Tuesday, April 10, 2012

'White House Burning: The Founding Fathers, Our National Debt and Why It Matters to You'

Here's a simply amazing astounding fact you need to know and contemplate as we go through this thought-bomb for today:

'The United States of America became the world's largest economy along about 1870.'

Let's think about that for a moment.

We had just endured the costliest war, and most deadly in terms of human loss of life, our nation has EVER experienced.  More American people died in the Civil War than in all of the other wars we have fought, including World War II, combined.

In 1790, the population of America was just under 4 million people across mostly the 13 original colonies.  By contrast, France had over 19 million people in population close to 100 years earlier in 1700!  Britain had 9 million people way back then as well.

What in the world were our Founders thinking when they decided to take on the world's largest economic and military superpower in 1776 and actually thought they could defeat the King and his Empire?

Anyway, just after the end of the Civil War, within about 5 years or so, the United States of America became the world's largest economic power after only 81 years of existence.  France and England and Holland and Spain had been around for centuries, if not millennia in the case of China.

Why was this so?  How could this had been even remotely possible?

For one thing, America was blessed with an abundance of riches in terms of natural resources.  Oil was discovered in Pennsylvania soon thereafter and literally fueled an explosion of economic activity from the internal combustion engine in our cars to our planes and heated our homes and other innovations improved the manufacture of steel and other products that made America the envy of every other civilization on Earth.

For another, most Americans in 1790 and 1870 had a ton of freedom and liberty to do pretty much what they wanted to, didn't they?  (We understand the gravity of slavery and the ensuing civil right struggle that makes this statement hard to make for everyone in 19th and 20th century America which we would get to if we had room here)

If a person wanted to invent a product or process, there was very little they needed to do other than start working on it, aside from finding the money through friends and family to pay for all of that exploration or research and development.

The numbers of 'inventions' that have come out of America in the past 125 years simply boggles the imagination:  Lightning rod; cotton gin; light bulbs; automobiles; airplanes; computers...the list goes on for days.

There was no income tax until 1913. No 2000-pages of promulgated regulations published in the Federal Register on a daily basis telling them what they could do and how they could do it.

What else was different in 1870?

Well, for one thing, the scope of the federal government was near about minuscule back then when compared to GDP.  The Federal government has typically spent about 1% of our nation's GDP up until around 1930, mostly on defense-related items such as equipping our armies and navies over time.  In case you have forgotten, 1930 was when something else 'really bad' happened and FDR grew the government to around 10% of GDP, which we would take in heartbeat today in 2012 America.

However, there was one very striking similarity to today's world in the federal budget:

'In the decades following the Civil War, income security—in the form of veterans’ pensions—also became a major responsibility of the federal government, accounting for one-third (1/3) of all spending in 1890.'

Even way back then, the US federal government was struggling with the first wave of 'entitlements' which is precisely what this expenditure was, wasn't it?  Congress felt compelled to 'rightly' honor the Union soldiers and their spouses for their heroic service and sacrifice to keep the Union together in 1865 by providing a decent pension for them in their dotage or due to war-related injuries to the tune of 1/3 of their annual budgets by the turn of the 19th century.

Today, close to 56% of the US federal budget is consumed by entitlements.  56%+.

The difference between then and now? The Civil War veterans eventually died off, didn't they? (the last Civil War widow, Maudie Hopkins, died in 2006, believe it or not, and received a part of her husband's civil war pension until his death in 1937)

The entitlements of modern-day America are never going to go away. They are simply going to add on more recipients every single day as more and more Boomers retire and then their children after them.

And guess what? The cost of supporting such a huge aging population is going to keep going ever higher unless and until we elect people to our US Congress and to sit in our White House who can understand the gravity of this problem and do something about it.

You need to get and read a great book on the history of debt in America, 'White House Burning: The Founding Fathers, Our National Debt and Why It Matters To You' and try to understand just how sticky of a wicket we face when it comes to ever balancing our budget again in the face of such humongous entitlement program claims on our national budget.

One of the authors, Simon Johnson is a former chief economist of the International Monetary Fund and now is a professor at the MIT Sloan School of Management. The other, James Kwak, is a professor at the Connecticut Law School.

This book is chock full of facts and details that would take you 30 years to find and get comfortable with (as it took us including a grueling 4-year stint on the House Budget Committee and Entitlement Commission in 1994).  But please take it upon yourself to read it through and through so you will be able to talk and debate intelligently with the 99.999999% of the public who will not read this book or any other book on federal budgeting (just sounds boring, doesn't it?).

You might just change some people's minds on this critically important subject to us and our future.

The one thing we don't get?  We just don't get how people who are as smart as Messrs. Johnson and Kwak and any other person who is enamored with an ever-expanding federal government bureaucracy and edifice will never say this out-loud and in public:
'We are liberals and we love more government to protect and preserve the health and safety and education of our fellow citizens.  But we have combed through the budget and found hundreds of billions of dollars of wasted money each and every year and we think we should cut the hell out of such wasteful spending!  
And not just in defense spending which we all know is used to oppress other people around the globe. As in Social Security and Medicare....why Americans have been duped to believe that Warren Buffett and Bill Gates 'deserve' to draw $2500/month from Social Security and be subsidized in their Medicare bennies for over 90% of their actual cost as seniors is beyond our cotton-pickin' MIT/Connecticut Law School brains!'
If liberals would all of sudden come to their senses and be fiscally responsible and conservative in this regard, they might close out the marketplace for there ever being a conservative Republican opposition party in the first place.

But they won't. At least they haven't for the past 40 years or so in Washington, DC.

Maybe the next generation will be more responsible once they read this book and get energized to throw all the old people out of government from both sides of the aisle.  And start over again.

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