Our View: One budget deal won't fix it all
As we careen toward the fiscal cliff, a new socioeconomic meme surges through the culture disguised as cheerful, brilliant insight. Expect to hear this at holiday cocktail parties, even from friends with MBAs and Ph.Ds:
"The US is one budget deal away from restoring its global pre-eminence."
The quote originates with Australian Foreign Minister Bob Carr, a member of the quasi-socialist Labor Party. It was repeated by World Bank President Robert Zoelick in a June interview with Marketplace Morning Report, and soon thereafter began showing up at the water cooler. It picked up more steam last week when the Washington Post's Bob Woodward tried to repeat it on the set of "The O'Reilly Factor" on Fox News.
It is a fun, optimistic, smart-sounding thing to say. We'll all hold hands, pass a budget deal and, voila, let the good times roll. There's only one problem with this nugget of McBrilliance. It ain't true.
To believe that our country's economic stability counts on just one budget deal is to conflate the federal budget with the economy at large. A nation's economy does not originate with the government's mint or its budget. The economy is a manifestation of individuals creating, producing and trading in a manner that provides for society. If individuals produce more than they consume, on average, society realizes an abundance of food, shelter, clothing and countless amenities that make life easier, more enjoyable and meaningful. We call it economic growth. If the human condition gets worse, we say the economy is failing.
In a failing economy, a government can provide a temporary sense of well-being by borrowing wealth from other economies. It can numb the pain of those who suffer the most by redistributing wealth from those within society who suffer the least. None of this is economic growth. It is no different than a family paying the mortgage and bills by borrowing from friends and neighbors and running up credit cards. Unless the family manages to produce more than it consumes, a day of reckoning awaits. At some point the friends, neighbors and banks can no longer afford to sustain the failing household. Adjusting the budget can help.
The United States enjoys a lifestyle it cannot afford. On average, Americans consume more than they produce. That's why our government borrows from other economies and from future generations of Americans.
We all hear about the $16 trillion debt, but that's only the surface. That's what our government owes to outside creditors. Spread among every living American, the debt amounts to about $52,000. In truth, our country's debt is $222 trillion — a whopping $700,000 on the head of each American today. It is the amount of debt government owes to foreign creditors and Americans who have been promised Medicare, Medicaid, veterans benefits, Social Security and all other varieties of entitlements. If government defaults on these obligations as more Americans age and retire, we will have rioting in the streets, mass poverty, illness and general misery.
Yes, we need to radically adjust the budget. The household cannot save itself by cutting out ice cream and tapping the kids' piggy banks. Nor can the federal government save this country by tweaking the tax code and cutting expenses here and there.
We do not claim to have the answer for preserving our country's "worldwide pre-eminence." We're pretty certain our salvation isn't "one budget deal away." We wish that were so.