Centerblue.org

Little noticed in the cacophony of Christmas, celebrating Democrats, and a wardrum-beating President was this report from the United States Treasury. Its conclusions summed up in one sentence: America is insolvent, bankrupt, unable to meet its obligations. Yes, America–the most powerful empire in the history of the world, stands to go bankrupt trying to make good on its promises and yet the band plays on, blithely unaware.

The report doesn’t mince words, with language readily available for anyone to see if they cared.

Despite improvement in both the fiscal year 2006 reported net operating cost and the cash-based budget deficit, the U.S. government’s total reported liabilities, net social insurance commitments, and other fiscal exposures continue to grow and now total approximately $50 trillion, representing approximately four times the Nation’s total output (GDP) in fiscal year 2006, up from about $20 trillion, or two times GDP in fiscal year 2000.

As this long-term fiscal imbalance continues to grow, the retirement of the “baby boom” generation is closer to becoming a reality with the first wave of boomers eligible for early retirement under Social Security in 2008.

Given these and other factors, it seems clear that the nation’s current fiscal path is unsustainable and that tough choices by the President and the Congress are necessary in order to address the nation’s large and growing long-term fiscal imbalance. (emphasis added)

Do you know how much $50 trillion is? If you sold every piece of property in America, every house, every skyscraper, every factory, every highway, every power plant–and left the land in the pristine condition discovered by Christopher Columbus, you would generate approximately $50 trillion. That is the magnitude of the hole in which the country finds itself in.

With regards to the federal entitlement programs of Social Security, Medicare, and Medicaid:

The net social insurance responsibilities scheduled benefits in excess of estimated revenues indicate that those programs are on an unsustainable fiscal path and difficult choices will be necessary in order to address their large and growing long-term fiscal imbalance.

Delay is costly and choices will be more difficult as the retirement of the ‘baby boom’ gets closer to becoming a reality with the first wave of boomers eligible for retirement under Social Security in 2008. (emphasis added)

There is no way to just “grow” out of this problem. As Dr. Chris Martenson over at Financial Sense University points out, the report’s statement of liability is assuming a steady 5% growth in the economy each year through at least 2011. That assumes there will be no recession during that time period–and even this year’s sub-par growth alone shows that 5% is not sustainable. Furthermore, the country’s liabilities more than doubled between 2000 and 2006, from $20 trillion to $50+ trillion. No amount of growth can overcome such a gargantuan increase in such a short time.

The net result of all this is that our national wealth and standard of living is set to take a precipitous decline in the years ahead. Let’s face it–the government is not going to default…it’s going to have to make some painful choices at some point. Someday some hapless president is going to sit before the cameras and tell the American people that he’s very sorry, but the country has promised far more than it can deliver, and that Medicare/Medicaid/Social Security are from now on either cancelled entirely, or severely pared back along with a drastic tax increase.

Those of you not saving up for retirement, hoping that these programs will carry you through old age: prepare to live under a bridge, because that’s about all the government will be able to afford for you unless it does something pretty drastic very soon.

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This massive problem is why, despite the opposition of my friends on the Left, I actually favored exploring Bush’s plan to create private spending accounts for Social Security (they’d do nothing for Medicare and Medicaid, but let’s solve one problem at a time)–accompanied by removing the $94,200 cap on yearly income subject to federal entitlement withholding (which he did not propose and should have). We have to do something, and the approach taken by the Democrats during that debate–the “do nothing” approach–is simply not acceptable.

Bush’s plan would have given everyone the option (not the obligation) to have their own withholdings diverted to a private account they could then manage through investments in the stock or bond markets. People who opted to do that would then be entitled to either draw less or not at all from the government upon retirement. Anyone who opted to keep paying to the government would be guaranteed his entitlement in full upon retirement.

Personally I’d love to manage that money myself; I’m confident I could earn a better return than the government could. Nevertheless, liberals came up with some very bad excuses as to why this wouldn’t work:

1) It’s risky to invest in the stock market given its ups and downs. Yea well it’s risky to promise everyone a retirement safety net that the government simply can’t afford. The risk of that is that you’ll get little or nothing. How does that compare to the risk of investing in the stock market, where for every 30 year period in the past the market has been higher than it was 30 years prior regardless of wars, deficits, and other problems?

2) If you invest unwisely, you’ll be stuck/starve. OH WELL, too bad. That’s the risk I took, fully aware of the consequences. I’ll starve just as much if we do nothing and the government can’t pay…so I might as well try to do something about it.

3) If too many people leave the system, there won’t be enough to pay those who don’t. This may have a grain of truth to it, but it’s addressable. I would want to see a study done on this, but it’s certainly possible that the higher income earners are the ones most likely to leave the system and invest privately, leaving less money from lower income earners in the pool to distribute among those who remain. This is easily addressable, however: set a sliding scale such as the higher your income, the less you can funnel to a private account..until that amount eventually dwindles to zero and goes entirely into the federal system. Those CEO’s making $40 million bonuses don’t need social security anyway…and neither does anyone with a substantial income that is better able to save for retirement himself….so say that anyone who makes more than $200,000, for example, has all his social security tax diverted to the government instead of to private accounts (this assumes the lifting of the $94,200 cap). Problem solved.

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We need some bold ideas to deal with some drastic problems–and we have yet to hear of a plan for Medicare/Medicaid. Democrats either need to come up with a better plan for social security, or they need to shut up. Doing nothing is just not acceptable and is a disservice to our country’s future. Let’s leave the “do nothing” label to the Republicans, under whose watch all the nation’s liabilities more than doubled in just six years.

It’s one thing to lob bombs from the safety of minority status, it is quite another to lead. With Democrats sweeping the Republicans out of the House for the first time in 12 years, and probably picking up the Senate pending recounts in Montana and Virginia, what they just accomplished was the easy part. Now comes the hard part of leading the country out of the sorry morass in which it finds itself.

Let’s neither under- nor over-estimate the magnitude and meaning of Democratic victory last night.

The leader of the “under-estimate” crowd is the idiotic and disgraced former House Majority Leader Tom DeLay, who with a straight face told MSNBC last night that a Democratic victory in the House would make them nothing more than a “lame-duck majority;” whatever that means, it is infinitely better than being a minority which is what hopefully faces his party for the foreseeable future. I have also seen lots of bloggers, liberal ones especially, downplay the meaning of the election as having been limited to just a few corrupt officials, say it’s a “small step forward,” it wasn’t a landslide, and so on.

From whence comes this pessimism? Have we been out of power so long we are still too afraid to relish being in the majority, fearing that we might wake up any minute and find out it was just a dream?

When the Republicans ushered in their so-called Republican Revolution in 1994 with guns blazing, by what margin did they hold the House? The GOP led Democrats by 230 to 204, a margin that shrank in the intervening years and one that was won mostly by victories in the conservative South. How about now? Democrats picked up at least 27 seats last night without losing a single one (unheard of in modern memory even in 1994), many of them in the Northeast but also in all other areas of the country. That put the count at around 228 Democratic, 195 GOP, and 12 still undecided as of this morning. Pretty close to 1994 in reverse, huh? With that 230 to 204 margin the GOP, for better or for mostly worse, imposed a long period of Republican hegemony in Washington that didn’t end until last night. If that number was good enough for them, it’s good enough for Democrats.

On the other hand, let’s not over-state the case either. Democrats won more for being the anti-Bush than for the strength of their own vision, and nobody is claiming a revolution. I don’t see that as a bad thing. An old saw in politics is that when your enemy is self-destructing, you stand back and let it happen. Republicans were doing such a good job of imploding, and voters seemed so eager for a change, that there was no reason for Democrats to stick their necks out by proposing plans and visions that would subject them to hostile fire. Keeping mum on a specific agenda was therefore good politics.

Now the election is over, the Elephant is dead, and it’s time for Democrats to grapple with the reins of power. I do not envy them the huge mess they have been left with to fix: Iraq. North Korea. Iran. Global warming and accelerating environmental degradation. Corruption. An economy teetering on the edge of a nasty recession or worse caused by a flattening housing market, loss of confidence in the dollar, and massive federal debt and trade deficits. Oil addiction to hostile countries. Stagnant wages. Soaring healthcare costs. The imminent retirement of the baby boomers and the accompanying burdens on federal entitlement programs.

The problems are monumental, and the nation is looking to Democrats to start providing some answers. If they succeed, they will likely forge an enduring majority. If they do not, they will either return to minority status or exchange power every so often with Republicans. In a way the deck is stacked against them, since many of the problems that were created by Republicans will see their full fallout and consequences under Democrats’ watch, and they therefore stand to be unfairly punished in the future. But that’s the nature of politics, and Democrats will either cope or not.

As they struggle for answers, the more liberal leadership should not forget that they were brought to power on the backs of moderates and conservatives who wrested districts away from Republicans. The center-left forms the backbone of the new Democratic resurgence. These people, the Blue Dog Democrats and others like them, will have to answer to their constituencies again in the not-too-distant future, and you can bet these folks will push hard for the kind of centrist agenda that the DLC and Rahm Emmanuel espouse. This alignment towards the center is also good for the party because our gain of moderates (truly the heart of America) is Republicans’ losses of same, making them more than ever a minority party of extremists on the Right.

Democrats are off to a good start, promising in their first 100 hours to do things like raise the minimum wage and force pharmaceutical companies to compete and lower prices for the Medicare prescription drug benefit. They will not have much time to celebrate and measure the drapes before being called to account for their vision on how to fix the mess in Iraq.

They better be ready.

The Dow Jones Industrial Average is hitting record highs. Gas/oil prices have retreated somewhat. Unemployment is at a historically low 4.6%. Inflation remains under 3%. Interest rates have receded.

By these and other measures such as GDP, the economy is doing well. Why, then, are voters angry about the economy, with a majority saying they disapprove of Bush’s/Republicans’ handling of the economy?

Alan Murray hits the nail on the head with his commentary in today’s Wall Street Journal:

Large numbers of Americans seem to have lost their belief in John F. Kennedy’s famous aphorism that a rising tide lifts all boats. “They know the economy is white hot,” says political analyst Charlie Cook, “but they also know they aren’t in it….There’s a feeling that some people are getting theirs, but we aren’t getting ours.”

There’s a well-known litany of reasons for that. Median earnings have been growing at a disturbingly slow pace, even as profits and high-end pay have soared. Health-care costs are not only increasing, they increasingly are being paid by consumers, not by employers or the government. Pensions are disappearing, as is job security — and any sense of long-term loyalty from employers. As pollster Peter Hart puts it, “there’s no gold watch” waiting at the end of a career these days. He cites a cartoon in which the boss says: “Mr. Jones, the reason we are letting you go is because you’ve given us the best years of your life.”

Meanwhile, a thin slice of America is enjoying unprecedented prosperity. CEO pay is one of the most visible manifestations, rising in the past decade at triple the rate of the median worker’s pay. In…Greenwich, Conn., skilled financiers bring home eight- and nine-digit paychecks, unimaginable in the not-so-distant past. Americans have never been big on the politics of envy, in part because they hoped someday they would join those at the top. But increasingly, they wonder whether the economic game is rigged, and whether all these riches are the result of backdated options or insider trading or some other trickery that doesn’t benefit them.

He goes on to note that the disconnect occurring between the upper class and everyone else may result in the demise of the pro-business, free-market platform popular in Washington for the last quarter century. Increasingly, Democratic challengers like Senatorial contender Sharrod Brown of Ohio are adopting a populist, anti-trade, anti-globalization, anti-immigration, anti-big big business message that is bound to appeal to the struggling and rapidly disappearing American middle class.

I have mixed feelings about this. Obviously the sources of increasing inequality are glaringly obvious and real as described in the article…but I’m concerned about tossing the baby out with the bathwater. America is really feeling the negative effects of globalization (which powers a lot of the deleterious changes being seen in American industry), because our standard of living has been so much higher compared to the rest of the world. Globalization evens the scales, and while that means an improvement to everyone else it means pain for us. Can we really avoid this, though..or should we?

The rest of the world has the same right to a higher standard of living as Americans do. But even if we disagree on this point, it’s hard to see how we could get America to “opt out” of the globalization taking place everywhere else without being left woefully behind. For all its drawbacks, globalization does increase trade, wealth, and access to technology..to the ultimate betterment of all. Can we really afford to build a virtual wall around us, and would such a wall succeed? It never has before.

There’s a lot wrong with globalization that is hurting Americans, and these things must be fixed. A glaringly obvious example is other countries’ disregard for health, labor, and environmental standards for their workers–which allows them to milk their workers for pennies on the dollar while American industry is “saddled” with these obligations. We have to exert strong pressure on our trading partners to adopt similar standards so that all wealth is created fairly without placing unjustifiable burdens on workers or the environment. Another example of globalization gone wrong is countries like China manipulating their currencies to maximize their exports, keeping them cheap regardless of true fundamental supply and demand. This too must stop.

There are also problems with American business itself. Why do CEO’s make ridiculous salaries (more than 42 times that of the average worker) without such pay being tied to solid performance? Why is there so much crookedness surrounding stock option grants? Why are prescription drug prices so out of control when compared to the rest of the world? Why are companies allowed to fund worker retirement plans with risky company stock instead of cash to be invested as the worker wishes? Why are we failing to address the looming crises of social security and medicare, those safety nets for Americans most in need? Why do we keep cutting taxes on those who need it the least instead of those who need it the most? Government has a duty to answer these questions for the sake of the middle class, and my personal belief is that these questions of fair trade and fair business are where Democrats should focus their attention instead of appealing to people’s xenophobia.

Fixing problems like this won’t cure all the pain, but will minimize it while allowing America to reap the longer-term benefits of globalization–improved living standards elsewhere create larger markets for our products. Americans have a long history of believing they live in a meritocracy–a society where anyone who works hard enough can climb the upper rungs of the ladder of success. Globalization and a broken American system of business are increasingly rigging the game against most Americans while letting the upper class elite reap wealth beyond the imagination of most people.

This disparity has to end, and Democrats would do well to address it without digging their heads in the sand against the rest of the world. God knows we’ve done enough of that under the Republicans.

Finally, the Democrats are talking about what they will do if they come to power rather than what they won’t do. Sen. Clinton outlined the Democratic campaign agenda, called the American Dream Initiative, in a keynote speech for the Democratic Leadership Council. The key themes underlying the proposal are:

Every American should have the opportunity and responsibility to go to college and earn a degree, and to get the lifelong training they need.

Every worker should have the opportunity and responsibility to save for a secure retirement.

Every business should have the opportunity to grow and prosper in the strongest private economy on Earth, and the responsibility to equip workers with the same tools of success as management.

Every individual should have the opportunity and responsibility to start building wealth from day one, and the security and community that come from owning a home.

Every family should have the opportunity to afford health insurance for their children, and the responsibility to obtain it.

In order to expand opportunity for all Americans, we must demand a new ethic of responsibility from Washington: to put government’s priorities back in line with our values — and its books back in balance — by getting rid of wasteful corporate subsidies, unchecked bureaucracy, and narrow-interest loopholes; collecting taxes that are owed; clamping down on tens of billions of dollars in improper payments and no bid-contracts; and restoring commonsense budgeting principles like pay-as-you-go.

Proposals for obtaining these goals:

Education:

**Increase the number of college graduates by 1 million a year by 2015. Proposal includes $150 billion in block grants for states to ease sharply rising tuition costs, and will provide roughly $2000 per student.

**Simplify the tax code by consolidating various education tax breaks and credits into a single $3000 college tuition tax credit, which when combined with the state subsidy should make tuition nearly free at most typical four-year colleges.

**Make Pell grants available to part-time and adult education (25+ year old college) students.

Retirement

**Require every employer with more than 5 employees to provide a retirement plan (401k, etc.) that enrolls workers automatically, increases their contributions incrementally over time unless they opt out (many workers today don’t participate simply because they don’t know about the plan, or don’t know how to use it), and provides investment advice. Tax credits would be provided to employers to help them comply.

**Create a 50% match of up to $2000 per year match on retirement savings for working and middle-class families.

Economy/Jobs/Energy

**Create a smart energy policy that sets America on a road to eventual petroleum independence, which will further encourage the development of new jobs in blossoming industries like ethanol and wind power production.

**Create an energy fund that will provide research dollars to develop cutting edge energy efficient technologies, cellulosic ethanol (from plant waste), bio-diesel, plug-in hybrids and other high-mileage vehicles, etc. All of these areas are ripe for growth in the wake of high energy prices, and can create millions of new jobs and billions of dollars in exportable technology and industry.

Home Ownership

**Allow everyone who owns a home to claim the mortgage deduction even if they do not otherwise itemize deductions (as many working- and middle-class families do not).

**Create a $5000 down payment tax credit for families who need it.

**Increase FHA loan limit to 100% of an area’s median home price so that families in high-priced areas are not locked out of affordable FHA loans.

**Provide certain employers such as police, firefighters, teachers, etc. with a 50% tax credit for employee housing assistance programs, to better help these kinds of employees live in high-priced areas (an impossible feat for many of these essential workers in areas like New York and DC).

Healthcare

**Encourage the movement of records from paper to electronic form, with strict provisions in place to protect consumer privacy. This information-sharing would greatly increase efficiency and lower the cost of providing healthcare services.

**Allow small businesses to pool their workforces together to be able to negotiate for better and cheaper health insurance than individual small employers could obtain by themselves.

**Provide universal children’s health care by reauthorizing and increasing funds for the State Children’s Health Insurance Program, and by providing incentives to employers to cover the dependents of employees in their health plans.

**Promote healthier living (thus preventing expensive future health problems) by taking junk food out of schools, and by providing resources to community-based programs that encourage exercise, nutrition, healthy living, and the like.

**Create a National Center for Cures that targets and coordinates research dollars for finding cures to diseases like cancer, AIDS, and Alzheimer’s.

**Encourage further development of stem cell research.

**Strengthen Medicare by allowing the US Department of Health and Human Services to negotiate lower prices on behalf of Medicare beneficiaries.

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Overall it is a good and ambitious plan, and focuses on proposals in which both liberals and moderates in the Democratic Party can agree. My only “nitpick” is that I would like to see this plan condensed down to a few essential points that can be used in sound bytes and commercials over and over again to hammer the points home, just like the Republicans’ 1994 Contract with America. Democrats should also be prepared to provide greater detail as to how these provisions will be paid for at the same time that we attempt to return to “pay as you go” budgets.

The US could go bankrupt, according to research that Boston University Professor Laurence Kotlikoff has conducted for the Federal Reserve Bank of St. Louis, a leading part of the Federal Reserve system.

“[T]he US government is, indeed, bankrupt, insofar as it will be unable to pay its creditors, who, in this context, are current and future generations to whom it has explicitly or implicitly promised future net payments of various kinds.

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“The proper way to consider a country’s solvency is to examine the lifetime fiscal burdens facing current and future generations. If these burdens exceed the resources of those generations, get close to doing so, or simply get so high as to preclude their full collection, the country’s policy will be unsustainable and can constitute or lead to national bankruptcy.

“Does the United States fit this bill? No one knows for sure, but there are strong reasons to believe the United States may be going broke.”

He estimates the sum of all implied or actual obligations to present and future generations to be an impossible $65.9 trillion.

The longer the government waits to address this major problem, the more painful the solutions will become.