According to the American Society of Civil Engineers, the United States needs to invest $3.6 trillion to return our roads, airports, bridges, schools and parks to good repair by 2020. $3.6 trillion is only slightly less than the annual budget of the federal government. How did the Country that won World War II and the Cold War, the biggest economy in the world, the Country that still embodies the hopes and dreams of all mankind reach a point where 20% of its bridges are structurally deficient, and airports and city streets resemble those in third-world countries?
The answer lies in the fact that we have diverted funds increasingly toward entitlements and away from projects designed to improve our highways, bridges, airports and mass transit facilities, what the government calls “discretionary” projects, no matter the urgency. Social Security, Medicare, Medicaid, other healthcare programs, welfare and other entitlements comprised 60% of 2013 federal spending. Interest expense took another 6%. Were interest rates at their post-World War II average, interest expense would have been closer to 15%. That would place mandatory spending at 75% of federal government spending. Sometime between 2030 and 2040 it is expected that mandatory spending will exceed federal revenues. When the highway program was instituted in the 1950s, mandatory spending was about 30% of total spending. That difference – 36% to 45% of our annual budget – represents about $1.5 trillion.
This is not an argument suggesting we forego all public assistance. We should not. But today government gives money not just to the needy, but to many who would be better off with less assistance, those who can work and care for themselves. Why should a resident of Connecticut, for example, take a minimum-wage job when state and federal aid pays twice what they would earn?
Two decades after the end of World War II, the United States was feeling flush. As a nation, we were rich. The Eisenhower highway program had made us connected as never before. We had the largest economy in the world and the highest standard of living among all nations. Lyndon Johnson inherited the Presidency following the assassination of President Kennedy. While he vigorously pursued the Vietnam War, his real interest lay in his vision for a “Great Society.” He wanted the state to assume a bigger role in the caring for those less able to care for themselves. The concept of a safety net had been devised earlier, with Social Security in 1933. The “Great Society” expanded government’s role, with the additions of Medicare, Medicaid and other social welfare programs. In an era of “guns and butter,” too little attention was paid to the long-tail costs of such programs; too little attention was paid to the inhibiting nature of a government that has since become an even bigger part of GDP, and too little attention was paid to the deleterious effect of such programs on the able-bodied.
It has been widely known for years that we would be facing a cash crunch in programs such as Medicare, Medicaid and Social Security. Attempts at reform never got off the ground – they are referred to as the “third rail” of politics. However, the precarious nature of our nation’s financial condition can no longer be ignored. Cash deficits are expected to grow dramatically. Ratings on U.S. Treasuries were lowered one notch by S&P in August 2011. According to the Congressional Budget Office (CBO), both Medicare/Medicaid and Social Security will be in deficit by fiscal 2019. The Highway and Mass Transit Trust Funds, which are already operating at deficits, have only survived because of transfers from general funds.
As the Country moved increasingly leftward, generous contractual agreements for healthcare and pensions were offered municipal and state workers. With the Affordable Care Act, we have moved further in the direction of Western Europe. These were noble gestures, supposedly made with the best of intentions. (Though I suspect politics played a not insignificant role.) Besides allowing our infrastructure to deteriorate to Third-World levels, the unintended consequences have been manifested in two distinct ways. We made promises without providing the means to honor them and we have created a class of citizens overly reliant on the state. The former has forced some cities into bankruptcies and threatens the financial health of some states. The latter has been detrimental to the recipients in terms of diminished self-respect and abandoned aspirations. Mayor de Blasio’s settlement with (or payoff to) the New York City’s teacher’s unions is a case in point. It is structured so that tax payers in 2019 and 2020 will be paying for work done in 2009 and 2010. By then, de Blasio will be gone and the burden of finding the funds will fall on the shoulders of a new Mayor.
We can live in the “now,” but that is only possible when we prepare for the future. It is the natural way for businesses and individuals. Businesses survive and can only grow when their revenues increase. And revenues can only increase if the product or service they provide (which must be innovative and affordable) meets the need of a fickle and discriminate public. A portion of a company’s earnings must be reinvested to assure continued growth and to prefund future obligations, otherwise they risk failure. Historically, people knew that to survive they had to plan for the future, which required the investment of savings. A paternalistic state negates a need to plan and sends a message that irresponsibility will not be held against you. One can live for the day with little concern for the future. In similar fashion, as equity markets became institutionalized, shareholders became fixated on next quarter earnings. Investors, in other words, were less interested in the long term potential of the business. Increasingly, they viewed stocks as trading vehicles. It has become a “what have you done for me recently” attitude. Unfortunately, that attitude of “do it now and the Hell with tomorrow” permeates our culture.
Government has fed the problem, displaying a remarkable lack of concern for what the future might hold. Like businesses, they must continue to increase revenues if they are going to increase spending. The best way to increase revenues is by having a growing economy and expanding workforce. Unfortunately, while unemployment is down, the labor participation rate in the U.S. has shrunk over the past five years. In the five decades since the Great Society, the U.S. federal government has had only two years of surpluses, despite many years of strong economic growth. And those surpluses followed welfare reform in the 1990s. Government, it must be remembered, is an inhibitor to growth, not an accelerant. Like too many investors, politicians focus on the very short term – the next election. Even when re-election is no longer part of the plan, too many elected officials see public office as a stepping-stone toward personal wealth. Doing right for the long term needs of the people and the country became secondary – in part, because politicians fear to do anything that might imperil re-election.
Great nations, like individuals and businesses, must look to the future. When the Founders met in Philadelphia they prepared a document that could survive for the ages. The Constitution, on which our government is based and which is the basis for all the laws we live under and that protect our property rights, consists of about 4400 words. In contrast, the Affordable Care Act alone consists of more than 11 million words, and not all of its regulations have been written. Members of Congress today could not have created the government we have. Mr. Obama, for all his verbal eloquence, would have been out of his depth in Independence Hall. What would Washington, Adams, Jefferson or Madison have thought of Smith College’s focus on transgender policies when the 21st Century is facing such seismic problems as non-state organizations challenging Great Powers and domestic debt threatening to drown us? The women at Smith College are bemoaning a relatively trivial act and expressing an emotional reaction. The issues we face require knowing history, considering the future, and an understanding of geo-politics.
In my opinion, we have reached a point (or perhaps we are beyond that point) where we can no longer afford to ignore what are major problems – from a collapsing infrastructure to entitlements we cannot afford. Difficult decisions will have to be made and they must be collaborative. It will no longer work for one person to say, “I won.” It isn’t just asking what kind of a nation do we want; we must ask what can we afford and how best can we prepare for the distant future. It will require giving up some of the comforts provided by government. We must look back in history as to what characteristics imbued our forefathers and government, allowing this nation to survive and thrive. We must restore confidence in government, not in what it can do for us, but as Kennedy asked, what can we do for it. We need politicians who will unite, not divide us. Either the two Parties will work together, or the nation risks decline.
Too many of us have become takers; we have stopped being producers. We assume the future will take care of itself. We are interested in what we can get, and we want it now – whether that means the best education, the fastest car, the highest paying job, or the biggest house. And if we don’t like it, whether it was a spouse, a car or a house, we trade it in. Ingrid Michaelson’s lyrics capture that hedonistic attitude:
“No one’s gonna wait for you
No one’s gonna wait for you
So do it now
Do it right now!”
In our rush through life, we forget that harvesting must be preceded by sowing and planting. What is true for farmers is true for individuals, businesses and government. It is, however, in government where we have been most negligent; though that sense of “I want it now” has become an abiding trait in all of us. In our desire to reap the fruits of government largesse, we overlook the necessity to invest in infrastructure. In our relations with other countries, we tend not to consider the long term consequences of moral fecklessness. In our promises to the sick and the elderly, we neglect to make the investments, so that those commitments can be realized without raiding future generations. To too many government bureaucrats, money seems an unending stream. More attention should be paid to the fact that every dollar government spends was provided by taxpayers, and it has limits.
Perhaps it is a commentary on our life, but there just seems to be little interest in the future? Perhaps it is the substitution of government for “community?” Perhaps it is tied to a decline in religiosity – a focus on this and not the next life? Perhaps it reflects narcissism (the proliferation of “selfies) that doesn’t allow time to worry about the effect of today’s actions on the future? Perhaps it mirrors a decline in the family unit, as a critical element of society? Whatever the cause, a sea change is needed, and we don’t have a lot of time to waste. Setting the ship of state aright and investing for the future is something we should do right now. For everything else, think of the future.
The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.
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