When Hell Freezes Over
Ludwig von Mises said, “It may sometimes be expedient for a man to heat the stove with his furniture. But if he does, he should know what the remoter effects will be. He should not delude himself by believing that he has discovered a wonderful new method of heating his premises.”
In other words, taking the easy road today often has dire consequences down the road.
It’s not a difficult concept, really. It’s a lesson we try to instill in our children from the very beginning.
Yet an alarming number of adults seem to have forgotten that rule. They appear to be not only burning their furniture…but also tossing their floorboards and walls into the fire, too.
That’s why America’s outstanding debt has topped $8 trillion…and why our savings rate is in the gutter.
Skyrocketing real estate prices are just a small symptom of this desire to get rid of our money as quickly as possible. One needs only to read the headlines to see the fruits of excess. The New York Times highlighted a Canadian chocolate company selling the sweet stuff for US$2,000 a pound. A restaurant in Pennsylvania serves a $379 hamburger…although, to be fair, the thing does weigh 123 pounds.
Even when it seems like people are spending for the next generation, their true motives are questionable. For instance, you can buy your newborn a pair of “Uggs” – a popular (and expensive) type of shoe – and they’ll only set you back $35…for a pair of boots the baby will be lucky to wear a month.
Of course, babies can’t read labels. They aren’t born with fashion sense. All they want is warm feet – whether from a $35 shoe, or a second-hand shoe from a thrift store.
But babies do learn from their parents; and the lessons that more and more children seem to be learning are greed and vanity. In fact, a recent study found that young adults are more self-centered today than in previous generations. How could they not be, surrounded by messages that it’s OK to live for yourself today and never worry about tomorrow.
How will it all end? We, of course, can’t be sure. But we don’t like the way the winds are blowing. That’s why we recently hit the road with a group dedicated to pulling us out of this potentially dire situation.
It was just like old times…
Spreading the Word on Dangerous Debt
In 1987, during one episode of our misspent youth, we traveled in a VW bus from New Hampshire to Ventura California and hopped on the Grateful Dead bandwagon. We followed the band north to Berkeley then all points East…eventually getting off the tour after they played Foxboro Stadium south of Boston. In all, we caught 17 “shows” that summer.
By sheer coincidence, David Walker and the Concord Coalition were on the 17th stop of their Fiscal Wake-Up Tour when we caught up with them in New Hampshire. We can assure you, the drugs on this tour were of a very different variety than those on tour with the Dead.
As you probably know, we’re hard at work filming a documentary about the themes in our bestselling Empire of Debt. The work has taken us from the power halls of Congress to Hollywood offices containing a different kind of power. And it’s brought us closer to like-minded people who also think debt is leading this country down a dark road.
One of the more outspoken groups we’ve come across is the Concord Coalition. Led by two ex-Senators – Republican Warren Rudman and Democrat Bob Kerrey – the Coalition wants to get the word out about today’s lack of fiscal responsibility.
The focal point of their efforts is the “Fiscal Wake-Up Tour” – a journey to cities around the nation to bring people up to speed on the things they should be aware of.
“Like many of its citizens,” writes Matt Crenson in AP while covering the tour, “the United States has spent the last few years racking up debt instead of saving for the future. Foreign lenders – primarily the central banks of China, Japan and other big U.S. trading partners – have been eager to lend the government money at low interest rates, making the current $8.6 trillion deficit about as painful as a big balance on a zero-percent credit card.”
When the tour swung our way, we gleefully tracked them down – getting some great footage for the documentary. At one point we were racing down I-93 from Concord to Manchester to catch a meeting with the editorial board of the Manchester Union Leader. Patrick, the director of our documentary, was filming the minivan David had rented for their tour. Another minivan cut them off, causing them to swerve wildly.
“No!” We shouted. “Don’t kill them! They’re the only four people in the country who care about the Federal Debt!”
Luckily, they quickly regained control of the car and continued on. In fact, the Coalition members went on to appear at the Senate Budget Committee. Perfect stalkers that we are, we were in the room, too.
The Struggle to Win Congress’ Hearts and Minds
As if to prove that Congress isn’t completely clueless, committee chairman Kent Conrad started things off on a surprisingly insightful note.
One of the major threats to our economy, he said, is the budget stress from the baby boomers as they begin to retire en masse. He quoted Bernanke, who recently had this to say to the Senate Budget Committee: “If early and meaningful action is not taken, the U.S. economy could be seriously weakened. The longer we wait, the more severe, the more draconian, the more difficult, the objectives are going to be. I think the right time to start was about ten years ago.”
Conrad continued, “We need the will to put our fiscal house back in order…the sooner we act, the better.”
Bob Bixby offered his suggestion on how it could happen.
“Just as a family anticipating major new expenses, such as a home purchase or college education, must begin to save for these financial obligations, the federal government should be taking steps now to improve its fiscal position in anticipation of the cost associated with the retirement of the baby boom generation.”
So, how do you balance the budget of the world’s biggest spender? You can’t just cut up its credit cards. You have to raise taxes…or cut taxes…correct indexing…reform entitlement programs – all of which were suggested at this hearing. But before your eyes glaze over, dear reader, let us assure you that we will just give you the bare bones description of the proceedings.
“A good first step,” said Bixby, “in improving the budget outlook is to identify savings from eliminating wasteful and unnecessary programs and increasing the efficiency of the other government programs, as well as eliminating narrowly targeted tax breaks that add to the complexity of the tax code without producing meaningful economic benefits. Such provisions divert resources form more pressing nation needs and increases public cynicism about the fairness of the federal budget.”
He also strongly advocated reforming Social Security and Medicare. “Over the next 75 years, Social Security’s revenues are projected to hover in a narrow range around 13 percent of the nation’s taxable payrolls. The program’s costs, on the other hand, are projected to grow rapidly from 11 percent of the nation’s payrolls today to 15.5 percent in 2025 and more gradually thereafter to more than 18.7 percent by 2080.”
“While the conventional view is that those rising costs will be due to the aging of the population, that view is incomplete. A deliberate policy of paying ever-higher real benefits is also a significant factor. Thus, from a policy perspective, if the aim of reform is to address Social Security’s financing problem at its source – rising costs – either adjusting the program for increasing longevity or constraining the growing value of its scheduled monthly benefits are the two most logical solutions.”
Suggested reforms for Social Security: Raising the “normal retirement age.” As the baby boom generation is poised to retire, not only will benefit spans lengthen, but there will also be a labor shortage to cope with. Bixby feels that “anything we can do to encourage people to work a few more years and employers to accommodate older workers will help the economy.”
It’s unclear if the Committee meeting will lead to any fruitful solutions. Given the government’s age-old hubris and the growing strain of partisan politics, it may be that Congress isn’t the best place to look for a solution.
That’s another reason the Concord Coalition took the road. Because, as Coalition speaker and U.S. Comptroller David Walker told a radio audience, “there are a lot of people in Washington spending other people’s money on all kinds of fraudulent and wasteful things. Other people’s money…like your kids’ and grandkids’ money.”
Later at a “town hall” meeting at St. Anselm’s College in Manchester, Walker finished his speech with this nugget: He put a picture of his three grand-children on the big screen behind him; girls aged from four months to seven years. “These are my grandchildren. They can’t vote. They don’t have a voice. I am their voice.”
Editor’s Note: Addison Wiggin is the editorial director and publisher of The Daily Reckoning. Mr. Wiggin is also the author, with Bill Bonner, of the international bestseller Financial Reckoning Day. Mr. Wiggin is frequent guest on national radio and television programs.
In Bonner and Wiggin’s follow-up book, Empire of Debt: The Rise of an Epic Financial Crisis, they wield their sardonic brand of humor to expose the nation for what it really is – an empire built on delusions. Daily Reckoning readers can buy their copy of Empire of Debt at a discount – just click on the link below:
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