by Gary North: The
Ghost of Murray Rothbard Haunts The Economist
As a lawyer,
Obama was trained to argue rival positions, depending on who hired
him. So, what I am about to present should not be regarded as hypocrisy
on his part. Yes, it is hypocrisy by the standards of any normal
human being, but not for a lawyer. He is a lawyer. He does what
lawyers do. He looks to see who is buttering his bread, and then
he presents his case.
When we elect
lawyers to political office, this sort of thing happens.
In 2006, there
was a vote in the United States Senate over raising the debt ceiling.
Senator Obama took the high ground. He voted against the increase.
Amazingly, he violated one of his career-long principles, namely,
don't leave a paper trail. This time, he rose to the occasion. He
rose to speak.
We cannot be
sure exactly what he said. This is because the "Congressional Record"
allows every member to edit his words retroactively before the words
are published. In this era of unrestricted pornography, The "Congressional
Record" remains the last bastion of airbrushing.
on Google to find an official version of the text of his remarks.
I could find no government site that maintains this for public viewing.
I came as close as I could.
AND THE LOSS OF LEADERSHIP
began with a description of what the U.S. government was facing
in March 2006. Just for the record, it was facing this. The Congressional
Research Service summarized the vote: "On March 16, the Senate
passed a debt limit increase after rejecting several amendments.
The President's signature on March 20, 2006, then raised the debt
limit (P.L. 109-182) to $8.965 trillion." Keep this figure in mind:
a little under $9 trillion. One year later, the limit was raised
by $850 billion to $9.8 trillion. President Bush signed the bill
into law on September 29, 2007. Three months later, the recession
began, according to the retroactive declaration on the non-profit
National Bureau of Economic Research.
Federal government's official, on-budget debt is about $14.4 trillion.
clock is here.
On March 16,
2006, the day of the vote, Senator Obama gave a speech. He began
with these words:
fact that we are here today to debate raising America's debt limit
is a sign of leadership failure. It is a sign that the U.S. Government
can't pay its own bills. It is a sign that we now depend on ongoing
financial assistance from foreign countries to finance our Government's
reckless fiscal policies.
He was correct.
The politicians had led the government into a quagmire of debt.
It nevertheless pressed forward. Now, the government is in quicksand.
There was no
leadership in 2006, any more than there had been leadership since
1917, when the debt ceiling was first voted into law. There was
no attempt to balance expected outlays with expected income. There
still isn't. The American republic remains the republic of pork.
past 5 years, our federal debt has increased by $3.5 trillion
to $8.6 trillion. That is "trillion" with a "T." That is money
that we have borrowed from the Social Security trust fund, borrowed
from China and Japan, borrowed from American taxpayers. And over
the next 5 years, between now and 2011, the President's budget
will increase the debt by almost another $3.5 trillion.
At least he
admitted that the government has borrowed from the Social Security
Trust Fund. He admitted that we are dependent on Japan and China
to roll over the debt.
Trust Fund is being depleted. Social Security is running a deficit,
which Washington politicians prefer not to discuss. The Trustees
keep sending back the bonds to the Treasury to be paid for out of
the general fund.
Obama in 2006
was off by $2 trillion. Had his forecast proven accurate, The government's
debt would be around $12.4 trillion.
MONEY FOR BIG GOVERNMENT
He then went
on to explain why holding the line on the debt ceiling was important.
He focused on rising interest payments that will be owed by the
government. He did not mention this: the money going out as interest
payments could have been used as tax rebates. The taxpayers could
have used this money to buy whatever they wanted. This was not Obama's
vision of what these interest payments would cost. They would cost
more welfare state socialism.
that large are sometimes hard to understand. Some people may wonder
why they matter. Here is why: This year, the Federal Government
will spend $220 billion on interest. That is more money to pay interest
on our national debt than we'll spend on Medicaid and the State
Children's Health Insurance Program. That is more money to pay interest
on our debt this year than we will spend on education, homeland
security, transportation, and veterans benefits combined. It is
more money in one year than we are likely to spend to rebuild the
devastated gulf coast in a way that honors the best of America.
And the cost
of our debt is one of the fastest growing expenses in the Federal
budget. This rising debt is a hidden domestic enemy, robbing our
cities and States of critical investments in infrastructure like
bridges, ports, and levees; robbing our families and our children
of critical investments in education and health care reform; robbing
our seniors of the retirement and health security they have counted
language: "robbing our cities." That indicates that his goal was
to rob the taxpayers so that the Federal government could send more
earmarked money to fund boondoggles for the voters back home. The
voters back home have a moral claim on the money extorted from people
in other states. Every jurisdiction is supposed to have a net increase
piggy went to market. This little piggy stayed home. And this little
piggy went to the Chicago stockyards." The Senator from Illinois
knew who was paying the piper.
dollar we pay in interest is a dollar that is not going to investment
in America's priorities. Instead, interest payments are a significant
tax on all Americans a debt tax that Washington doesn't want
to talk about. If Washington were serious about honest tax relief
in this country, we would see an effort to reduce our national debt
by returning to responsible fiscal policies.
What tax relief? He was agonizing over the reduction of pork.
From my perspective,
it is better to pay interest to lenders than to expand the operations
of the U.S. government.
for raising the debt ceiling is to run up the bill for future debt
service. This will keep the government from launching many new programs.
It will fund the traditional boondoggles, but there will be less
money for new ones.
is this: at some point, the government will default. This will cost
lenders dearly. Those lenders who were stupid enough to hand over
money to the clowns in Congress will find themselves holding worthless
IOUs. This will stand as a lesson to future lenders: don't lend
money to the Federal government. Sadly, lenders are slow learners.
They will lend again to the government. But at least they will have
less to lend.
But we are
not doing that. Despite repeated efforts by Senators CONRAD and
FEINGOLD, the Senate continues to reject a return to the commonsense
Pay-go rules that used to apply. Previously, Pay-go rules applied
both to increases in mandatory spending and to tax cuts. The Senate
had to abide by the commonsense budgeting principle of balancing
expenses and revenues. Unfortunately, the principle was abandoned,
and now the demands of budget discipline apply only to spending.
What was pay-go?
It was a rule that required Congress to pay for new welfare state
programs by either reducing spending in other parts of the budget
(politically impossible) or by raising taxes (preferable for Democrats),
but still politically risky. The law did not apply to Medicare or
Social Security. It lapsed in 2002. President Obama signed a new
version into law in 2010. It has not reduced spending.
a result, tax breaks have not been paid for by reductions in Federal
spending, and thus the only way to pay for them has been to increase
our deficit to historically high levels and borrow more and more
money. Now we have to pay for those tax breaks plus the cost of
borrowing for them.
This was correct.
The Bush tax cuts were paid for by increased borrowing. But that
tactic ended in February 2010, when pay-go was signed into law.
of reducing the deficit, as some people claimed, the fiscal policies
of this administration and its allies in Congress will add more
than $600 million in debt for each of the next 5 years. That is
why I will once again cosponsor the Pay-go amendment and continue
to hope that my colleagues will return to a smart rule that has
worked in the past and can work again.
He got in 2010
what he wanted in 2006: pay-go legislation. The deficit has skyrocketed.
He then raised
the issue of borrowing from foreign governments. Voters know who
is lending: Asians. What they do not understand is that the lenders
are mostly the Bank of Japan and the People's Bank of China. These
central banks create fiat money and buy dollars; then they buy Treasury
also matters internationally. My friend, the ranking member of
the Senate Budget Committee, likes to remind us that it took 42
Presidents 224 years to run up only $1 trillion of foreign-held
debt. This administration did more than that in just 5 years.
Obama administration is setting records that dwarf the records set
by George W. Bush. But
his point was accurate in 2006.
Then he gave
us a fine example of double talk. Borrowing from abroad isn't bad,
except that it's really dangerous.
there is nothing wrong with borrowing from foreign countries. But
we must remember that the more we depend on foreign nations to lend
us money, the more our economic security is tied to the whims of
foreign leaders whose interests might not be aligned with ours.
This is like
saying there is nothing wrong with eating a couple of gallons of
ice cream, except for the fact that you might gain weight.
America's debt weakens us domestically and internationally. Leadership
means that "the buck stops here." Instead, Washington is shifting
the burden of bad choices today onto the backs of our children and
grandchildren. America has a debt problem and a failure of leadership.
Americans deserve better.
intend to oppose the effort to increase America's debt limit.
are: the children of the future. They will be burdened with a huge
debt load. Oh, woe!
Oh, yeah? They
will vote in a new Congress and demand that Congress cut back on
pork for geezers. They will force Congress to vote for pork for
themselves. Spare your tears.
now has a new client: himself. Lawyers have a phrase regarding the
mental capacity of a lawyer who hires himself to represent him.
did not hire himself to represent him. He
had his press secretary announce that the President now regrets
his vote in 2006. No doubt he does. It makes him look like a
hypocrite. It makes him look like a lawyer. But I repeat myself.
now believes that leadership is marked by voting to increase the
debt ceiling. This kind of leadership is in short supply in the
Congress these days. But we will see a rush of leadership when the
government has to start cutting payments.
has not yet provided a list of budget cuts that will be mandatory
if there is no increase in the ceiling. The President has talked
about cuts in Social Security and Medicare a warning that
is supposed to put the fear of oldsters into the hearts of House
Republicans. So far, they have refused to budge. They figure that
other less sacred cows will be slaughtered before these two are.
Discretionary spending is in the range of 37% of Federal spending.
These can legally be cut. That would take care of most of the deficit.
Of course, that is not going to happen.
WILL BLINK FIRST?
The House plans
to send another bill to the Senate. The Senate Democrats say they
will vote it down if it contains tax cuts.
and House Republicans do not want to be the first to blink. It will
be far easier for Reid to hold his party in line than it will be
for Boehner. The Democrats are not going to accept tax cuts. Some
Republicans in the House will accept an increase in the ceiling
without tax cuts. Whether the ceiling will be raised enough to get
the government through fiscal 2012 is doubtful. So, we get to go
through this again.
is not visibly worried about raising the debt ceiling. The debt
ceiling has been raised so many times without any pain being inflicted
on voters that they assume that the process can still go on. They
may make noises about their concern for future generations, but
they have shown little concern in the past. I see no looming crisis
on the immediate horizon that will create as much fear as a fear
of spending cutbacks does.
must be fed. Porkers must be fattened. If the government has to
borrow, so what? Economists don't care. Few voters care. Politicians
have not cared in the past, except in 1995, briefly.
The path of
least resistance is to pass an increase in the debt ceiling.
markets do not indicate any significant fear of a default. Things
in Washington are milking this for as many votes as they think they
can get in a year. They are positioning themselves for the elections.
They are assembling sound bytes.
voters just want their monthly checks.
Obama in 2006
offered reasons for not raising the deficit. They were based on
his commitment to expanding the welfare state. Now it appears that
he is still trapped by the debt. There will be no major new programs.
His goal is just to keep the train moving forward, not add more
freight cars filled with voters' goodies.
the Democrats are not trying to add new programs. They are refusing
to cut old ones. I think this is the new normal for Washington.
Washington can barely fund the fulfilment of old promises. I see
no new promises in reserve. This is good news, other things remaining
come a day when lenders will demand higher interest. That will launch
the sacrifice of pork. Let us hope that this comes sooner than later.
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible.
2011 Gary North
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