Big Red Car here and I am pissed. I usually am a mild Muscle Car and don’t get too angry about things but I am really pissed off now. So, today, let’s cut the crap about dealing with the Nation’s finances and get it done. Here is how.
Houston, we have a freakin’ problem!
First, let’s agree that we have a problem. It is really that damn basic now after all. We are spending crackheads.
The President does not think we have a spending problem, a debt problem, a deficit problem, an unemployment problem and none of those things is urgent in his mind. He is simply wrong.
He personally is not willing to do without any of the Imperial trappings of his office to set the example to be fiscally responsible.
We desperately need leaders who are willing to admit that we have a problem. We need leaders who are willing to do something with a sense of urgency. Well, to actually LEAD! To lead by example.
The problems are pretty damn simple — we spend too much. We are not constrained by the available revenue in any manner. We just keep spending and then we think about how much money we need rather than ascertaining how much money we are likely to receive and not spending more than that number.
Every Governor and Legislature in the United States has to deal with revenue first and spending second. Spending cannot exceed revenue. We need to realize that we have a deficit problem — we spend more than we take in.
This leads to a deficit problem — we cannot simply keep running $1.5T deficits forever.
This leads to a debt problem — we simply cannot take the interest rate risk that we can pile on debt with no consequences. When interest rates tick up, we are going to implode. We are looking at a $22T debt by the time President Obama leaves office.
We need an intervention. A crackhead spending intervention. America, deal with it.
Our government is too damn big
Our government is simply too big and thereby too costly. This is a structural problem as much as a financial problem. If attacked from the perspective of size alone, it would follow that the COST of government would shrink as the SIZE of government shrinks.
Therefore, if one truly seeks to control the cost of government it is apparent that one has to consider the size of government as the intellectual first mover.
If you contract the size of government, you automatically reduce the cost of government.
If you allow the size of government to grow unfettered, it also follows that you have lost battle on the cost of government.
In this linked view of things is the answer to the issue of the cost of government. Or reducing the cost of government more accurately.
Our government is not adaptable
As the world changes, our government stays the same with its solutions taking the form of “fighting the last war” rather than fighting the next war. A powerful example of that is unemployment, unemployment reporting and job training.
Let me start with unemployment reporting and our addiction to the meaninglessness of U-3 BLS numbers. We should be focusing on U-6 or U-7. Go look up the differences but know that U-7 which includes folks who have become “disconnected” from the economy or who are otherwise underemployed is where our focus should be. If you always have your thumb on the scale, you cannot make good decisions as you do not know the real magnitude of the problem.
We need to adapt to the real world.
You cannot extend the period of unemployment assistance and expect people to become more vigorous about seeking employment. While that is a “feel good” and otherwise humanitarian instinct at play, it is not good public policy particularly if you do not intend to count those folks as unemployed.
It is pretty clear that the same amount of funds spent on job training — which ultimately adds to the Federal revenue coffers as it creates taxpayers — would have a better result. You would reduce unemployment expense while adding to revenue.
Likewise, as the economy changes and Federal jobs are no longer competitively priced — they are too highly compensated as the economy drifts lower — you cannot expect the Federal government work force to be “right sized” and thus less costly.
Federal employment compensation should be allowed drift lower as the private sector has also done during a recessionary time.
There are a slew of examples that demonstrate the lack of agility and adaptability of the government and these are just a few.
What would a “turnaround” look like?
Looking at the problem like a “classic” turnaround, one would do the following things:
1. Eliminate, consolidate, reduce the functions of government. Take a look at every department of the government and see which ones could be eliminated — Energy, Education, Intelligence, Homeland Security. Note that some of these functions could be eliminated completely looking to the States to provide that function and some could simply be combined or reduced in scope. Defense, intelligence, homeland security is one that should be combined.
2. Get rid of all redundant and duplicative functions and programs. This would be a good time to eliminate all Czars which are simply department functions that fly under the specter of Congressional approval.
3. Freeze the size of government payrolls at current levels with an eye toward 2007 levels of total compensation. This would require a commitment to allowing the size of the government work force to drift downward through attrition — not hiring replacements as folks retire but rather reorganizing the work group around the remaining work force. This can be done very easily.
Once we have reached the size of 2007 levels of employment, then new employees can be brought in at current competitive levels of compensation — lower wages.
4. Get serious about JOBS — jobs create revenue and reduce the costs of unemployment. Toward this end, we need to fully fund the SBA and all of its job creating and lending programs. Now. With GM bailout $$$.
5. Make America competitive on every tax front — we have the highest corporate taxes in the world. Get real and do it quick.
6. Reform entitlements and do it now. We all know the matrix which will ultimately be imposed on both Social Security and Medicare. Increase in eligibility age for those over 55, means testing, privatization for young folks, opt out option for young folks and partial rather than full CPI linkage. Third rail be damned.
7. Get rid of all crony capitalism and corruption. This likely saves almost a third of the total required savings but it will take some real guts to do this.
8. Get rid of the existing Tax Code, start from scratch and make it no longer than 100 pages. Simple, easy to understand and administer and everyone pays something.
There is not a single unique idea amongst the above and they are more than enough to balance the budget in about 3-4 years. It can be done if we have the national will.
What is magic about 2007?
In FY 2007 we ran a slight surplus on the budget account.
In FY 2007, we had a record level of revenue and the CBO predicts that FY 2013 will exceed our FY 2007 levels — we are going to have record levels of Federal revenue. Yes, the revenue side of the equation is very sound but not for perhaps the best possible reasons. The reason is primarily because of the CY 2012 year end tax selling in the face of higher CY 2013 rates. Don’t get CY and FY confused.
If we can take steps toward reducing spending to FY 2007 levels, then we will run a surplus as we did in FY 2007. We can do this.