As of this writing the partial shutdown of the government continues. The House has tried its best to cave in to the president, offering a “compromise” short-term continuing resolution that was rejected. Continuing resolutions used to be considered an emergency measure to be used as a last resort to keep the government operating until a budget could be approved. However, the last budget passed by Congress was April 29, 2009, more than four years ago.
They say that history doesn’t repeat itself, but coincidentally, on April 29, 1909, exactly 100 years prior, Great Britain, then the world’s most powerful nation, passed what was called “the people’s budget.”
According to Wikipedia, Winston Churchill’s biographer, William Manchester, called it “a revolutionary concept” because it was the first budget in British history with the expressed intent of redistributing wealth among the British public. The government had become “progressive” and it wouldn’t be long before Great Britain would lose its standing as the world’s most powerful nation.
Exactly 100 years later, to the day, the United States passed the first budget in our history described by a post on redstate.com, as having “the expressed intent to run a trillion-dollar deficit.” We haven’t passed a budget since, but we’ve been running trillion dollar annual deficits ever since. This blows the roof off the whole concept of a “debt ceiling.” It’s political theater.
As economist John Williams states on his website, shadowstats.com, in today’s world, “nothing is normal: not the economy, not the financial system, not the financial markets and not the political system.” Ultra-low interest rates and quantitative easing are extreme measures, as are continuing resolutions. The Federal Reserve is creating so much new money it is estimated that its balance sheet at the end of this year will be more than four and a half times what it was in 2007.
With regard to the deficit, Williams believes that the problem is now structural. He says that if income tax rates were raised to 100 percent, current spending levels would still leave a deficit; that “taxes cannot be raised enough to bring the system into balance for one year, let alone for the ongoing future. Every penny of government spending — except for Social Security and Medicare — could be cut and the system still would be in annual deficit.”
Furthermore, Williams goes on to say that we can’t grow out of it, as some believe. The consumer makes up 70 percent of the economy and incomes are not growing fast enough to sustain growth. Even more, household balance sheets have been impaired by the collapse in the housing market. While government statistics point to a decline in the unemployment rate, they also show that labor force participation rates have declined to levels not seen since the 1970s. No matter how you classify a person without a job, people who aren’t working aren’t earning and are therefore not spending; unless they are spending money provided by taxpayers that in turn won’t have it to spend. It’s a vicious circle where there is less and less wealth to redistribute. Everyone is worse off.
In a way it almost makes sense that the government is at an impasse over the budget and the debt ceiling. Since the problem is structural, there may be little that can be done to avert a coming economic crisis. What is happening now is political posturing by politicians to not let it go to waste. The roots of the problem go back over 100 years to the onset of progressivism and government deficit spending.
I have little doubt that a “compromise” will be reached and a new continuous resolution will be passed. There will be much fanfare as to how a crisis was averted. The truth, however, is that no matter what Congress does at this point, the next crisis can only be delayed. We can fool ourselves for a while, but eventually reality kicks in. A friend sent me a cartoon that put the matter into perspective. It compared raising the debt ceiling to solve our financial problems with raising blood alcohol levels to solve the problem of drunk driving. Be careful out there.
— Elliot Simon writes from Harpers Ferry