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Tuesday, January 25, 2011

The Real State of the Union

The Real State of the Union
Would Ike like this dysfunctional economy?
By Brett Arends, MarketWatch
Jan. 25, 2011, 12:01 a.m. EST

BOSTON (MarketWatch) — Forget the posturing you’re going to hear tonight. Do you want to hear the real state of the union? Just ask Ike: President Dwight Eisenhower.

As fund manager Jeremy Grantham notes, it was 50 years ago this month that the old general delivered his famous farewell address to the nation after a lifetime of service that few will ever match.

Everyone remembers his warning against the rise of the “military-industrial complex.”

Less well-remembered: His warning against hocking ourselves up to the eyeballs as the easy way out of any problem.

“We... must avoid the impulse to live only for today, plundering, for our own ease and convenience the precious resources of tomorrow,” he said.

“We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow.”

Living only for today?

Mortgaging our grandchildren’s assets?

An insolvent phantom?

Hmmm. Sound like anyone we know?

Today the United States is more in debt than any country, ever, in the history of the world. And it’s not just the ballooning federal debt that you keep hearing about. Companies are hocked up to the eyeballs. States and towns. And, of course, families.

Already, the total is $36 trillion. That is nearly three times the size of the economy. (And that is not even counting the trillions in so-called unfunded liabilities for the likes of Social Security and Medicare and municipal retirement plans.)

Just this conservative figure works out at about $300,000 per American household.

About half of that has been racked up in the last decade. About two-thirds of it just since 1990.

In Eisenhower’s time, gross federal debt was about half of GDP. And most of that had been built up fighting the Second World War.

This year it will reach about 100%.

What did we do with the money we borrowed? We had a housing bubble. And we bought a bunch of Jacuzzis and flat-screen TVs… made in China.

The situation is getting worse, not better.

Last month, President Barack Obama and the Republicans in Congress struck another trillion-dollar deal that included freebies for everybody. Lots more tax cuts, and a bit more spending. Gigantic deficits stretch out as far as the eye can see.

The headline on the weekend’s Wall Street Journal? “Obama To Push New Spending.”

Republicans will blame Obama and the Democrats again tonight.

But it was the Republicans who really launched the debt orgy under Reagan, and then again under Bush II. And most of them still worship the false idol of the Laffer curve, which claims that every time you cut taxes, revenues rise.

Logical conclusion: Cut rates to 0%. Maximum revenues! No wonder George Bush senior, the last Eisenhower, ie true, Republican, called this racket “voodoo economics.”

Under Eisenhower, Uncle Sam took 18% of the economy in taxes, and spent 18%. Result: Balanced budget. As they say, it ain’t rocket science.

Today? The government spends 25%. (Much of that goes on care for an aging population that has saved little for its own retirement).

Meanwhile taxes are less than 15%. The lowest level in 50 years.

Insanity.

We spend billions more than we produce each year. We have run a current account deficit with the rest of the world in every year but one since 1982. (Reagan, again). In the past 10 years, those deficits have topped $5 trillion. About half our Treasury bonds are owned overseas.

Imagine what Ike would think of that.

What has all this debt bought us?

Wages have been stagnant, or declining, for decades. Average workers (male and female) are level over 40 years. For men alone, wages are actually down. And today, one in four men can’t even get a full-time job.

In Eisenhower’s time, as Grantham points out, the average big company chief executive earned about 40 times as much as a factory-floor worker. Today: 400 to one. Surely this has passed the point of reasonable political debate. Surely there is no sensible conservative who is willing to defend this obscenity?

As for inequality: For most of our history America was, famously, among the “flattest” of societies. We did not have the aristocrats and peasants of other countries, the vast gulf between the rich and the poor. That was true when Alex de Tocqueville visited in the 1830s, and it was true when Ike was in the White House.

Today? America’s society has become among the most unequal in the world. We are far more stratified than other advanced societies, including the former aristocratic countries of Europe. We are less equal than Russia. We on a par with the Philippines and Nigeria. No kidding. Nigeria.

So when you watch our national political circus tonight, just ask yourself one question.

WWIT: What Would Ike Think?

I hate to imagine.

Brett Arends is a columnist for MarketWatch and The Wall Street Journal, based in Boston.

http://www.marketwatch.com/story/state-of-the-union-the-real-story-2011-01-25?pagenumber=1

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