Facing the Facts to Save Our Future | HughHewitt.com | 03.07.11

This week, with the battle over public finance continuing across the country and in Congress, the left launched an amazing counter attack.  Too bad for them that new facts belied their argument even as they were making it.

The counterattack came down to four words: “We are not broke.”  Predictably, The New York Times led the charge  (see http://tiny.cc/yhnmz). In a Wednesday editorial, the paper of record decried “The Hollow Cry of ‘Broke.’”

“Obfuscating nonsense” the Times’ editorialists called Republican warnings about the fiscal condition of states and the nation.  While acknowledging that “the federal deficit is too large for comfort, and most states are struggling to balance their books,” the Times laid the blame at “tax cuts, mostly for the rich.”

Two days later, almost as if he were coordinating with the Times’ editorial writers, AFL-CIO chief Richard Trumka had an op-ed in The Wall Street Journal (http://tiny.cc/rv807) decrying “Scott Walker’s False Choice.”

“The business climate couldn’t be stronger,” Mr. Trumka told readers.  “Corporate profits reached an annualized level of $1.7 trillion in the third quarter of 2010.”  He added, “It wasn’t [state employees] who crashed the stock market…. It was the so-called engine of our economy – Wall Street.”  The nation needs more taxes, more regulations, and more of its money going to public employees, he said – never mind the devastation such moves would wreck on a tottering economy still recovering from the bursting of a Congressionally mandated housing bubble.

Even Michael Moore got into the act.  At rallies and in interviews (he seems to be all over YouTube), he picked up the cry “America is not broke” and declared that the money banks and companies are holding in reserve “is our money.”  Seizing it is the way out of our crisis, he said.

Yet also last week, the storied venture capital firm, Kleiner Perkins Caufield & Byers, issued a top to bottom analysis of the U.S. government (http://tiny.cc/rv807 ).  KPCB is headquartered on Sand Hill Road in Menlo Park, California, as far from Wall Street in mindset as well as geography as you can get in the United States.  The head of the team that crunched the numbers was Mary Meeker, one of the most celebrated analysts in the global financial world, particularly of the venture capital part of that world.

The report focused on the federal government, not the states, which have much more labor-intensive functions than does Washington.  It was titled USA, Inc. and asked a simple question: If the United States government were a company, what would we say of its financial condition?

Here are some quotes:

“By the standards of any public corporation, USA Inc.’s financials are discouraging.”

“[C]ash flow is deep in the red (by almost $1.3 trillion last year, or -$11,000 per household), and USA Inc.’s net worth is negative and deteriorating.”

“[T]he trends are clear, and critical warning signs are evident in nearly every datapoint we examine.”

The problem is not defense spending, the analysis found:

“[D]efense spending is still below its 7% share of GDP from 1948 to 2000; it accounted for 20% of the budget in 2010, compared with 41% of all government spending between 1789 and 1930.”

The problem lies elsewhere:

“Since the Great Depression, USA Inc. has steadily added ‘business lines’ and, with the best of intentions, created various entitlement programs…. [F]unding for these programs has been woefully inadequate – and getting worse.”

“More than 35% of the US population receives entitlement dollars or is on the government payroll, up from ~20% in 1966.”

“As a percentage of GDP, the federal government’s public debt has doubled over the last 30 years, to 53% of GDP. This figure does not include claims on future resources from underfunded entitlements and potential liabilities from Fannie Mae and Freddie Mac, the Government Sponsored Enterprises (GSEs). If it did include these claims, gross federal debt accounted for 94% of GDP in 2010. The public debt to GDP ratio is likely to triple to 146% over the next 20 years, per CBO.”

“Less than 15 years from now, in other words, USA Inc. – based on current forecasts for revenue and expenses — would have nothing left over to spend on defense, education, infrastructure, and R&D, which today account for only 32% of USA Inc. spending, down from 69% forty years ago.”

One conclusion is inescapable: as a nation, we are broke — OK, close to broke.  So close that we have run out of tomorrows to put things off until. The struggle in Washington and throughout the nation is will we act in time to save our future.