Wednesday, November 7, 2012

My View: The Real Impact of this Election

The passion that the election stirred still runs high. One side exults in victory, while the other examines what went wrong and tries to improve. Snark reigns on both sides. Reasons for victory or defeat are analyzed and dissected.

Yet in a few weeks, the election will be behind us and we will get back to business as usual.

Only this time, it will be in an environment that has permanently changed.

We can talk about women's rights to abortion and their reproductive systems. We can talk about the U.S. being less jingoistic and a good world citizen. We can talk about "fairness" and the government providing a level playing field.

And none of this matters.

Because we as a nation are heading toward bankruptcy.

And we have done it to ourselves.

Now before you say this is sour grapes from a conservative that saw his candidate lose; before you say it is an alarmist reaction to take the sheen off an Obama victory, consider this: we now have an electorate that has control of the purse strings with the power to vote themselves continuing increases from your wallet.

Abetted by an indifferent body politic over the years, we have created a dependency class in this country that now has grown to the point that it can control an election. More importantly, it controls the access to your earnings. That control will not be relinquished by those that have it. They have seized control and they have no skin in the game. Your money is now theirs.

That is a formula for economic ruin.

Here is an excerpt from an essay by Porter Stansberry. He says it about as concisely and clearly as anyone:

This kind of progressive tax structure, where a tiny fraction of the population pays for essentially all of the government's spending, creates the illusion that the government and its services are free. Our system is a lie. The lie is that you can live at the expense of your neighbor.

Yes, it sure seems true right now. Today, about 10% of the population pays for roughly 75% of all income taxes. Looks like everything is working out the way the voters want… They want more government services… They want free "Obama phones"… and EBT cards that can purchase luxury items and booze… and discounted housing… and cheap mortgages… and free education… and free health care…

They want it all. And they will vote for it every time. More and more.

By 2011, 49.1% of American households received some form of direct benefits from the federal government. As a result, more than 60% of Americans now receive more benefits from the federal government than they pay in taxes.

Folks who are the recipients of this largesse have developed sophisticated arguments to explain why this is "fair" and "right." But the truth is, it doesn't really matter what they say. In a democracy, every argument about what's legal eventually comes down to the ballot box. And there's no way the 10% who have to pay can compete with the 90% who don't when it comes to a vote.

And so… since 1960, the average federal tax burden per family in the U.S. has soared. In real dollars (indexed to 2011), the tax burden in America has gone from $11,500 per household to almost $25,000 annually. Just ask yourself this question… how can the median household, which earned $50,000 in 2011, afford to spend half its income on taxes? Obviously, it can't. And by having sharply progressive taxation, it doesn't have to… at least on paper. We'll come back to this in a minute.

First… even though the mob can clearly vote itself whatever tax structure it wants… the tax burden is now painful enough to seriously harm the economy. That is, even though the political feedback loop is broken (the majority of voters don't have to pay the taxes, so there's nothing to stop them), the economic feedback loop can't be subverted. So the government has begun borrowing enormous amounts in order to satisfy the demands of the mob. Specifically, the federal government is now spending $3.5 trillion a year. Income taxes only raise $1.1 trillion a year. Thus, even if you doubled income taxes, we'd still run a deficit every year.

My friends… that's pure insanity. That's why every time there's a committee of one kind or another that's tasked with solving our government's giant fiscal problems, it always comes back with nothing. No one in Washington wants to admit how much trouble we're in. There's no way to fix the system. The hole is far, far too big.
No government can survive long when it spends more than twice what it collects in tax revenue. Not even when it holds the world's reserve currency and has the world's most powerful armed forces. Just ask the Romans.

Yes, I know, the feds also collect about $250 billion in corporate taxes, but that doesn't change the math in any material way. And yes, I know all about the payroll taxes that support Medicare and Social Security. But you can't count those funds against the current spending because all that money ought to be going toward the future obligations of those programs.

The problem is that our political process – where the masses are allowed to vote themselves nearly unlimited benefits – masks the underlying economics. While any given individual might not have to suffer these burdens, everyone lives within the same economic sphere. We, as a nation, have a limited amount of economic power. We have a limited amount of opportunity. We have a limited about of credit (believe it or not). And right now, the government is taking up a huge amount of these economic assets, an amount that can't possibly be sustained.

We are now spending $6.3 trillion a year on government at every level. That's $55,000 per household in the U.S. In other words, if we all paid equally for the burden of government on a per-household basis, the average household would owe the government more than 100% of what it brings in.

Obviously, if everyone had to pay these taxes… if everyone had to share equally in the burden of the government… then none of this spending would have happened. None of these debts would have accrued. And we would have never ended up in this position.

Politics masks these costs for the individual, who believes he won't have to pay. He thinks he can simply vote… and make people like me pay. But what he doesn't understand – and never will – is that the politics can't change economics.

Our economy can't afford our government. Our economy can't afford these debts – or even the debt service at any legitimate interest rate.

At some point very soon, this economic reality will overwhelm the political charade.

All of us want a nation that is strong, one that will provide opportunity for both us and our children and future generations. We want opportunity to succeed. Over the years, though, this mindset, which was the distinct majority, has been replaced with a notion that I have to "get mine" and the other person has "mine". Initiative and effort have been replaced with entitlement.

Stansberry is right- our political system is a charade that if not changed will come to a painful and calamitous end.

In this election, we have chosen to continue the charade, for in the past four years we have seen no substantive approach to addressing our fiscal crisis. In fact, we have made it markedly worse. If the charade is going to stop, you and I have to engage our elected representatives and begin to change our culture of dependency to one of independence and freedom.

Fail to do so, and eventually economic reality will overwhelm the political charade.

And it will be awful.

Like Stansberry says, "politics can't change economics." We can debate forever the role of government in our society. We can argue about the projection of American military might. We can fight over societal norms and the laws that legalize one form of marriage or the other.

None of that matters.

Because we are going to face a daunting economic reality, that if not addressed, will swamp our country.

So as this nation moves forward after the election, we have to be neither Democrat or Republican, conservative or liberal.

Instead, we have to honest.

The decisions that we face are going to be tough. The solutions will be tougher.

And if we choose to ignore them, it will not matter who is in the White House or who controls Congress.

And that, my friends, is my view


  1. As much as it pains me, the left did a great job of not making this election about "the economy, stupid." Using social media as a barometer, which isn't the best but it's the tool in my hand, not many braggers and boasters are citing the economy as the reason Obama is back for another 4 years. Nope, almost all are citing a social issue. Credit to the Democrats for getting social issues in local ballots, which carried the momentum for Obama.

    There is a downside to this for them. By winning this race, if we aren't LEAGUES better by 2016, the left may be screwed for a long time outside of winning races like they did this time. The right might need to go more social libertarian at the federal level, otherwise this will repeat itself again.

    Great stuff as always, Mark. I will be marking this day for future reference, when I ask someone pumping $5 gas in the near future because of our devalued dollar while getting the same check as today how he feels about some gal's uterus.

  2. Thanks, Dan. I want every liberal, every Democrat, to own this economy for the next 4 years. The mess is their own creation, and I will never hesitate to give them credit for it.

  3. bobfinance50@yahoo.comNovember 7, 2012 at 3:58 PM

    I'm not left wing or right wing but you are one of the few people on this planet that makes sense.

  4. Porter Stansberry:

    "In 2007 Stansberry was fined $1.5 million for security fraud." -wikipedia

    I agree with you on entitlements, but I wouldn't trust Porter with my wooden nickels.

    More background on Porter...

  5. I am aware of Porter's past problems in the securities industry. That does not take away from the veracity of the comments that were cited in the blog.