Fixing America’s Budget Mess

I’ve spent a while pondering that we have a $5 Trillion per year budget deficit.

$5,000,000,000,000.00 Or in British Terms $5 Million Million.

That’s on top of whatever our accumulated debt to date might be now. About $15 Trillion.
$15,000,000,000,000.00 give or take a few $Hundred Million…

Oh, “My Bad”. The national Debt Clock says we are just a bit under $16 Trillion now… must have been a month or two back that I saw $15 Trillion…

The general trend is to have the Socialists / Progressives / American Social Liberals advocating for just taking more money from anyone who has it. ( i.e. “tax the rich”). Angela Merkel in Germany is advocating for a Tobin Tax, a tax on ALL financial transactions, to pay the EU bills and some have advocated for that in the USA. Never mind that all sorts of folks have ‘financial transactions’ and it is really just a stealth tax on money…

The general trend for conservatives tends to be “stop the spending” and occasionally added “then we’ll talk about some small taxes to maybe pay down the debt.” Unless, or course, there is a War To Fight when all the limits come off (declared war or not) or unless there is a Wet Kiss to give to an industry rich with donation dollars, or unless there is a program they can pass that both pleases a corporate donor AND looks like they too are handing out free stuff (think Baby Bush Drug Plan).

IMHO in looking for what is the basic cause of this, what was called the “root cause” in some class I had to take with fish bone diagrams, we need only look at ourselves.

The basic cause of all this is human nature.

At one point we had rules to constrain that human nature and to prevent it from running rampant. We have removed those rules, changed those laws, and basically put ourselves right back in the very kind of system that our Constitution was originally designed to prevent. We essentially need to make rules that prevent human action in their own interest.

The straight forward conclusion is simply that we ought to un-do those changes that removed those rules. I’d also suggest adding a couple of additional steps as well.

First off, Plato described Democracy as one of the bad systems, and it is. Constantly demanding “more democracy” is part of what caused this mess. We were set up as a Republic, for the simple reason that in a Republic the will of the people has a countervailing power. In a Democracy, the people demand more “goodies” from the political class and the political class buy votes via handing out money to people (often the same people from whom they took the money… go figure…)

Clearly it has been known for a long time that Democracies are not stable.

I explored at some length the history of folks who realized that we needed a brake on the ability of the people to vote for themselves the goodies in the public purse in this posting:

https://chiefio.wordpress.com/2011/05/31/progressively-corrupting-democracy/

Since we’ve now moved from a stable Republic with sound money, over to an unstable Banana Republic Wannabe, the question must be “What happened?” followed closely by “How to undo it?”.

What Happened?

Unfortunately, “What happened” has many many steps and parts. I can’t cover all of them, but even just fishing out the most important parts is a bit too long a list to treat in any depth. So some things will simply be stated as causal without a whole lot of analysis and / or proof. For example: TV has made us lazy, distracted, and uninterested in how our government works. Web browsing and the internet have extended this trend. As I think that is a minor factor, and not something likely to be changed, I’m only going to mention it in passing and without much else said about it.

There were many other changes that were more important. Those are the ones most in need of reversal. Several of them involve constitutional amendments that were passed, so un-doing them will also require constitutional amendments (or for the States to call for a Constitutional Convention).

So the first question is just “When was our budget not in a mess?”

That would be just after W.W.II. (During W.W. II it was a bit of a mess, but post W.W.II a lot of the debt was retired.) We then started the present budget melt down under L.B.J. from cost pressures for the Vietnam War. His is that little blip up in the late ’60s. Then later Nixon took us off the Gold standard and things got rolling even faster. But it was not until Carter was in place that some of the earlier changes started to come home to roost. Prices were rocketing up. Interest rates too. Regan came in and got the economy back under some kind of reasonable control, but the die was already cast for exponential growth of Government and Spending. His is that ramp up from 1981-89 or so. That was when we “Spent the USSR into the ground” in an arms race.

Unfortunately, we did NOT then pay off the bill and stop the arms race after the USSR collapsed and instead became Policeman To The World. Not to be outdone, following Presidents and Congresses have had a ‘nudge nudge wink wink’ agreement. Democrats pass social spending programs. Republicans fund military expansions. Both pass laws paid for by corporate donors via donations and PAC money in a round of Corporatism / Corporate Socialism. That’s the rest of the ramp.

But do realize that many of the programs started by each President and each Congress have a funding impact years and sometimes decades after passing. You can not just say “1981-1989 – That’s Reagan’s fault”. LBJ started Medicare, Medicaid, the “War on Poverty”. Programs that have had their major budget impact in later years are more people ‘aged into’ those programs. Similarly, Reagan ordered some weapons systems that were not delivered until later years. Baby Bush and his Drug Plan had little budget impact during his term, more over time. Nixon planted the EPA that is only now becoming a dramatic cash suck and general economy destroying agency. So that curve lags the causal event.

This graph gives a good idea how things are going, just remember that since it was made Public Debt has risen even more. The Federal Debt alone is now 1.5 X the $10 Trillion on this chart. So run that red line up half again…

US Debt 1940 to modern era

https://en.wikipedia.org/wiki/File:USDebt.png

We can clearly see the massive debt spike in GDP terms to fund W.W.II and the pay down after that. Then, about 1970, things really take off (both in GDP terms and in nominal terms). That was when we abandoned the Gold Standard and gave The Fed the ability to create unlimited currency. It also allowed LBJ and all subsequent Presidents and Congresses to spend as much as they liked without raising taxes to cover it; as the excess just shows up in inflation that everyone covers and lots of people don’t even notice.

That “dip” about 2001 is a combination of the economic growth that lead into the Tech Bubble. Massive run up in the US stock market, focused into tech companies. Clinton took advantage of that (and the added tax revenues) to pay down some of the debt. There was also another interesting “revenue acceleration” done. The ROTH IRA. $Billions were converted to ROTH IRAs and the taxes payed early (but now are beyond the reach of taxes). So a good economy, a stock bubble, some capital gains bubble from the growing property bubble. But that was an unsustainable bubble (as we have seen).

The inevitable pressure for ever more spending tends to get more programs passed in that kind of context. Then, when the inevitable business downturn comes, or the asset bubble bursts: Income taxes plunge, capital gains taxes plunge, revenues fall. But the “programs” continue to grow. Now comes deficit spending on steroids.

Then the most pernicious thing of all. The bubbles have burst. It will take decades to happen again (unless The Fed goes nuts with added liquidity). The economy is tanked but will not pick up as the regulatory and tax burdens loaded on in the good times are ruinous in the bad times. The “solution” of higher taxes just forces things ever lower. All the prior Presidents and Congresses got the “brownie points” for the programs and the spending and raked in the taxes early via the cap gains bubble and ROTH conversion. The cupboard is now bare just as the bills come due.

So what does any good politician do? Blame the last guy and pass more “Give them some goodies” programs! And we enter the exponential phase.

Congress Can Not Be Trusted

It is simply not possible to depend on Congress to control it’s own Tax and Spend urges.

Why can I say that with such certainty?

History.

We have had a congressionally imposed “Debt Limit” since W.W.I and it simply is a bad running joke.

http://usgovinfo.about.com/od/federalbudgetprocess/a/US-Debt-Ceiling-History.htm

Notice that this list leaves out the most recent rise of a couple of $Trillion…

The U.S. debt ceiling history began way back in 1917 with the Second Liberty Bond Act, which helped finance the United States’ entry into World War I. Since then Congress has raised the statutory limit on the amount of U.S national debt dozens of times.

Here’s a look at the debt ceiling history, based on White House and congressional data.

February 2010 – $14.294 trillion
December 2009 – $12.394 trillion
February 2009 – $12.104 trillion
October 2008 – $11.315 trillion
July 2008 – $10.615 trillion
September 2007 – $9.815 trillion
March 2006 – $8.965 trillion
November 2004 – $8.184 trillion
May 2003 – $7.384 trillion
June 2002 – $6.4 trillion
August 1997 – $5.95 trillion
March 1996 – $5.5 trillion
August 1993 – $4.9 trillion
April 1993 – $4.37 trillion
November 1990 – $4.145 trillion
October 1990 – $3.23 trillion
November 1989 – $3.1227 trillion
August 1989 – $2.87 trillion
September 1987 – $2.8 trillion
August 1987 – $2.352 trillion
July 1987 – $2.32 trillion
October 1986 – $2.3 trillion
August 1986 – $2.111 trillion
December 1985 – $2.0787 trillion
November 1985 – $1.9038 trillion
October 1984 – $1.8238 trillion
July 1984 – $1.573 trillion
May 1984 – $1.52 trillion
November 1983 – $1.49 trillion
May 1983 – $1.389 trillion
September 1982 – $1.2902
June 1982 – $1.1431 trillion
September 1981 – 1.0798 trillion
September 1981 – $999.8 billion
February 1981 – $985 billion
December 1980 – $935.1 billion
June 1980 – $925 billion
September 1979 – $879 billion
April 1979 – $830 billion
August 1978 – $798 billion
October 1977 – $752 billion
June 1976 – $700 billion
March 1976 – $627 billion
November 1975 – $595 billion
February 1975 – $577 billion
June 1974 – $495 billion
December 1973 – $475.7 billion
October 1972 – $465 billion
March 1972 – $450 billion
March 1971 – $430 billion
June 1970 – $395 billion
April 1969 – $377 billion
June 1967 – $358 billion
March 1967 – $336 billion
June 1966 – $330 billion
June 1965 – $328 billion
June 1964 – $324 billion
November 1963 – $315 billion
May 1963 – $309 billion
July 1962 – $308 billion
March 1962 – $300 billion
June 1961 – $298 billion
June 1960 – $293 billion
June 1959 – $295 billion
September 1958 – $288 billion
February 1958 – $280 billion
July 1956 – $278 billion
August 1954 – $281 billion
June 1946 – $275 billion
April 1945 – $300 billion
June 1944 – $260 billion
April 1943 – $210 billion
March 1942 – $125 billion
February 1941 – $65 billion
June 1940 – $49 billion
December 1939 – $45 billion
December 1919 – $43 billion

So what kind of “Debt Ceiling” / Cap / Limit / whatever… has an unmitigated record of consistent and wild violation or ‘lifting’?

The debt levels from 1791 to 1849 are in this link:

http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo1.htm

where it basically wanders back and forth around $33,000 ish to $120,000,000 ish mostly in the $50,000,000 kind of range. Ending about where it begins at $ 63,061,858.69 which is clearly way below the 1919 debt limit that is in the $Billions…

But this does give us another clue. There was not a lot of debt on the entry into W.W.I and it was only after that time that the process went ‘crazy wild’.

What happened about then?

Pretty simple, really. The Progressive Movement rewrote some parts of the Constitution.

Things Done, To Undo

I would start with an assertion that the Income Tax was the start of the downfall. It introduces a mechanism for class warfare. It creates the notion in those in Government that there is a very large pot of money to be “spread around”. All in all, it has evolved into so much cruft that has nothing to do with revenue generation that it is largely just a giant vehicle for social manipulation and a straightforward shakedown mechanism.

The 16 th

https://en.wikipedia.org/wiki/Sixteenth_Amendment_to_the_United_States_Constitution

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

So first off, I think that a repeal of the Sixteenth Amendment gets the grubby paws out of the pocket and away from the wallet.

From the very beginning, an Income Tax has been the Socialist Wet Dream vehicle to redistribute wealth and spend spend spend..

To raise revenue to fund the Civil War, Congress introduced the income tax through the Revenue Act of 1861. It levied a flat tax of 3% on annual income above $800, which was equivalent to $20,693 in today’s money. This act was replaced the following year with the Revenue Act of 1862, which levied a graduated tax of 3–5% on income above $600 (worth $13,968 today) and specified a termination of income taxation in 1866.

The Socialist Labor Party advocated a graduated income tax in 1887. The Populist Party “demand[ed] a graduated income tax” in its 1892 platform. The Democratic Party, led by William Jennings Bryan, advocated the income tax law passed in 1894, and proposed an income tax in its 1908 platform.

Prior to the Supreme Court’s decision in Pollock v. Farmers’ Loan & Trust Co., all income taxes had been considered indirect taxes imposed without respect to geography, unlike direct taxes, that must be apportioned among the states according to population.

The Wilson–Gorman Tariff Act of 1894 attempted to impose a federal tax of 2% on incomes over $4,000 (worth $107,446 today). Derided as “un-Democratic, inquisitorial, and wrong in principle,” it was challenged in federal court.

Given that the programs, advocated by just those folks; are one of two major reasons we’re in debt beyond belief (the other being a variety of wars), the idea that they wanted this funding mechanism FOR this effect is not beyond the pale…

In any case, “Propensity to Invest” goes up with income. Having rich folks is important for the simple reason that they are the ones who do the saving and investing. I don’t have to like that to recognize what it means. “Redistribution” of the wealth means less total investment in plant, facilities, etc. To the extent you succeed at “wealth equality” you fail at investment and economic growth. Basically, poor people do not invest in factories and create jobs. (While the Government can create Government Jobs, they are a net drain on national wealth and productivity, not an enhancement of it.)

The 17th

https://en.wikipedia.org/wiki/Seventeenth_Amendment_to_the_United_States_Constitution

The Seventeenth Amendment (Amendment XVII) to the United States Constitution established direct election of United States Senators by popular vote. The amendment supersedes Article I, § 3, Clauses 1 and 2 of the Constitution, under which senators were elected by state legislatures. It also alters the procedure for filling vacancies in the Senate, allowing for state legislatures to permit their governors to make temporary appointments until a special election can be held. Under the original provisions of the Constitution, senators were elected by state legislatures; this was intended to ensure that the Federal government contained representatives of the states, and also to provide a body not dependent on popular support that could afford to “take a more detached view of issues coming before Congress.” However, over time various perceived issues with these provisions, such as the risk of corruption and the potential for electoral deadlocks or a lack of representation should a seat become vacant, led to a campaign for reform.

Reformers tabled constitutional amendments in 1828, 1829 and 1855, with the issues finally reaching a head during the 1890s and 1900s. Progressives, such as William Jennings Bryan, called for reform to the way senators were chosen. Elihu Root and George Frisbie Hoar were prominent figures in the campaign to maintain the state legislative selection of senators. By 1910, 31 state legislatures had passed motions calling for reform. By 1912, 239 political parties at both the state and national level had pledged some form of direct election, and 33 states had introduced the use of direct primaries. With a campaign for a state-led constitutional amendment gaining strength, and a fear that this could result in a “runaway convention”, the proposal to mandate direct elections for the Senate was finally introduced in the Congress. It was passed by the Congress and on May 13, 1912, was submitted to the states for ratification. By April 8, 1913, three-fourths of the states had ratified the proposed amendment, making it the Seventeenth Amendment. Secretary of State Bryan formally declared the amendment’s adoption on May 31, 1913.

Critics of the Seventeenth Amendment claim that by altering the way senators are elected, the states lost any representation they had in the federal government and that this led to the gradual “slide into ignominy” of state legislatures, as well as an overextension of federal power and the rise of special interest groups to fill the power vacuum previously occupied by state legislatures. In addition, concerns have been raised about the power of governors to appoint temporary replacements to fill vacant senate seats, both in terms of how this provision should be interpreted and whether it should be permitted at all. Accordingly, noted public figures have expressed a desire to reform or even repeal the Seventeenth Amendment.

Again we see the push for more “Democracy” from the Progressives resulting in greater centralization of power, greater tendency to “buy the peoples votes with their own money” and the expansion of “special interest groups”.

If you want those things to go away, repeal the 17th Amendment.

FWIW, the 18th amendment was part of this same era… We already dumped it.

The text of the 17th Amendment:

The Senate of the United States shall be composed of two Senators from each State, elected by the people thereof, for six years; and each Senator shall have one vote. The electors in each State shall have the qualifications requisite for electors of the most numerous branch of the State legislatures.

When vacancies happen in the representation of any State in the Senate, the executive authority of such State shall issue writs of election to fill such vacancies: Provided, That the legislature of any State may empower the executive thereof to make temporary appointments until the people fill the vacancies by election as the legislature may direct.
This amendment shall not be so construed as to affect the election or term of any Senator chosen before it becomes valid as part of the Constitution.

Those are the “big lumps” in the Constitution that need to be ironed out.

And Beyond!

For good measure I’d likely also remove:

https://en.wikipedia.org/wiki/Twenty-third_Amendment_to_the_United_States_Constitution

That lets the District Of Columbia residents have members in the Electoral College for President. Having folks able to pick their own boss (as most folks in D.C. work for and in the Federal Government) pretty much guarantees they will vote for more growth of government and more spending. (And every vote they have ever participated in has shown their votes going to the Democratic candidate – the party of more spending and bigger government. This shows that there is some evidence to support the notion of a self serving voting block.) Let them vote for anything local to DC. Just not for the Congress and President / V.P. who are their bosses at work.

and:

https://en.wikipedia.org/wiki/Twelfth_Amendment_to_the_United_States_Constitution

The Twelfth Amendment is the one that changed how the V.P. and President were chosen. Prior to that Amendment, the loser got the V.P. slot. As the V.P. is the President Pro Tem of the Senate, this splits power between the President (in the executive) and is closest rival the “President wanna-be” running the Senate. As it is now, the two are “best buddies” from the same party and getting favored spending and payoff packages through the Senate becomes much more easily done…

At that point, we’re pretty much back to a government where one of the houses, the Senate, represents the will of the Several States and NOT that of the people directly. MUCH harder for the people to “vote for themselves the largess of the public purse” and at the same time, the senators have little desire to “spread the wealth” in a vote buying binge. Also, as the head of the Senate is in opposition to The President, it is more likely to act as a brake on Presidential Overreach.

As originally designed…

At that point I think most of the “heavy lifting” would be done.

Just Do What It Says

I’d only add that there are a few items in the constitution that have been stretched out of all recognition and / or just flat out ignored. They need to be enforced. How to do that I’m not so sure about… But once the Senate are again representatives of the States, they would likely act more in that manner.

In particular, this whole gallivanting all over the world having wars at the drop of a hat and being a UN Rent A Cop. Our Constitution does NOT allow for that. It says that a declaration of war must be passed by Congress. IMHO every war since W.W.II has been a basically illegal war (modulo that in some of them a mushy “powers” bill was passed).

Look at those deficit spikes. They happen on wars. Just cut out the whole war thing or at least throttle it back a bunch and a lot of the problem goes away.

I’m less keen on the “Gold and Silver” money angle, but frankly, that is what it says; that is what we ought to do. If we don’t like that, we ought to change it. Not just ignore it. Nor just ‘reinterpret it’ as we like. Look again at the ramp up post 1970 and the exit from the Gold Standard. Not pretty.

Basically, the ability to create money out of nothing must be removed from the hands of Congress and The Fed. IFF we could find a way to say something like “The total money stock of the nation shall be equivalent to global gold supply” or even just “The Fed shall make $20 Trillion of currency and no more.” and have it stick, I’d be OK with that kind of fixed limit on size. (Value will adjust accordingly). But since we can’t trust them (given what they have done), the only real alternative I see is some kind of commodity basis under the currency to physically restrict supply. (And yes, I know that this aspect “needs work”).

I’ve also mentioned the need to restore Glass-Steagall so that Investment Banks (which speculate in derivatives and stocks and all) are NOT backstopped by The Fed while Savings Banks are (normal retail banking); and Insurance Companies are in a third bucket. This dramatically stabilizes the financial system, keeps investment banking losses out of retail banking, prevents derivatives failures in investment banks from taking down insurance companies, etc. (Toss the CRA on the fire while you are at it…)

Then I’d add a couple of minor changes to “clarify” what already ought to be quite clear.

“The Commerce Clause is repealed. No State shall lay any tariff, duty, or impost on the products of any other State.”

“The Welfare Clause is repealed.” (Near as I can tell it’s just kind of Fluff anyway that has been construed to all sorts of nonsense.)

“No Treaty enacted under this Constitution can over ride, change, or revise any aspect of the Constitution and other Federal Law. All Treaties are junior to this Constitution and subordinate to it and to other Federal Law.”

“Congress shall have no authority to issue Grants, Gifts, Dues, or Payments of any kind to any foreign government or non-governmental organization other than as payment for goods delivered via competitive bid”

“In no case shall the budget or expenditures in any one year exceed 10% of the Gross National Product during the prior year.”

“All programs of future expenditures passed by Congress must include immediate funding in full.”

“All matters related to Education belong to the States.” (Or “Re-read the 9th and 10th Amendments”… )

https://en.wikipedia.org/wiki/Ninth_Amendment_to_the_United_States_Constitution

“The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.”

https://en.wikipedia.org/wiki/Tenth_Amendment_to_the_United_States_Constitution

“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

In Conclusion

I think those changes would pretty much clean things up.

While I don’t think they ought to be needed, I could see adding:

“The United States are a Sovereign Nation and can not be subject to the laws of any outside body, agency, or government.”

and

“The Congress has no authority to cause any Citizen to be subject to the laws of any outside government, agency, or body.”

We might also need to add some specifics like:

“The Federal Government shall have no police powers nor rights of surveillance over Citizens of the several States.”
“The Federal Government shall have no authority over the environment within the Several States.”
“The Federal Government shall have no authority over Agriculture.”
“Congress shall make no law respecting the nature of commerce within any State.”

If it were needed; and one simply must use the meat ax:

“The Federal Government may not issue any debt instrument and neither incur nor accept any loans. Neither may it issue any loans. Congress has no authority to cause any debt, loan, or bond to be issued nor accepted by the Federal Government.”

If need be, well, we might have to point again at that “No standing budget for an Army” part of the Constitution and send parts of the military back to the States. The Feds can have a war with whatever Army and Air Force the States choose to provide…

But with the Senate back in the hands of the states, those kinds of States Rights issues would likely be dealt with anyway.

Would it be Chaos? Utter pandemonium? Nope. The States would no long be bankrupted by Federal Unfunded Mandates and each could decide for itself what it wanted in the way of various “protections”. One could choose to live in Progressive Peoples Republic Of California, or the Nanny State New York (pick up your 6 ounce state issued soda cup and diaper at the border), the “Smile for your Photo On The Freeway” Police State of Arizona, or the You’re On Your Own Wyoming. More freedom and folks could have exactly what they wanted.

Though frankly I think with the first set done, folks would be getting a clue or two…

There would likely be some loose ends that would need a bit more tightening, but at the end of the day, this would be most of it.

Couldn’t be much worse than what we have now, in any case.

Unfortunately, not a one of these changes is likely to happen, or even be considered.

Substantially the entire society is already corrupted to wanting the Free Stuff and the corporations of the world have learned the trick of getting government laws to enforce their profits. They would fight these changes with all they have.

Subscribe to feed