It’s the Economy, Stupid!
By Amy Brighton -
The famous campaign slogan “It’s the Economy, Stupid” that secured victory for former President Bill Clinton in 1992 could be haunting the current administration as our nation faces unprecedented debt and dismal growth with little policies being implemented to reverse the economic quagmire.
According to the President and Congress, especially those in the Senate, it seems more spending, greater debt and bigger government are the only answers to our ailing economy. But, are they? If we look at the current situation that is facing Europe, we know this course of action is not only dangerous but also unsustainable to the point of insolvency.
Understanding our nation’s spending crisis. While the out-of-control spending began long before the current administration, it has exponentially accelerated during this time. The following numbers show a reckless trend that will make any fiscal conservative cringe.
Spending: According to Cato’s trend chart, the total federal spending, excluding TARP, has increased from $1.86 trillion in 2001 to $3.65 trillion in 2011. When we translate these amounts to the portion of our gross domestic product (GDP), it has grown from 18% to 24%.
Based on new Congressional Budget Office projections, spending could grow to 34% of the GDP by 2035, which means if reforms aren’t instituted and our government continues on this course, spending could consume nearly twice as much of the U.S. economy 24 years from now as it did just a decade ago.
Deficit: Looking at the same time period, the deficit has grown from $128 billion to $1.3 trillion. Up until 2008, our deficit remained in the billions, teetering between $100 to $400 billion. In 2009, it jumped to $1.4 trillion. One of the costly consequences of these rising deficits is that they adversely affect our debt, causing it to soar. This explains why the debt limit has been increased 10 times since 2000.
Debt: The federal debt has gone from $5.71 trillion in January of 2000 to unprecedented $15.22 trillion in December of 2011. To break it down further, the debt increased $4.98 trillion from 2000 to 2008; however, from 2009 to 2011, it increased nearly the same amount at $4.59 trillion. That’s right – eight years of the previous administration nearly equal three years of the current administration when it comes to the debt-limit increases.
Sadly, the new debt record of $15.22 trillion now exceeds the entire size of our economy – 100.3% debt-to GDP-to be exact. This insurmountable debt has left us, the taxpayers, paying $454 billion in interest alone for 2011.
These staggering statistics reveal just how dire our nation’s spending situation is. Yet, it seems our elected officials continue to kick the can down the road, ignoring the financial reality of Europe and its unsustainable debt.
Learning from Europe’s mistakes. From pending financial collapse to social unrest, Europe’s economic woes must be a wake-up call for our government and its financial dealings. In its post, “Ten Economic Lessons from Europe for the U.S. President,” the Heritage Foundation expounds on the lessons that need to be learned from Europe’s debit crisis. Here are a few worth highlighting:
“Financial markets will eventually lose patience. The primary lesson from the Eurozone sovereign debt crisis is that running large deficits and accumulating debt with no indication of changing will always translate into higher interest payments and likely higher interest rates, meaning more tax revenue will be consumed just paying for past fiscal sins. Greece, Ireland, and Portugal are now facing interest rates of 13 percent, 10 percent, and 9 percent, respectively, and still face the very real possibility of defaulting.
The U.S. is on dangerous ground by not tackling its current and future deficits with enough urgency. The Obama Administration seems to be relying on markets continuing to provide it with near unlimited liquidity at reasonable rates. But this cannot last forever. Even absent a fiscal correction, interest rates are widely expected to rise substantially in the next few years as the global economy rebounds. For example, the Administration forecasts a rise in the 10-year Treasury rate of 230 basis points. Add in the ongoing deficits, and investors will eventually give the United States the Irish treatment, raising the cost of borrowing much more.
Time is of the essence. European politicians (and taxpayers) have learned the hard way that inaction comes with a higher price tag than taking action. Failure to address the Eurozone crisis early on has seen the costs spiral and the contagion spread. American political leaders would do well to learn that even when they do nothing, economic problems continue to mount.
“Social welfare” can bring down an economy. Several European countries have learned the hard way that massive pension liabilities, generous benefit systems, and bloated public health care can lead to tax levels and government spending that will break the back of the economy. And it gets worse: The unfunded liabilities of pension schemes and social security systems across Europe reveal a gargantuan debt problem that is only worsened by European demographic trends.
The U.S. faces similar problems. The European experience demonstrates that putting off unpopular decisions can be far worse in the long run than making tough decisions in the near term.” 
As Washington gears up for another legislative session, many of us in the tea party movement expect these critical lessons to fall on deaf ears, which is no surprise, seeing their policies for the last 3 years. For that reason, the following is critical.
Knowing what needs to be done. This year we have the power to change the culture in Washington by repealing the ‘tax-and-spend’ statists and replacing them with Constitutionally-abiding, fiscally-responsible statesmen. The task of doing this, examining candidates’ voting records and making sure citizens understand where each one stands on the issues, is a tall order. However, our purpose and message are simple – it’s the economy, stupid.
: http://www.whitehouse.gov/omb/budget/Historicals/ (Table 1.1)
: http://www.whitehouse.gov/omb/budget/Historicals (Table 7.3)