American power in the coming years .
03-28-2010, 04:18 AM
#1
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Joined APC: Feb 2008
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American power in the coming years .
ObamaCare and American Power
Author: Max Boot, Jeane J. Kirkpatrick Senior Fellow for National Security Studies
March 25, 2010
Wall Street Journal
A lot has been written about the impact of ObamaCare on health care and the economy. I am worried about its impact on our global power.
The United States currently spends roughly as much on defense ($661 billion in fiscal year 2009) as the rest of the world combined. But that's a pittance compared to what we spend on three major entitlement programs-Social Security, Medicare and Medicaid. Combined, they cost $1.38 trillion or almost 35% of the budget, compared with 17% for defense. And entitlements will only grow dramatically. The current unfunded liability for Social Security and Medicare, according to the 2009 Social Security and Medicare Trustees Report, is nearly $107 trillion-seven times the size of our economy.
It's hard to remember now, but there was a time when the federal government spent most of its money on the armed forces. In 1962, the total federal budget was $106 billion of which $52 billion-almost half-went for defense. It wasn't until 1976 that entitlement spending exceeded defense spending. Since then the totals have been getting more lopsided-more for social programs, less, in relative terms, for defense.
In 1935, Franklin Roosevelt assured the public that the new Social Security system would not lead to runaway spending. In 1965, Lyndon Johnson pledged that the fiscal impact of Medicare would be minimal. And now Barack Obama cites a Congressional Budget Office estimate claiming that the vast new health-care entitlement will actually reduce the deficit.
Count me as skeptical. Odds are great that the cost-containment provisions will never be rigorously implemented while the promised subsidies will prove more costly than projected.
In other words, ObamaCare will likely continue the trend already evident during the first year of the administration-when, thanks to the bank bailout and stimulus bill, federal spending as a share of GDP soared to 24.7%, unprecedented in peacetime. If you add in state and local spending, the government as a whole consumes 37.5% of GDP, up from 34.7% in 2008. Prepare for those figures to climb further as government takes on new health-care obligations.
To consider the implications for defense, look at Europe. Last year government spending in the 27 European Union nations hit 52% of GDP. But most of them struggle to devote even 2% of GDP to defense, compared to more than 4% in the U.S.
When Europeans after World War II chose to skimp on defense and spend lavishly on social welfare, they abdicated their claims to great power status. That worked out well for them because their security was subsidized by the U.S.
But what happens if the U.S. switches spending from defense to social welfare? Who will protect what used to be known as the "Free World"? Who will police the sea lanes, stop the proliferation of weapons of mass destruction, combat terrorism, respond to genocide and other unconscionable human rights violations, and deter rogue states from aggression? Those are all responsibilities currently performed by America. But it will be increasingly hard to be globocop and nanny state at the same time. Something will have to give.
President Obama's budget projects that "core" defense spending (excluding supplemental appropriations for wars) will fall as a percentage of GDP to 3% in 2019 from 3.9% in 2010. Assuming the economy keeps growing, that will still deliver more defense spending in absolute terms-but economic growth may well be endangered by the higher taxes needed to fund ObamaCare. Even if defense spending stays steady, it will be increasingly hard to replace aging weapons systems such as Bradley Fighting Vehicles, Abrams tanks and Black Hawk helicopters, which were purchased during the Reagan defense buildup.
The Air Force, which is responsible for maintaining air and space superiority-a sine que non of American power-faces a particularly big budget crunch. Its aircraft are aging and need to be replaced (KC-135 tankers and B-52 bombers are more than 40 years old), but each new plane is much costlier than its predecessor.
The Navy faces a similar problem. It now has only 283 ships-the smallest number since 1916. Granted, each of those vessels is much more capable than earlier models. But at some point quality cannot substitute for a crippling lack of quantity.
The crunch will not come anytime soon. The U.S. will remain strong for years to come. But if we are looking at major threats to our global standing, we should not look at China, Iran or Russia. We have met the enemy and he is us-specifically, our insatiable demand for entitlement spending, which ObamaCare will only exacerbate.
At what point do we hit the wall ?
Author: Max Boot, Jeane J. Kirkpatrick Senior Fellow for National Security Studies
March 25, 2010
Wall Street Journal
A lot has been written about the impact of ObamaCare on health care and the economy. I am worried about its impact on our global power.
The United States currently spends roughly as much on defense ($661 billion in fiscal year 2009) as the rest of the world combined. But that's a pittance compared to what we spend on three major entitlement programs-Social Security, Medicare and Medicaid. Combined, they cost $1.38 trillion or almost 35% of the budget, compared with 17% for defense. And entitlements will only grow dramatically. The current unfunded liability for Social Security and Medicare, according to the 2009 Social Security and Medicare Trustees Report, is nearly $107 trillion-seven times the size of our economy.
It's hard to remember now, but there was a time when the federal government spent most of its money on the armed forces. In 1962, the total federal budget was $106 billion of which $52 billion-almost half-went for defense. It wasn't until 1976 that entitlement spending exceeded defense spending. Since then the totals have been getting more lopsided-more for social programs, less, in relative terms, for defense.
In 1935, Franklin Roosevelt assured the public that the new Social Security system would not lead to runaway spending. In 1965, Lyndon Johnson pledged that the fiscal impact of Medicare would be minimal. And now Barack Obama cites a Congressional Budget Office estimate claiming that the vast new health-care entitlement will actually reduce the deficit.
Count me as skeptical. Odds are great that the cost-containment provisions will never be rigorously implemented while the promised subsidies will prove more costly than projected.
In other words, ObamaCare will likely continue the trend already evident during the first year of the administration-when, thanks to the bank bailout and stimulus bill, federal spending as a share of GDP soared to 24.7%, unprecedented in peacetime. If you add in state and local spending, the government as a whole consumes 37.5% of GDP, up from 34.7% in 2008. Prepare for those figures to climb further as government takes on new health-care obligations.
To consider the implications for defense, look at Europe. Last year government spending in the 27 European Union nations hit 52% of GDP. But most of them struggle to devote even 2% of GDP to defense, compared to more than 4% in the U.S.
When Europeans after World War II chose to skimp on defense and spend lavishly on social welfare, they abdicated their claims to great power status. That worked out well for them because their security was subsidized by the U.S.
But what happens if the U.S. switches spending from defense to social welfare? Who will protect what used to be known as the "Free World"? Who will police the sea lanes, stop the proliferation of weapons of mass destruction, combat terrorism, respond to genocide and other unconscionable human rights violations, and deter rogue states from aggression? Those are all responsibilities currently performed by America. But it will be increasingly hard to be globocop and nanny state at the same time. Something will have to give.
President Obama's budget projects that "core" defense spending (excluding supplemental appropriations for wars) will fall as a percentage of GDP to 3% in 2019 from 3.9% in 2010. Assuming the economy keeps growing, that will still deliver more defense spending in absolute terms-but economic growth may well be endangered by the higher taxes needed to fund ObamaCare. Even if defense spending stays steady, it will be increasingly hard to replace aging weapons systems such as Bradley Fighting Vehicles, Abrams tanks and Black Hawk helicopters, which were purchased during the Reagan defense buildup.
The Air Force, which is responsible for maintaining air and space superiority-a sine que non of American power-faces a particularly big budget crunch. Its aircraft are aging and need to be replaced (KC-135 tankers and B-52 bombers are more than 40 years old), but each new plane is much costlier than its predecessor.
The Navy faces a similar problem. It now has only 283 ships-the smallest number since 1916. Granted, each of those vessels is much more capable than earlier models. But at some point quality cannot substitute for a crippling lack of quantity.
The crunch will not come anytime soon. The U.S. will remain strong for years to come. But if we are looking at major threats to our global standing, we should not look at China, Iran or Russia. We have met the enemy and he is us-specifically, our insatiable demand for entitlement spending, which ObamaCare will only exacerbate.
At what point do we hit the wall ?
03-28-2010, 09:48 AM
#2
With The Resistance
Joined APC: Jan 2006
Position: Burning the Agitprop of the Apparat
Posts: 6,191
Just a cautionary word here, try to keep this an economic topic or it will get closed down. Politics touches it here and there, but ultimately economic constraints are the point of exploration. Thank you.
----------------------------------------------------------------------------
The first euthanasia patient under the new health care program is apt to be the federal government itself.
March 28, 2010 - by Monty Pelerin In an article in the Atlantic entitled “My Inflation Nightmare,” Michael Kinsley worries about the future of the economy. He fears that inflation, perhaps hyperinflation, is a likely next stage in the economic crisis. His fears contradict the respected liberal economists Paul Krugman and Larry Summers. They argue that deflation is the likely outcome.
Mr. Kinsley defers to their expertise and exhibits proper liberal loyalty by modulating his position. He apparently trusts these economists more than his own intellect and instincts. He remembers being stigmatized as a “fiscal sado-conservative” (whatever that means) when he strayed from the liberal position once before.
Mr. Kinsley should realize that it was these and similar experts that got us into this mess. Neither of these experts ever saw it coming, despite their expertise and mathematical Keynesian models. One is an ideologue and the other an employee of the administration. Does Mr. Kinsley believe they could publicly speak out against inflation, even if they believed it to be a certainty?
Kinsley’s intuitive conclusion is grounded in “the realm of psychology.” If, by that, he means human behavior and motives, he is on sounder ground than most so-called economists. Proper economics always has been the study of human action. Abstract mathematical models, introduced in the “Keynesian revolution,” banished human and political motivations from consideration. Economics was then reduced to a sterile black-box contraption, at least in the minds of “sophisticated” Keynesians.
The key insight and worry in Kinsley’s article is that “no one in a position to act has proposed a realistic way out of this debt.” Is it possible no one understands the problem? Perhaps they have been too busy to deal with it. He muses about this issue in a way that suggests he may know the answer but not want to reveal it. Quite simply, the issue is ignored because there is no politically palatable solution! It is impossible for the U.S. government to honor its obligations.
To understand the predicament, numbers are necessary. The federal debt, approximately $12.5 trillion, represents funded debt. The unfunded promises associated with Social Security, Medicare, and Medicaid represent an additional liability of $106 trillion, according to trustee estimates.
A $106 trillion cash infusion is required today to make these programs solvent. But the entire net worth of the entire country is only about $55 trillion. If the U.S. government confiscated every single asset in this country, these programs would still be insolvent. And so would every citizen and corporation in the country. Quite simply, these programs promise twice what the country is worth!
In my post “Spiraling to Bankruptcy,” various methodologies were used to illustrate federal insolvency. Because large numbers are incomprehensible, they were translated into everyday examples. One example used the analogy of a family:
The federal government collects about $2.5 trillion in total revenues a year. That is from all sources of taxes and fees. Think of that as an individual’s annual gross salary. The debt owed by the government can be looked at as a great big mortgage. Thus, we have a family that has a mortgage 44.8 times greater than gross salary. That would be the equivalent of a man earning $50,000 gross salary having a mortgage of $2,240,000! An interest-only mortgage at 6% would require the family to pay annual interest of $134,000 per year. A conventional mortgage would be much higher. The example becomes even more ludicrous when one recognizes that taxes, food, clothing, savings, etc. all have to be subtracted from gross pay to determine what is left for debt service.
When we shift back to the federal government, the family analogy becomes even more absurd. The federal government has nothing left from their “gross pay.” Their “living expenses” actually exceeded their gross pay by $1.2 trillion last fiscal year. That is, they spent almost 50% more than they made. Comparable behavior is budgeted for the next ten years.
Mr. Kinsley’s formal training in economics may be limited, but his instincts are sound. None of the above is economics; it is simple math and the math is irrefutable. That is, the reason that “no one in a position to act has proposed a realistic way out of this debt … ”
Other than default, there is no way out.
The government is in what is known as a “debt death spiral.” They are unable to pay the actual and implied interest on their debt. Each year the unpaid balance is added back to the amount owed, making the problem worse next year. This debt spiral grows exponentially. There is no way to escape the certain mathematical end.
Jose Pinera described the problem and the solution:
The welfare state has really become an arbitrary “entitlement state,” where everyone uses the state to rob someone else, and politicians from the right and the left play the transfer game to win elections. This crisis may serve to reveal the true nature and enormous flaws of the welfare state. Sooner or later, [states] will have to dismantle it and move toward a paradigm of personal responsibility — that is, a system of personal accounts for pensions, health and unemployment benefits.
The political class is unwilling to accept the Pinera solution. They consider the Ponzi-scheme social programs sacrosanct. “Vote for me and I will take benefits away from you” has never been a winning political strategy.
Mr. Kinsley’s fears that government will resort to inflation to mitigate the problem are correct. Bernanke must continue quantitative easing (“printing money”) because not doing so would shut the government down. Inflation will occur, but it is no solution. It is merely a holding-action charade, a “pretend and extend” strategy that markets will eventually disrupt.
Ultimately Pinera’s solution will be imposed here and in Europe where conditions are just as perilous. It will be painful for Mr. Kinsley and those of the liberal persuasion. But unless someone repeals the laws of mathematics, it is the only solution. No sane economist can argue against mathematics.
While President Obama inherited a mess, he has done yeoman’s work in worsening matters. To think that we can add another massive entitlement on top of this situation is utter madness. The first euthanasia patient under the new health care program is apt to be the federal government itself.
When the history books are written a century or so from now, it is likely that the twentieth century will be referenced as “the myth of government.” Hopefully the Ponzi nature of government is understood in time to return government to the role intended by our Founding Fathers.
The fate of civilization depends upon such a correction.
Monty Pelerin blogs at http://www.airlinepilotforums.com/mo...onomicnoisecom and can be contacted at [email protected]
----------------------------------------------------------------------------
The first euthanasia patient under the new health care program is apt to be the federal government itself.
March 28, 2010 - by Monty Pelerin In an article in the Atlantic entitled “My Inflation Nightmare,” Michael Kinsley worries about the future of the economy. He fears that inflation, perhaps hyperinflation, is a likely next stage in the economic crisis. His fears contradict the respected liberal economists Paul Krugman and Larry Summers. They argue that deflation is the likely outcome.
Mr. Kinsley defers to their expertise and exhibits proper liberal loyalty by modulating his position. He apparently trusts these economists more than his own intellect and instincts. He remembers being stigmatized as a “fiscal sado-conservative” (whatever that means) when he strayed from the liberal position once before.
Mr. Kinsley should realize that it was these and similar experts that got us into this mess. Neither of these experts ever saw it coming, despite their expertise and mathematical Keynesian models. One is an ideologue and the other an employee of the administration. Does Mr. Kinsley believe they could publicly speak out against inflation, even if they believed it to be a certainty?
Kinsley’s intuitive conclusion is grounded in “the realm of psychology.” If, by that, he means human behavior and motives, he is on sounder ground than most so-called economists. Proper economics always has been the study of human action. Abstract mathematical models, introduced in the “Keynesian revolution,” banished human and political motivations from consideration. Economics was then reduced to a sterile black-box contraption, at least in the minds of “sophisticated” Keynesians.
The key insight and worry in Kinsley’s article is that “no one in a position to act has proposed a realistic way out of this debt.” Is it possible no one understands the problem? Perhaps they have been too busy to deal with it. He muses about this issue in a way that suggests he may know the answer but not want to reveal it. Quite simply, the issue is ignored because there is no politically palatable solution! It is impossible for the U.S. government to honor its obligations.
To understand the predicament, numbers are necessary. The federal debt, approximately $12.5 trillion, represents funded debt. The unfunded promises associated with Social Security, Medicare, and Medicaid represent an additional liability of $106 trillion, according to trustee estimates.
A $106 trillion cash infusion is required today to make these programs solvent. But the entire net worth of the entire country is only about $55 trillion. If the U.S. government confiscated every single asset in this country, these programs would still be insolvent. And so would every citizen and corporation in the country. Quite simply, these programs promise twice what the country is worth!
In my post “Spiraling to Bankruptcy,” various methodologies were used to illustrate federal insolvency. Because large numbers are incomprehensible, they were translated into everyday examples. One example used the analogy of a family:
The federal government collects about $2.5 trillion in total revenues a year. That is from all sources of taxes and fees. Think of that as an individual’s annual gross salary. The debt owed by the government can be looked at as a great big mortgage. Thus, we have a family that has a mortgage 44.8 times greater than gross salary. That would be the equivalent of a man earning $50,000 gross salary having a mortgage of $2,240,000! An interest-only mortgage at 6% would require the family to pay annual interest of $134,000 per year. A conventional mortgage would be much higher. The example becomes even more ludicrous when one recognizes that taxes, food, clothing, savings, etc. all have to be subtracted from gross pay to determine what is left for debt service.
When we shift back to the federal government, the family analogy becomes even more absurd. The federal government has nothing left from their “gross pay.” Their “living expenses” actually exceeded their gross pay by $1.2 trillion last fiscal year. That is, they spent almost 50% more than they made. Comparable behavior is budgeted for the next ten years.
Mr. Kinsley’s formal training in economics may be limited, but his instincts are sound. None of the above is economics; it is simple math and the math is irrefutable. That is, the reason that “no one in a position to act has proposed a realistic way out of this debt … ”
Other than default, there is no way out.
The government is in what is known as a “debt death spiral.” They are unable to pay the actual and implied interest on their debt. Each year the unpaid balance is added back to the amount owed, making the problem worse next year. This debt spiral grows exponentially. There is no way to escape the certain mathematical end.
Jose Pinera described the problem and the solution:
The welfare state has really become an arbitrary “entitlement state,” where everyone uses the state to rob someone else, and politicians from the right and the left play the transfer game to win elections. This crisis may serve to reveal the true nature and enormous flaws of the welfare state. Sooner or later, [states] will have to dismantle it and move toward a paradigm of personal responsibility — that is, a system of personal accounts for pensions, health and unemployment benefits.
The political class is unwilling to accept the Pinera solution. They consider the Ponzi-scheme social programs sacrosanct. “Vote for me and I will take benefits away from you” has never been a winning political strategy.
Mr. Kinsley’s fears that government will resort to inflation to mitigate the problem are correct. Bernanke must continue quantitative easing (“printing money”) because not doing so would shut the government down. Inflation will occur, but it is no solution. It is merely a holding-action charade, a “pretend and extend” strategy that markets will eventually disrupt.
Ultimately Pinera’s solution will be imposed here and in Europe where conditions are just as perilous. It will be painful for Mr. Kinsley and those of the liberal persuasion. But unless someone repeals the laws of mathematics, it is the only solution. No sane economist can argue against mathematics.
While President Obama inherited a mess, he has done yeoman’s work in worsening matters. To think that we can add another massive entitlement on top of this situation is utter madness. The first euthanasia patient under the new health care program is apt to be the federal government itself.
When the history books are written a century or so from now, it is likely that the twentieth century will be referenced as “the myth of government.” Hopefully the Ponzi nature of government is understood in time to return government to the role intended by our Founding Fathers.
The fate of civilization depends upon such a correction.
Monty Pelerin blogs at http://www.airlinepilotforums.com/mo...onomicnoisecom and can be contacted at [email protected]
03-30-2010, 08:30 PM
#3
Line Holder
Joined APC: Sep 2008
Posts: 83
Excellent post as always Jungle. Too see this on a global scale if you will: http://www.marketoracle.co.uk/Article18282.html
04-06-2010, 07:56 PM
#4
Line Holder
Joined APC: Jul 2007
Posts: 25
Originally Posted by lear553560ed
Excellent post as always Jungle. Too see this on a global scale if you will: http://www.marketoracle.co.uk/Article18282.html
Wow that was a good article. Depressing but good. Alot of that article pertaining to student grads hit home pretty hard.
Any one disagree with this article? I love to hear opposing arguments.
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