Cutting the Federal Budget To Prevent U.S. Bankruptcy, Part I: Why It Needs To Be Done

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by Jim Grichar (aka Exx-Gman) by Jim Grichar

(Author's note: I ask readers for their indulgence because of my extensive use of the b-lingo – bureaucrat-lingo – and the detail I used in presenting my arguments. I do this to reduce bureaucratic counter-arguments – which I expect to receive – to the absurdity that they invariably are.)

With the federal budget deficit now estimated to exceed the $500 billion level and not apparently likely to decline rapidly in the near future, citizens should rightly worry as to when, and not if, the United States will go bankrupt. While foreign governments like Japan, China, and Taiwan are financing a large part of the U.S. deficit (from 4/02/03 through 3/31/04, foreign government holdings of U.S. government debt increased by nearly $262.3 billion, from over $897.0 billion to just under $1,159.3 billion) as a way of supporting the dollar and thus spurring their exports to the U.S., how long will they continue to finance the U.S. government spending spree?

In the current presidential election year, with the proposed $2.4 trillion dollar Bush budget for fiscal year (fy) 2005 (an increase of $81 billion over this year's budget), Republicans in Congress are making vague noises as to reigning in the growth in spending and Democratic presidential candidate John Kerry is calling for – guess what – a recision of the measly tax cuts that President Bush signed into law earlier in his term. Neither political party nor its erstwhile presidential candidates are discussing the serious changes in U.S. policy and spending reductions necessary to prevent the U.S. from falling into the bankrupt state that it is currently heading for at breakneck speed.

Even Federal Reserve Board Chairman Alan Greenspan, who with his colleagues has been flooding the U.S. and world economies with U.S. dollars in a fitful attempt to finance a world economic recovery, has begun to state that federal spending needs to be cut significantly if America is to have a hope of achieving strong long-term economic growth. Greenspan's formula, however, only nibbles at the edges of the problem, namely by proposing reductions in future social security benefits for baby-boomer retirees via a change to a less generous annual cost of living adjustment.

Economic Medicine for the U.S.

To prevent the U.S. slide into a near-term national bankruptcy with an associated catastrophic collapse in the value of the U.S. dollar and in living standards and to stimulate longer-term U.S. economic growth, federal spending needs to be cut drastically, and the time to begin those cuts is now. An independent presidential candidate needs to state that the welfare-warfare state concept on which the U.S. government has been run for more than a century has got to come to an end. Otherwise, the U.S. will plunge into economic chaos.

While in a past article I discussed how the whole federal budget process is stacked towards greater spending, I certainly believe that the federal budget can be cut. The warfare-welfare state can be shrunk, and, given the current political and economic situation in the U.S., there are many spending programs, and even whole departments, that are vulnerable to the budget axe. I offer up these proposals as a way of getting talk started about actually cutting the federal budget and as a plan which a truly independent presidential candidate can run on.

There are many benefits to ending the welfare-warfare state, both in economic terms and in terms of securing the benefits of peace and freedom for Americans. A drastic cutback in the welfare-warfare state will spur medium- to long-term economic growth in the U.S., providing new and productive jobs in the private sector for many of those who have lost jobs due to companies moving operations overseas to such places as China and India. Unlike tariffs and import quotas, which would lead to slower U.S. economic growth and lower living standards, this free market approach would lead to higher living standards.

This plan would also allow the current tax cuts to be made permanent, especially the important abolition of the much-hated estate and gift taxes, which destroy family wealth and the incentives to build family wealth. Without this tax, families would have a much stronger incentive to save and invest because the fruits of such thrift and enterprise could be passed along to succeeding generations. Thus, parents would not only be providing for their own retirement, they would be providing for the livelihood of their children, grandchildren, great grandchildren, etc.

Sharp cuts in spending would give the Congress time and fiscal resources to provide for existing retirees under Social Security and Medicare but abolish that severely flawed system (which is nothing more than an inter-generational Ponzi scheme) so that future retirees could provide for their own retirement and health care independent of state control.

One of the added longer-term benefits of pushing through some sharp cuts in near-term federal budgets is that, once implemented, the public will get used to being without what were once thought of as "necessary federal services." In other words, the public will be able to see through the scam of other federal spending programs, enabling further major cuts to be made after this initial round of budget cuts.

During the course of this multi-part series of articles, I'll keep track of proposed near-term cuts in what I call the "Cut-o-meter." Unlike the phony budget cut numbers that come out of Washington, claiming that the budget has been cut, the totals on the "Cut-o-meter" will give readers an idea of how much would actually be saved and not spent compared to the current budget for fiscal year 2004, which has been approved and is being spent..

Because the public is upset with George Bush's war in Iraq and generally upset with the worthless United Nations and U.S. foreign adventures in general, major cuts in defense spending and the abolition of foreign aid, accompanied by a major change in U.S. defense strategy and tactics, are the area that offers a way of ending the warfare state. Once the warfare state has been ended, the welfare state will become easier to slim down and then abolish.

Jim Grichar (aka Exx-Gman) [send him mail], formerly an economist with the federal government, writes to “un-spin” the federal government’s attempt to con the public. He teaches economics part-time at a community college and provides economic consulting services to the private sector.

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