Introductions
Steve
Jobs used to tell the story about his return to Apple in 1997. Frank Amelio, the
Apple CEO at the time took Jobs aside and confided:
“Apple is like a ship with a hole in
the bottom, leaking water.” His
job, Amelio intoned,
“is to get the ship pointed in
the right direction”.
Not surprisingly, Jobs did not listen to his elder, went
his own way, fixed the hole where the water was leaking in (and stopped his mind
from wandering). He did other things, too, and today Apple is the number one market
cap company in the world.
Time Urgency For A Person, Company,
Country
Stanching the hemorrhage is literally the sine
qua non when it comes to a bleeding human being. Not necessarily so,
however, for a company bleeding money, or for a great nation bleeding huge deficits.
A person can bleed to death in minutes, so
immediate action is urgent. A company or nation, however, can take months or
years to “fail”, where even the definition of “failure” is equivocal, so the
sense of urgency is short lived, and may even be absent, like a chicken still running
around, unaware momentarily that its head has been cut off.
Everyone Believes In Recovery
So
is the US a headless chicken? So deep in
debt that it is doomed and it is only a matter of time? Not even Ron Paul
believes that. By any measure, be it the deficit, the national debt,
unemployment, or GDP, the truth is that the economy is still bad, but getting
better, and doing it way too slowly. Data supporting this view is everywhere.
Increase In Spending, GDP, Debt, and
Deficit (Relative to 1999)
Figure
1 shows the national debt (in blue), the annual deficit (in black), Federal
spending (in red), and GDP (in green), all plotted as a percentage increases
relative to 1999. The economic cataclysm known as the Great Recession is
clearly evident in the precipitous increases and radical changes in slope in
all the above quantities that began in 2008 (GDP excepted). The worst case
increase was in annual deficit, which tripled in 2009 relative to 2008 and
continues to stay at record elevated levels (about $1.5 trillion/year)
projected forward to 2013. This is what continues to drive the national debt
parabolically higher since 2009, to $15.5 trillion in 2011. Out of every
federal dollar spent, 42 cents is borrowed and ultimately added to the national
debt, and left for future generations, some yet unborn, to pay. This is
illustrated in the cartoon by Michael Ramirez, shown in Figure 2.
Two Questions Re Figure 1
In
contemplating Figure 1, two questions naturally arise. 1) how bad is this? The
second, question, comes back to the
“Hole in the Ship’s Bottom”, namely, 2) where are all the spending dollars
going and how do we stop it?
How Speedy a Recovery?
The
answer to question #1, agreed to by commentators from the political far left to
the far right is the same: yes, it’s bad, but far from fatal. The chicken may
be in some distress, but has not yet lost its head. Recovery is not only
possible, but actually inevitable. Optimistically it will take another 1or 2
years, pessimistically it take another 3 to 4 years to recover. (See my previous
Examiner article: “Are We There Yet?” - Straight Line Extrapolating the
Unemployment Trend, January 26, 2012.)
Who Will Get The Economy Healthy Quicker
The political battle this election year
is not about what the eventual ultimate outcome will be. The real dogfight is
about who will get us back to economic health quicker. Will it be done via
Republican smaller government Ron Paul/Rick Santorum/Newt Gingrich/Mitt Romney
“free market capitalism”, in 1 to 2 years? Or will we get healthy again via
Obama/Pelosi Left Democrat “spread the wealth” state dominated Solyndra crony
capitalistic socialism, in 3 to 4 years. This is a difference, after all, that
is well worth fighting over.
The Top 8 Federal Spending Programs as a
Share of GDP
The answer to question #2 (where are all the spending dollars going?) is
provided in Figure 3, which shows the Top 8 Federal spending categories as a
share of GDP. The single largest category is “Safety Net and Health” (i. e., Federal
Retirment & Disability, Unemployment Compensation, Welfare, SSI Disability,
Child Care, Foster Care, Medicare, Medicare, Occupational Health and Safety,
Research, etc.). The figure clearly identifies where the biggest hole in the
ship’s bottom is, where we are spending by far the largest number of dollars,
over $1.4 trillion in 2011.
Dominant Spending Share of Safety Net, Health,
Medicare, & Medicaid
Note that this category jumped from about 6% - 7% of GDP (Clinton-Bush era) to
9% - 10% under Obama, which represents about a 43% increase over Bush’s last
year in office. All other spending category changes pale by comparison. Social
Security, defense, interest on the debt summed together barely add up to half the
number of dollars expended. So fixing these smaller holes in the ship’s bottom,
and ignoring the massive one, is equivalent to taking Frank Amelio’s advice.
This is to play with the steering, and try to catch voters’ attention with
bright shiny objects (contraception & class envy anyone?) blithely ignoring
the gaping hole in the bottom of the ship of state. It’s the “What Me Worry”
solution of Obama’s 2013 budget.
Where Not To Cut
As
for Republican calls for killing the education department, foreign aid, the
energy department, (and I forget the 4th), and even Ron Paul’s
drastic reductions in defense, are seen to all miss the point. As Willie Sutton
explained, he robbed banks because that’s where the money was. To cut spending,
cuts have to be made where the spending is. Obama’s 2013 budget is a “What Me
Worry” budget (per Figure 4) in the
sense that it doesn’t touch entitlements.
Conclusion
The
truth is that for all the so called “severe” conservative ideas we have heard
about for what, 20 debates now (?), little or nothing serious has been addressed
to deficit or the debt or spending cuts. So nearly a year after Paul Ryan’s
budget, and over a year after Simpson-Bowles, these two plans remain the only “adult
conversations” in the room. No other plans in the arena have a better chance of
bringing about the rapid economic rebound we need.
Subscribers are welcome (free of charge) to my examiner.com site or if you prefer the personal touch, to my blog at abelesnik.blogspot.com.
In the immortal words of Eugene McCarthy (1968 at Chicago's Midway Airport): "All we ask for is a modicum of intelligence". If Gene were alive today (he passed in '05), he would modify one of his famous quotes as follows: "(Obama) is the kind of guy who, if you were drowning twenty feet from shore, would throw you a fifteen-foot rope.”
