Sunday, November 18, 2012

Red Flag Warning: Heed the cry from the backbench

I am reminded of the career of Winston Churchill. Here was a man who failed at a lot of things in life, but succeeded when his nation needed him most. Yet in the years before the fall of France in 1939, Churchill was relegated to the backbench of history, literally.  His seat in the House of Commons was, as we would say today, in the nose bleed section.  He none-the-less stood daily to warn his fellow citizens of the growing danger of German fascism. He was booed, catcalled, and told to shut his trap up. In effect he was told his views were out of step with the modern world.  The modern world knows today Churchill was tragically right.

I recall this bit of history to remind us that while our conservative ideas seem to have been rejected by a fair number of fellow citizens in the recent election, our conservative principals still impels us to likewise stand in the nose-bleed section and continue the call for fiscal sanity.  For if we don't, most likely there will come a day when America’s financial house of cards comes tumbling down. 

The spending spree cannot continue indefinitely. The math, regardless of viewing from the left or right, simply states a rate of change of any number at a constant percent will eventually rise (or fall) exponentially. The curve, famously exemplified by Mr. Gore’s hockey stick graph of global warming, rises slowly in the early period, but with each passing year the compounding percentage drives the curve nearly vertical.  Put dollars on Mr. Gore's graph instead of carbon dioxide and you’ll see what I mean.

The counter to this growth of debt, going exponential, you say, is to raise taxes. Indeed that will certainly, temporally, dampen the rate of increase to some degree. The problem that any first rate banker will tell you, at a certain point no matter how much revenue is collected, it will be impossible for even the interest portion of the debt to be paid.  The current hullaballoo over raising taxes on the “Uber rich”, greater than $200K, is but a tablespoon of water in an ocean of debt. It is kind of like putting an extra $5.00 note in with your $1,800 mortgage payment for reducing the principle. It feels good, but the $5 bucks effectively does nothing in the end. Worse, if you are only paying the interest to start with, the principle never is reduced. NEVER. Worse yet still, is piling on more debt on top of what you can't pay for to start with. Can you say, "more stimulus" to the tune of an additional $1.6 trillion in spending.

But I digress. What I really desire for you to see, if you've hung with me this far,  is what the outcome of this mess will look like if we fail to get our fiscal house in order. I wondered what life was like in another nation that out spent its ability to meet its obligations. Greece has been in the headlines for months, stories of bailouts and budget cutting that are interesting to a budding economist, but very little on the impact to real people of that fair nation.

On November 1st, I came across a little noticed article on Fox that was a vignette into the everyday citizen’s life under such draconian fiscal restrictions. The article, Ripped Apart by Financial Crisis, chronicles several Greek citizens barely surviving the crushing economic conditions. What struck me the most were the desolate emotions of the people, who have seen a lifetime of work swept away when their nation’s economy collapsed.  The government, the one they all thought was there to continue guaranteeing their personal benefits, is bankrupt. The good times are over, and each individual is on must figure out how best to survive.  

My red flag warning, again shouting from the backbench, is we must contain the spending. Our nation cannot afford subsidizing such things as Big Bird, corn, green energy and a bunch of other unnecessary stuff (see Sen. Coburn's Waste Book).  If we take stock now to fund only what is necessary for the mutual defense of our nation and safety of our citizens, then we may, just may, avoid a Greek like economic fiasco that would doom our children’s children to a life of economic poverty.  If we don’t, then we can’t say we were forewarned.

The Watchman