at all levels and departments of the Federal Government….
Mrs. Mouse, here’s the fundamental failure of your libertarian free-market cruscade in action: the countries that keep buying our debt are largely socialist. The historically-low inflation you mentioned earlier is a direct result of China buying up all the US Treasury notes in order to keep the value of a dollar up. The reasons they do this are two-fold. One, it means that because the Yuan is undervalued relative to the dollar, an individual consumer in America can get more Chinese goods for his dollar, making those Chinese goods more-competitive to American goods, which seem over-priced. That’s the micro-economic reason for China prefering an undervalued Yuan and an overvalued Dollar. The second reason they buy out our notes is that at the macroeconomic level, their undervalued currency against our overvalued currency means their goods are undervalued and our goods are overvalued, so we cannot compete against them in the global marketplace.
It doesn’t come down to socialism versus capitalism. It’s about the economies that produce things not being able to compete against the economies that can only consume. Looking at the microeconomics once again, the average American is saving less of his money than ever in post-Depression American economic history. Our founding fathers believed that a penny saved was a penny earned, but we finance our private lives through credit card debt. At a macroeconomic level, we do the exact same thing: rather than invest in ourselves, we cut taxes, encourage Americans to live beyond their means, support a global economy that is slanted to prevent American goods from being competitive overseas so we can all have our cheap communist DVD players, and run up the national debt.
We’re facing a stark reality, alright, but it’s not the one you think. We absolutely need to look at medicare and medicaide reform, as well as social security reform. But we will continue to fail ourselves and future generations of Americans until we look at the big picture and ask ourselves: do we really want to be a country built on debt? Do we really want to be an economy that doesn’t care if we can’t produce anything, as long as we can consume everything?
edit: it should read “it’s about consumer economies not being able to compete long-term aginst economies that produce things. I changed the sentence structure to make it more readable, but it unfortunately was readable but meant the opposite of what it should have….
“I bet you also have in your hand a list of Communists working at all levels and departments of the Federal Government….”
It’s quite easy, actually — just get the list of those who are registered Democrats.
“The historically-low inflation you mentioned earlier is a direct result of China buying up all the US Treasury notes in order to keep the value of a dollar up.”
The value of the dollar is at all-time LOWS. Please try to pay attention.
Your comments about China are quite silly. If China is selling us goods too cheaply, then they are transferring wealth to us. If they were to allow the yuan to float, their products would become more expensive relative to other nations. We would still use our credit cards to buy what we have not earned — we would just buy those goods from other countries instead of China.
Yes, anonymous, the people in China live SO much better than we do in their socialist paradise. So well, in fact, that they are only allowed one child, so many kill a first-born girl, because a son will support them in their old age where a daughter would not.
“Do we really want to be an economy that doesn’t care if we can’t produce anything, as long as we can consume everything?”
Actually, our manufactuing output is at all-time highs. Again, please pay attention.
If you don’t want to be a country built on debt, stop using your credit cards and home equity to buy what you have not earned. It is our excess of purchases beyond what we make (our GDP) that causes our trade deficit, and our overspending on extra-constitutional entitlements that causes our national debt.
Yeah, manufacturing output? That number inflated a while back when a lot of goods produced by what would normally be considered the service industry were migrated into a manufacturing industry classification. Famously the Bush administration even tried classifying fast food staples like the Big Mac and the Whopper as manufactured goods. As one wit said, “just because it sits in your colon for two weeks doesn’t make it a durable good.”
You can go ahead and say “please pay attention,” but you’re not an economist. If I hadn’t picked up on that when you misused the phrase “GDP” I would have picked up on it when you said that just because the value of a dollar is falling against other currencies means that it’s not overinflated. If you told me you paid $300,000 for a car, I might be justified in saying you paid a ridiculously high price, but that doesn’t mean I didn’t also pay a ridiculously high price if I paid $150,000 for it.
Likewise, you state that “if China is selling us goods to cheaply, they are transfering wealth to us.” I don’t know what kind of messed up economy you live in, but I can’t buy a house by bartering for it with a truckload of TiVO knockoffs. You would have been correct if you’d pointed instead to the fact that they buy T notes from us because in that case they ARE transferring capitol to our government, but keep in mind they’re expecting us to pay them back with interest. They transfer wealth to America the same way Visa transfers wealth to your household.
Finally you also failed with your understanding of “economically sustainable” when you tried to translate it back into something akin to “quality of life.” I didn’t say that China was a Worker’s Paradise by any stretch (although that whole killing the infant girls thing was SO 20th Century, we’re in “now” now). I simply pointed out that China (as well as several European countires where they never killed infant girls) are doing well enough economically-speaking that they can afford to loan us money to buy their goods while subverting our economy at the same time.
Oh, and in case you were wondering, GDP isn’t a collective expression of how much money we each make separate from debt. It’s better understood as the total market value of all goods and services within a country during a specific timeframe and is expressed longhand as Private Consumption + Corporate Investment + Government Spending + (exports – imports), mathematically as GDP = C+I+G+NX. By the 2005 estimates, public debt accounted for 64.7% of the GDP.
“[Manufacturing output was] inflated a while back when a lot of goods produced by what would normally be considered the service industry were migrated into a manufacturing industry classification.”
Show me.
Anyway, if you don’t like that, let’s use the Federal Reserve Board’s Industrial Production index, which shows similar results — our industrial output is at all-time highs.
Now, one of your problems with China is that they are selling us goods too cheaply. The only definition of “too cheaply” that makes any sense is “below production cost.” If China spends $10 to make something that they sell to us for $9, they have transferred $1 of wealth to us. It’s all detailed quite clearly in The Wealth of Nations. (I have noticed that this book does not seem to be required reading for many Economics degrees. Very sad.)
“They transfer wealth to America the same way Visa transfers wealth to your household.”
That assessment I will agree with. However, in both cases, the lender does not wish for default Even more so with China, as they are far more dependent on the U.S. than Visa is to any of its debtors. (I assume you meant CAPITAL, not CAPITOL. I will be very distressed indeed when China tries to transfer its capitol here.)
Doing well is not a requirement for being a lender. The only requirement is that one spend less that he earns. Even minimum wage workers can do that.
I did not say that GDP is “a collective expression of how much money we each make separate from debt.” It is a collective measure of what we produce. (Yes, that includes Big Macs and haircuts.) If we purchase more than we produce, we must have a trade deficit.
The question is, how do we purchase those extra goods? Where does the money come from to make those purchases? It come from debt (or depleting our savings). Thus, it is our willingness to go into debt, to use our credit cards and home equity loans to buy things we have not earned the money to buy, that causes our trade deficit.
BTW, I also assume you meant to say “the total market value of all goods and services PRODUCED within a country during a specific timeframe.” If GDP is the total market value of the goods and services we have produced, it is not a good proxy for how much we have, collectively, earned? If not, where did that value go?