In today’s world, certain truths seem too clear to require discussion; yet, they often do. This is especially true when it comes to money and politics, where common sense appears to be in short supply. It’s astonishing how many individuals fail to grasp the fundamentals of economics, leading to misguided beliefs that have persisted for generations.
A significant portion of voters harbor the mistaken belief that they can thrive on the labor of others without consequence. This notion is not just prevalent; it has been perpetuated by politicians who have long promised something for nothing.
Over the last seven decades, politicians have seemingly fulfilled these promises, aided by a flourishing economy that made it easy to gloss over growing fiscal deficits with debt. However, even a child understands that this cannot last indefinitely. Yet many voters cling to the illusion that they will continue to receive government checks long after the entitlement system is unsustainable. In reality, that breakdown is already underway.
Free Medications and Pension Checks
Pete Peterson and others at the Concord Coalition issued warnings over twenty years ago about the destructive nature of escalating budget deficits. Unfortunately, no one heeded their advice. Proposals to cut benefits have historically been a surefire way to lose elections. Politicians know they must do the opposite to secure votes—making grand promises and increasing government expenditures.
Ultimately, more entitlements have become the norm. Citizens eagerly cast their votes for free healthcare and retirement benefits, rewarding politicians who support such claims with their continued support in office.
Everyone desires free medications and a secure retirement funded by the government. However, few recognize—let alone care—that delivering on these extravagant promises requires pledging the future productivity of unborn generations as collateral. This practice has been ongoing since the 1930s, and the consequences are looming large.
A newborn today enters the world with nearly $50,000 in debt attached to their name. When considering the collective debt owned by households, businesses, state and local governments, and financial institutions, this figure skyrockets to over $180,000. Yet that’s just the tip of the iceberg.
The newborn’s share of unfunded obligations related to Social Security, prescription drugs, and Medicare is around $375,000. It’s hardly surprising that young individuals entering the workforce, whose productivity has been pre-allocated before their birth, harbor doubts about contributing to a financially insolvent system.
Set the Children Free
The U.S. economy, along with many Western economies, has reached a point of total debt saturation. This saturation explains why the significant fiscal stimulus and monetary easing efforts over the past few years have failed to promote economic recovery. Simply adding more debt to an already burdened system has become counterproductive; it only exacerbates the existing issues.
When the financial crisis hit in 2008, the government bet on the notion that borrowing massively would revive economic growth. Unfortunately, this gamble has yielded nothing but stagnation. Additionally, politicians and voters find themselves entangled in a predicament with no clear exit; the magnitude of debt is too great for complete repayment.
The only viable paths forward are default or inflation. Currently, the government appears to be leaning toward the latter, but achieving inflation remains a formidable challenge.
The consumer price index—a broad measure of inflation—remained stagnant in November after a slight dip in October. Moreover, despite 10-year Treasury yields reaching historic lows at 1.9 percent, the annualized gross domestic product for the third quarter of 2011 only hit 1.8 percent.
To generate inflation effectively, interest rates must remain below growth rates. This means that even with heavy intervention in the credit markets aiming to suppress interest rates, the Fed and Treasury have struggled to boost inflation and lower overall debt levels.
If those controlling the money supply don’t act swiftly, the U.S. government may soon face outright default—effectively stiffing its creditors both domestically and abroad, as well as betraying older generations. In this scenario, the burden would inevitably fall to the next generation.
In conclusion, the persistent belief in endless entitlements could lead to a harsh reality for future generations. It’s time to confront the hard truths of our economic situation and liberate the younger generations from the shackles of excessive debt.
Sincerely,
MN Gordon
for Economic Prism
