It’s the Spending, Stupid!

The Wall Street Journal published another informative editorial on the national debt and the reckless spending of the Democrats. In their view, there is good debt and bad debt. And what we’re getting from the current government is bad debt that will hurt our economy for years to come, because they’re basically financing nothing. Compare it to running up credit cards for new clothes and other items that will soon be worthless vs. taking out a mortgage on a piece of property or a business that will be worth more in the years to come. The democrats are running up the credit cards with nothing to show for it.

Democrats ridiculed Mr. Bush as “the most fiscally irresponsible President in history,” but then they saw him and raised. They took an $800 billion deficit and made it $1.4 trillion in 2009 and perhaps that high again in 2010. In 10 months they have approved more than $1 trillion in spending that has saved union public jobs but has done little to assist private job creation. Still to come is the multitrillion-dollar health bill and another $100 billion to $200 billion “jobs” bill.

We’ve never obsessed over the budget deficit, because the true cost of government is the amount it spends, not the amount it borrows. Milton Friedman used to say that the nation would be far better off with a budget half the current size but with larger deficits. Mr. Obama and his allies in Congress have done the opposite: They have increased the budget by 50% and financed the spending with IOUs.

Our concern is that the Administration and Congress view this debt as a way to force a permanently higher tax base for decades to come. The liberal grand strategy is to use their accidentally large majorities this year to pass new entitlements that start small but will explode in future years. U.S. creditors will then demand higher taxes—taking income taxes back to their pre-Reagan rates and adding a value-added tax too. This would expand federal spending as a share of GDP to as much as 30% from the pre-crisis 20%.

Remember the 1980s and 1990s when liberals said they worried about the debt? We now know they were faking it. When the Gipper chopped income and business tax rates by roughly 25% and then authorized a military build-up, Democrats and their favorite economists predicted doom for a decade. The late Paul Samuelson, the revered dean of the neo-Keynesians, expressed the prevailing view in those days when he called the Reagan deficits “an all-consuming evil.”

But wait: Those “evil” Reagan deficits averaged less than $200 billion a year, or about one-quarter as large in real terms as today’s deficit. The national debt held by the public reached its peak in the Reagan years at 40.9%, and hit 49.2% in 1995. This year debt will hit 61% of GDP, heading to 68% soon even by the White House’s optimistic estimates.

Our view is that there is good and bad public borrowing. In the 1980s federal deficits financed a military buildup that ended the Cold War (leading to an annual peace dividend in the 1990s of 3% of GDP), as well as tax cuts that ended the stagflation of the 1970s and began 25 years of prosperity. Those were high return investments.

Today’s debt has financed . . . what exactly? The TARP money did undergird the financial system for a time and is now being repaid. But most of the rest has been spent on a political wish list of public programs ranging from unemployment insurance to wind turbines to tax credits for golf carts. Borrowing for such low return purposes makes America poorer in the long run.

The article goes on to explain that by 2019 it will cost $774 billion per year to finance this debt. That’s more than all federal discretionary spending combined. Who do you think is going to pay it back? Does anyone out there honestly believe there are enough “rich” people in America to pick up this tab? Not to mention that the longer the democrats have power, the fewer wealthy people we’ll have here in America. The only wealthy people we’ll have left will be the cronies in DC, whose salaries the rest of us will be paying along with the interest on this debt. What a disgrace!