According to Standard & Poor’s Ratings Services (MHFI) the recently concluded government shutdown cost a total of $24 billion. Due to this unanticipated expense, the ratings agency has lowered its fourth-quarter GDP estimate by a minimum of .6%. If there’s anything of which the nation can be completely certain, it’s this: That number is inaccurate and ultimately unimportant.
If there are lessons to be learned from the ongoing, shambling disaster of a debt ceiling fight/Obamacare showdown, they are philosophical and long term. Economics is a social science. There’s no need for higher math, just higher thinking. In the attached clip author, economist, pundit, lawyer and general polymath Ben Stein shares takeaway lessons from the last three weeks.
The country is angry, divided, confused.
“We learned how very angry and divided this country is. And learning that people opposed to the entitlement state are ready to take extremely drastic action to stop it… some kind of process of national reconciliation must be going on,” says Stein. We knew we were angry, but the price of the reconciliation between entitlement and taxation factions is growing.
The nature of the debate was disheartening, as neither side had a realistic perspective on the balance between income (taxes) and expenditures. This wasn’t a serious debate about budgets, but rather a heated exchange between ideologues. The real conversation wasn’t about tightening our national belt, it was about which group got a bigger portion of assumed deficits.
“We cannot both be a high-entitlement state and a low-tax state,” Stein states plainly. “Arithmetic is the boss.”
Unfortunately for the extreme right, the sword cuts both ways. We don’t simply have a spending problem, we’re not paying our share.
Supply-side economics does not work. It’s a disaster we have over the long period, and it’s just going to get worse.
While sympathetic to the views of those willing to take extreme stances against the “entitlement state,” Stein also thinks our taxes are simply too low for the services we have now. Forget Obamacare for a moment and remember that, for decades, America has run balanced budgets for only brief periods of time. Balanced budgets are flukes stemming from high taxes produced by economic bubbles and a one-time Cold War dividend.
“We got to this crisis because we lowered taxes too much,” Stein explains. “We have to raise taxes or else drastically lower entitlements — which we’re not going to do.”
Taxes have become the new third rail.
A long-time Republican who wrote speeches for both Nixon and Ford, Stein wonders at the way Republicans have somehow taken serious conversations about taxes off the agenda. Railing against entitlements incites the pitchfork- and torch-wielding masses, but only in the abstract.
We rail against excess, but “raise the retirement age to 75” is hardly a Republican battle cry. America is an aging nation with an insufficient tax base. No politician on earth — of either side — is willing to address the fact that paying for the Boomers through their dotage is going to require more tax revenue or a willingness to eliminate entitlements that even the staunchest conservative takes for granted.
The end isn’t near.
Pointing to Japan’s debt-to-GDP ratio, Stein notes that it’s entirely possible, even probable, that the U.S.’s day of reckoning can be held off for a long time — but not forever. Forget the threat of China buying our debt. The real creditor of the U.S. is the Federal Reserve.
Paraphrasing his father, Stein notes that if something can’t go on forever it won’t. The current fiscal pattern is dysfunctional in a bipartisan way. As Stein sees it, taxes are going to have to come up under any circumstance and entitlements are going to have to be discussed in a grown-up way.
What we ultimately learned from the last three weeks is valuable but painful: The country is divided, entrenched and uniformly delusional. We haven’t seen the last of this ridiculous showdown.
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