My 2011 Federal Budget Red (Ink) Whine 2

Link to Spreadsheet for Whine 1

There is no silver cloud hidden in the president’s proposed budget for 2011 and beyond. For half a century, we conservatives have failed to draw obvious conclusions from demography. As of 1960, entitlements were hardly a factor. Today they consume more than half the annual budget. These entitlements constitute the so-called mandatory spending. Mandatory spending is not really part of the annual budget process. The OMB budget site is


The section “Summary Tables” summarizes these mandatory expenditures in the current budget and projects them for ten years, assuming no changes in the law. These projections are probably fairly accurate under that assumption. In the 2011 budget the mandatory spending is $2.165T. Mandatory spending plus interest on the debt is $2.419T. The remaining outlays are called “appropriated spending”. Nearly 70% of that is on spending for national defense and security. In the current budget, defense spending is $0.895T. The remaining, so-called “non-defense discretionary spending” amounts to $0.520T, bringing the total to $3.834T.

The revenue projections are bleak. In 2011, with an optimistic estimate of economic growth, the prediction is $2.567T for a deficit of $1.267T. Only 40% of that deficit is accounted for by non-defense discretionary spending.

This is sobering news. Even if all the spending on education, scientific research, NASA, national parks, infrastructure, etc. were cut to zero, it would not cover even half the projected budget deficit in even one of the next ten years. Cutting defense spending to zero might balance the budget, but we had better learn to speak Chinese before we try that.

In spite of all the bluster and self-righteous rhetoric from conservatives, there is no way to balance the budget without going after entitlements. Progressives live in an alternative universe where printing money to pay for ever new and increasing entitlements leads to prosperity.

By far the largest components of the entitlements are Social Security and Medicare. We live in a democracy where something like half the population is past or nearing retirement age. These people vote. The ultimate undoing of the horrible health care reform was the realization by baby boomers that they would face lower Medicare spending. Even good proposals for Social Security face an uphill battle against progressive disinformation. Paul Ryan has suggested some reforms which might work, but the progressives immediately attacked them as stealth proposals to do away with Social Security and Medicare. The fundamental fact remains. The unfunded liability of supporting non-working seniors is simply too high to pay without a significantly larger economy. One idea would be to simply acknowledge that at age 65, you can’t expect a subsidized retirement. If we keep working to age 70 or so, the problem disappears. Is that politically viable? Who knows?

Is there any other way out of this mess? To our credit, we conservatives recognize that only unprecedented rapid economic growth can save the day. Of all the stupid ideas held by progressives, the idea that increased taxes will help the process leads the stupidity parade.

There is always the German solution. In 1921, German hyperinflation rendered all debts worthless. It was a huge and somewhat random transfer of wealth which left the owners of tangible property with all the wealth, provided they were politically connected enough to enforce their property rights. After a remarkably brief period of chaos, a new hard currency was established.

Could this happen here? In 1921, post war Germany had no defense, and had to bow to international mandates on dealing with the situation. How well did the victors of WW1 do with those mandates? They did just fine for ten years, only to face a world wide depression and an even more horrible war against a Germany from Hell.

In 2020, the rest of the world will have no military leverage over America. The economic ruin caused by the USA defaulting on its debt or inflating it away is frightening to contemplate. But America will survive as a temporarily poorer and harsher nation in an even poorer and harsher world.

One might ask why the rest of the world doesn’t see this. Why have they loaned us so much money? Are they not afraid? There is a hidden ace in the hole for America. It is hidden in plain sight. Look down. Under your feet are enormous deposits of coal, oil, natural gas, and shale. With already proven technology, these can be turned into hundreds of trillions of dollars of wealth. Suddenly the national debt doesn’t seem so bad. Forget about green energy. It is not economically viable. That is actually lucky. It increases the value of our hydrocarbon heritage. Once we have developed those reserves we can even hang onto them. There is no need to “drain America first”. The very presence of those reserves will keep prices of imported oil and other energy low. The longer we keep it, the more valuable it becomes.

Once again, democracy will ride to the rescue. As the debt begins to choke us, the green movement will go the way of trees in autumn. The rest of the world knows this instinctively. Americans will be burning Al Gore in effigy at tea parties. Congress will yield. The President will yield. Drill, baby, drill, indeed! It is the ultimate irony. The progressives will learn the hard way that they can’t have it all. To paraphrase and mock Lenin, the phony environmentalists will be forced (by the capitalists) to burn the fuel that will choke them.

It looks like this scenario is beginning to play out. The most important contribution of the tea parties will prove to be the recognition that Carbon is our friend. Calls for lower federal spending are meaningless feel-good ways to win elections. Only the economic growth from unleashing our vast hydrocarbon resources will do. As a bonus, we get energy independence and cut off the petroleum-fueled lifeblood of the Islamic terrorists.
The sooner we stop paying homage to the junk science of the left, (Yes you, Newt Gingrich and John McCain and other green Republicans) the sooner we can get our financial house in order. The longer we wait the more difficult and painful it will be.

Here is a closing thought. If we go for high economic growth, there will be plenty of jobs for seniors until they are 70 or 75. Imagine that we gradually ratchet up the retirement age so that seniors remain productive longer. We will be happier and live better and longer too. There will be so much wealth created that we can put some toward educating the generation whose job it will be to keep America number one after we are gone.

Uh oh. My leg is starting to tingle.