Social Programs
Barack Obama has proposed an increase in spending on Public Works to create more jobs, and an increase in social programs, such as free healthcare. Historically, these two strategies are credited to helping the United States recover from economic downturns, including the Great Depression.
However, this is not really the case. Historically, more spending on public works projects and social programs in a time of economic crisis only serves to deepen the crisis by debasing (lowering) the value of the currency due to more deficit spending. To illustrate this point, we turn to a historical example which brought about the Fall of the Roman Empire.
The Fall Of Rome
During its centuries of dominance, the Romans had ample time to perfect the art of currency debasement. Just as with every empire in history, Rome never learned from the mistakes of past empires, and therefore they were doomed to repeat them.
Over 750 years, various leaders inflated the Roman currency supply by debasing the coinage to pay for war, which would lead to staggering price inflation.
Coins were made smaller, or a small portion of the edge of gold coins would be clipped off as a tax when entering a government building. These would be clipped off as a tax when entering a government building. These clippings would then be melted down to make more coins. And of course, they mixed lesser metals such as copper into their gold and silver.
And last but not least, they invented the not so subtle art of revaluation, meaning they simply minted the same coins but with a higher face value on them.
By the time Diocletian ascended to the throne in A.D. 284, the Roman coins were nothing more than tin-plated copper or bronze, and inflation (not to mention the Roman populace) was raging.
In 301, Diocletian issued his infamous Edict on Prices, which imposed the death penalty on anyone selling goods for more than the government-mandated price and also froze wages.
To Diocletian’s surprise, however, prices just kept rising. Merchants could no longer sell their wares at a profit, so they closed up shop. People either left their chosen careers to seek one where wages weren’t fixed, or just gave up and accepted welfare from the state. Yes, the Romans actually were the first to invent welfare. Rome had a population of about one million, and at this period of time, the government was doling out free wheat to approximately 200,000 citizens. That equaled out to 20 percent of the population on welfare.
Because the economy was so poor, Diocletian adopted a guns and butter policy, putting people to work by hiring thousands of new soldiers and funding numerous public works projects. This effectively doubled the size of the government and the military, and probably increased deficit spending by many multiples.
When you add the cost of paying all these troops to the swelling masses of the unemployed poor receiving welfare and the rising costs of new public work projects, the numbers were staggering. Deficit spending went into overdrive. When he ran short of funds, Diocletian simply minted vast quantities of new copper and bronze coins and began, once again, debasing the gold and silver coins.
All this resulted in the world’s first documented hyperinflation. In Diocletian’s Edict on Prices, a pound of gold was worth 50,000 denari in the year A.D. 301, but by mid-century was worth 2.12 billion denari. That means the price of gold rose 42,400 times in fifty years or so. This resulted in all currency-based trade coming to a virtual standstill, and the economic system reverted to a barter system.
To put this in perspective, fifty years ago the price of gold was 35% per ounce in the United States. If it rose 42,400 times, the price today would be just under $1.5 million per ounce. In terms of purchasing power, that means if an average new car sold for about $2,000 fifty years ago, which they did, the average car today would sell for $85 million.
In the end, it was currency debasement and pure deficit spending to fund public works, social programs, and war that brought down the Roman Empire. Just as with every empire throughout history, it thought it was immune to the universal laws of economics.
Debasing the currency to pay for public works, social programs, and war is a pattern that repeats throughout history. It is a pattern that always ends badly, and a problem that will explode under an Obama presidency.
Social Security and Medicare
Barack Obama is looking to expand social programs like Social Security and Medicare. These are what are known as “unfunded liabilities.” In other words, they are expenses that the government has no idea how to pay.
Former U.S. Comptroller General David Walker says that U.S. unfunded liabilities grew from $20 trillion in 2000, to $50 trillion in 2006. In 2000, the U.S. gross domestic product (GDP), a measurement of all the goods and services produced in the country in one year, was about $10 trillion, and in 2006 it was about $12.5 trillion.
That means our unfunded liabilities were two times our GDP in 2000, but FOUR TIMES our GDP just six years later.
So the economy grew 25% over this time period between 2000 and 2006, but the unfunded liabilities grew by 150%!!!!
This means that the United State’s unfunded liabilities (i.e. cost of social programs) is growing a whopping six times faster than the economy.
It now totals more than 95% of the entire household net worth of the United States and is expected to exceed household net worth within just a few short years. Social Programs and government debt are now a $117 trillion problem and growing at a daily rate that far exceeds the growth of the U.S. economy.
That’s over one million dollars per family.
It means every man, woman, and child in the United States owes $370,000. That even includes newborn babies.
$117 trillion dollars in debt is a mind-boggling figure, and that number is still growing. This means that because of social programs, our government is digging itself into a hole it will never be able to climb out of.
The Problem With Social Programs
The problem is that in the coming decades, there simply aren’t going to be enough full-time workers to promote strong economic growth or sustain existing entitlement programs. Like most industrialized nations, the United States will have fewer full-time workers paying taxes and contributing to federal social insurance programs.
At the same time, growing numbers of retirees will be claiming their Social Security, Medicare, and Medicaid benefits.
Unless we reform programs like Social Security, Medicare, and Medicaid, these programs will eventually crowd out all other government spending. Otherwise, by 2040 our government could be doing little more than sending out Social Security checks and paying interest on our massive nation debt.
(You can find more information about these statistics at the Government Accountability Office’s website.)
How Did The Debt Get So Big If Clinton Had A Surplus?
Many Democrats like to point out that our debt is due to the “failed policies of the Bush administration” and that he inherited a budget surplus thanks to President Bill Clinton.
However, this is not true. The fact is that Clinton did not create a surplus, and the debt problem actually can be traced back to the Presidency of Ronald Regan.
The notion that there was a surplus at the end of the Clinton years just simply is not true. There was no real surplus because the federal government uses a cash accounting that allows a little room for monetary magic. (Remember the scandal with Enron’s creative accounting? Well, the government actually does something very similar with its own bookkeeping.)
The last year Clinton was in office the national debt grew by $68.6 billion, so the “real” deficit was $68.6 billion. Clinton misled us when he said there was actually a surplus, and when George W Bush came into office, that deficit was his to inherit because under President Clinton, the U.S. debt grew.
So President George W. Bush started off the year 2000 with a budget that was nowhere near being balanced.
Then, the Bush Tax Cuts put us in the hole by about 9%, causing the deficit to explode again because the lowering of taxes was not accompanied by a decrease in spending. By 2005, the debt reported by the creative accountants in the government was $318.6 billion, yet the debt actually grew by $760.2 billion - eleven times greater than when Bush took office.
This is not to impune the Bush tax cuts. Had President George W. Bush practiced spending discipline along with the tax cuts, things would have been fine. Instead, under President Bush, we saw an added $8 trillion Medicare prescription drug benefits package. With one stroke of the pen, Congress and George W. Bush increased existing Medicare obligations nearly 40%.
If we trace back to 1981, President Reagan signed the Kemp-Roth tax cut, increasing the deficit by more than two and a half times in just two years, from $79 billion to $208 billion.
Then, in 1982, projections were made showing that the Social Security Trust Fund would be insolvent by the following year. So a commission was appointed to study the insolvency problem, and in 1983, Ronald Reagan signed an amendment to “save” Social Security.
Then, in 1884, Social Security expenditures crept up at their normal pace, while revenues started to skyrocket.
Now that the Social Security Trust Fund had “excess” assets, the U.S. Treasury began borrowing the assets and replacing them with bonds, which are essentially government IOUs. The borrowed assets were added to the general fund and spent. Basically, our government took from one cookie jar to stock another.
Within a few years there was an extra $20 billion to $30 billion per year for the government to pillage. So the federal masters of illusion cut our income tax, increased our social security tax, then stole the assets to help make up for the deficit caused by the tax cut.
But don’t worry - the government says this doesn’t count as debt because we owe it to ourselves.
The amendment Ronald Regan signed was also the act that made Social Security benefits (which are nothing more than a tax that you have paid being returned to you) taxable. That is a form of “double taxation,” and it was signed into effect by a conservative icon.
And that’s just social security. There are many, many other social programs on the books that say we owe even more money to ourselves.
Remember: tax cuts must always be accompanied by cuts in spending. Presidents Reagan, George H.W. Bush, Clinton, and George W. Bush all spent a great deal of money, and we’ve seen a large increase in government over the years.
And under Barack Obama, government just get bigger.
Barack Obama Wants To Expand Social Programs
Part of Barack Obama’s campaign is his promise to cut wasteful spending.
Obama wants to stop funding wasteful, obsolete federal government programs that make no financial sense. He has called for an end to subsidies for oil and gas companies that are enjoying record profits, as well as the elimination of subsidies to the private student loan industry which has repeatedly used “unethical” business practices.
However, when it comes to the real drain on the economy - entitlement programs like Social Security, Medicare, Welfare, etc. - Obama has either said nothing of cutbacks, or a desire to decrease government spending on these programs, which already equate to such a large part of the national debt.
Barack Obama’s plan for free health care is also a huge social program that will be funded by the government, further increase the U.S. debt.
He also has ambitious plans to create public works projects to start rebuilding the infrastructure of the United States. His belief is that this creates jobs and will help the economy. The Roman emperor Diocletian believed this as well. But because he did nothing to control spending, inflation occurred, the currency became devalued, and the Roman Empire crumbled under the economic burden.
Should Barack Obama go through with his plans to increase government spending, history may very well repeat itself.
What is the solution? We need to cut as many social programs as we can, stop adding new ones, prevent additional spending by the government, and open up opportunities for business to fill the need for the people who want the services the government now provides.
If we were to further lower taxes on business, then the private sector would be able to afford to create the new jobs that Barack Obama wants the government to fund.
This is the only sensible solution to a problem which continues to grow, unchecked. We need a President who can deliver fiscal responsibility when it comes to spending.
Unfortunately, Barack Obama is apparently not that President.