Free Markets, Free People


One picture tells the US’s problem

It is sort of surprising that it is even necessary to put this up, but as most of us know, people pay more attention to visual evidence than written. And written is sometimes open to misinterpretation. I challenge anyone to misinterpret this:

 

usa-income-statement

If the US were a business, this would be it’s “Income Statement”.   And this isn’t a one time “it’ll get better next year” sort of statement either.  Neither income nor spending are projected by the administration to be much different in its 10 year budget projections.

Note where 58% of the spending comes from.  Do your own calculations -the most simple, of course is taking $2.2 trillion from $3.5 trillion and understanding that you have a shortfall of S1.3 trillion.

The chart comes from a very interesting report from a financial analyst at KPCB, Mary Meeker.  She takes a look at the US’s finances as if the country was a business.  Business Insider (HT: Pundit Review) lays out some of the gory details and what is discussed in the report as recommendations:

• Spending as a percent of GDP rose 3 percent each year from 1790 and 1930. Worse: It rose 24% in 2010.

• Debt levels will be three times current levels by 2030. Entitlements and interest alone will exceed total revenue by 2025.
• Only 1 in 50 Americans needed Medicaid when it was first created in 1965, 1 in 6 Americans receives Medicaid now.
• Extended unemployment benefits could set back America Inc. $34 billion in the next two years alone.
• The only good investments: technology, education and infrastructure.
• The crucial reforms: entitlement and tax policies
• There is no quick-fix to America’s deficit problem. While raising taxes could help, the only real solution is cutting costs.
• Why we should cut Medicare benefits by 53%
• Why we should increase the retirement age to 73 or cut Social Security benefits by 12%.

Emphasis mine.  Essentially the ground truth about the country’s financial situation is the only way to get it in order is to commit to massive cuts in spending. Superfluous to that argument is any argument claiming certain programs or government departments or any other aspect of government should be exempt. That said, it is clear to anyone with eyes that the major problem lies in too much spending for entitlements. For instance how is it a program that was designed to fund medical care for the poor in this country and when started had 1 in 50 Americans enrolled now enrolls 1 in every 6 Americans?  My guess is you’ll find the same to be true of most so-called “anti-poverty” programs today. 

And the billions upon billions we throw at education through the Dept. of Education which hasn’t raised the yearly results of our students one iota since its inception.  Or the Department of Energy – created in Jimmy Carter’s day to do what?  Lessen our dependence on foreign oil.  That’s worked well hasn’t it?

We’re talking drastic action here, folks.   And we’re talking getting a grip and facing reality – not this “hey, make cuts but don’t touch our entitlements” nonsense that  some polls reflect.  Nor can these cuts fall victim to whining by special interests.  And it would be wonderful, in an obvious era of austerity, if the White House could manage a little leadership as well:

Last July, Obama announced that he wanted federal workers to cut down on business travel and commuting by car in order to reduce emissions produced by the federal government:

The White House was announcing Tuesday that the government will aim to reduce carbon dioxide and other greenhouse gas emissions from indirect sources like employee driving by 13 percent in 2020, compared with 2008 levels.

That’s for everyone else.  The Obama’s of course, are exempt from such things and as an example, fly in their personal trainer every week for a workout.  Imagine the reduction in emissions if they were to actually practice what they preach and hire a local personal trainer.

Pulling it all together, this is the problem we face in getting the country’s house in order.  Those that are talking about (and actually trying) cutting spending are now cast as bad guys.  Special interests are spooling up their sob stories.  The bureaucracy is beginning to fortify the walls around its huge and expensive kingdom.  And much of the public wants cuts without pain.  Meanwhile, other than lip service, the so-called leadership of this country doesn’t seem to understand what leadership is, what it entails and why it is important to set a good example –  that is if they’re actually serious about doing what they claim we must do.

If this were a company, as Mary Meeker lays out in her study, investors would be cashing out as quickly as they could and others would be avoiding anything to do with this wreck.  The bottom line of Meeker’s report is the road down which we’ve kicked the can for decades has come to a dead-end.  We’re there.  We can’t kick it one single foot further.

The time has finally come and the question is, are we up to the task at hand?  Do we have the political will and leadership necessary to get done what must be done?  Unfortunately,  I don’t think so – financially speaking and addressing the quality of leadership available, the election of the empty suit in the White House couldn’t have come at a worse time. 

There are at least two ways this crisis will be solved.  Deliberately through tough and painful measures enacted by a leadership that directly confronts the problem and makes tough choices, or spontaneously when we reach a tipping point and everything collapses in a heap and we’re left surveying the ruins and wondering what happened.

Any guess as to which scenario I think is most likely?

~McQ

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14 Responses to One picture tells the US’s problem

  • Excellent post… The Democratic party has become the party of the “blind leading the blind”, they will both fall into a pit. Thanks.

  • We…meaning “da people”…cannot allow the collapse scenario to occur.  Without being histrionic, that could result in untold death and misery around the world.
    This isn’t something we can rely on political animals to step up to…that is asking dogs to meow.  We have to push this.

  • The clear interpretation is that taxes on the rich need to be raised by $1.3 trillion.
    This problem was inherited from Bush.
    The illegal war in Iraq.
    There is no way the middle class should be forced to live with ‘draconian’ cuts to vital services.  If anything we need to spend more.

    How’d I do? =)

  • SURPRISE!  Pay attention, lefties: even if we cut defense spending to ZERO, we are still in the hole by about $600B.  You simply can’t blame defense spending for our budget woes.  You ESPECIALLY can’t claim that the Iraq / A-stan wars are the sole or even principle cause of our deficits.  “Cutting defense” isn’t going to come close to getting us out of the hole.

    A real surprise (to me, anyway): this year, at least, Social Security is taking in more than it is paying out.  This situation probably won’t last as more and more boomers retire unless we raise Social Security tax rates and / or reduce benefits and / or raise the retirement age so that fewer people are claiming the benefit.

    NOT a surprise:

    We’re screwed.  So, so screwed.

    • The Iraq/A’stan Wars combined were $1T over the first 6 years. That’s about $170B per year. A lot of money, but it isn’t the reason we are facing such significant debt.

      And success in those wars, particularly Iraq, could eventually compensate us. One could consider them investents.

      • Your numbers sound a bit high over past numbers I’ve heard.  More like around $100 bln/year.

        And the milk is spilled at this point.

  • You sure?  Can’t we solve this problem with high-speed rail??