Recently by Gary North: The Ghost of Murray Rothbard Haunts The Economist

As a lawyer, Obama was trained to argue rival positions, depending on who hired him. So, what I am about to present should not be regarded as hypocrisy on his part. Yes, it is hypocrisy by the standards of any normal human being, but not for a lawyer. He is a lawyer. He does what lawyers do. He looks to see who is buttering his bread, and then he presents his case.

When we elect lawyers to political office, this sort of thing happens.

In 2006, there was a vote in the United States Senate over raising the debt ceiling. Senator Obama took the high ground. He voted against the increase. Amazingly, he violated one of his career-long principles, namely, don’t leave a paper trail. This time, he rose to the occasion. He rose to speak.

We cannot be sure exactly what he said. This is because the “Congressional Record” allows every member to edit his words retroactively before the words are published. In this era of unrestricted pornography, The “Congressional Record” remains the last bastion of airbrushing.

I searched on Google to find an official version of the text of his remarks. I could find no government site that maintains this for public viewing. I came as close as I could.

DEBT AND THE LOSS OF LEADERSHIP

Senator Obama began with a description of what the U.S. government was facing in March 2006. Just for the record, it was facing this. The Congressional Research Service summarized the vote: “On March 16, the Senate passed a debt limit increase after rejecting several amendments. The President’s signature on March 20, 2006, then raised the debt limit (P.L. 109-182) to $8.965 trillion.” Keep this figure in mind: a little under $9 trillion. One year later, the limit was raised by $850 billion to $9.8 trillion. President Bush signed the bill into law on September 29, 2007. Three months later, the recession began, according to the retroactive declaration on the non-profit National Bureau of Economic Research.

Today, the Federal government’s official, on-budget debt is about $14.4 trillion. The debt clock is here.

On March 16, 2006, the day of the vote, Senator Obama gave a speech. He began with these words:

The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies.

He was correct. The politicians had led the government into a quagmire of debt. It nevertheless pressed forward. Now, the government is in quicksand.

There was no leadership in 2006, any more than there had been leadership since 1917, when the debt ceiling was first voted into law. There was no attempt to balance expected outlays with expected income. There still isn’t. The American republic remains the republic of pork.

Over the past 5 years, our federal debt has increased by $3.5 trillion to $8.6 trillion. That is “trillion” with a “T.” That is money that we have borrowed from the Social Security trust fund, borrowed from China and Japan, borrowed from American taxpayers. And over the next 5 years, between now and 2011, the President’s budget will increase the debt by almost another $3.5 trillion.

At least he admitted that the government has borrowed from the Social Security Trust Fund. He admitted that we are dependent on Japan and China to roll over the debt.

Today, the Trust Fund is being depleted. Social Security is running a deficit, which Washington politicians prefer not to discuss. The Trustees keep sending back the bonds to the Treasury to be paid for out of the general fund.

Obama in 2006 was off by $2 trillion. Had his forecast proven accurate, The government’s debt would be around $12.4 trillion.

LESS MONEY FOR BIG GOVERNMENT

He then went on to explain why holding the line on the debt ceiling was important. He focused on rising interest payments that will be owed by the government. He did not mention this: the money going out as interest payments could have been used as tax rebates. The taxpayers could have used this money to buy whatever they wanted. This was not Obama’s vision of what these interest payments would cost. They would cost more welfare state socialism.

Numbers that large are sometimes hard to understand. Some people may wonder why they matter. Here is why: This year, the Federal Government will spend $220 billion on interest. That is more money to pay interest on our national debt than we’ll spend on Medicaid and the State Children’s Health Insurance Program. That is more money to pay interest on our debt this year than we will spend on education, homeland security, transportation, and veterans benefits combined. It is more money in one year than we are likely to spend to rebuild the devastated gulf coast in a way that honors the best of America.

And the cost of our debt is one of the fastest growing expenses in the Federal budget. This rising debt is a hidden domestic enemy, robbing our cities and States of critical investments in infrastructure like bridges, ports, and levees; robbing our families and our children of critical investments in education and health care reform; robbing our seniors of the retirement and health security they have counted on.

Notice this language: “robbing our cities.” That indicates that his goal was to rob the taxpayers so that the Federal government could send more earmarked money to fund boondoggles for the voters back home. The voters back home have a moral claim on the money extorted from people in other states. Every jurisdiction is supposed to have a net increase in pork.

“This little piggy went to market. This little piggy stayed home. And this little piggy went to the Chicago stockyards.” The Senator from Illinois knew who was paying the piper.

Every dollar we pay in interest is a dollar that is not going to investment in America’s priorities. Instead, interest payments are a significant tax on all Americans – a debt tax that Washington doesn’t want to talk about. If Washington were serious about honest tax relief in this country, we would see an effort to reduce our national debt by returning to responsible fiscal policies.

Tax relief? What tax relief? He was agonizing over the reduction of pork.

From my perspective, it is better to pay interest to lenders than to expand the operations of the U.S. government.

One argument for raising the debt ceiling is to run up the bill for future debt service. This will keep the government from launching many new programs. It will fund the traditional boondoggles, but there will be less money for new ones.

Another argument is this: at some point, the government will default. This will cost lenders dearly. Those lenders who were stupid enough to hand over money to the clowns in Congress will find themselves holding worthless IOUs. This will stand as a lesson to future lenders: don’t lend money to the Federal government. Sadly, lenders are slow learners. They will lend again to the government. But at least they will have less to lend.

But we are not doing that. Despite repeated efforts by Senators CONRAD and FEINGOLD, the Senate continues to reject a return to the commonsense Pay-go rules that used to apply. Previously, Pay-go rules applied both to increases in mandatory spending and to tax cuts. The Senate had to abide by the commonsense budgeting principle of balancing expenses and revenues. Unfortunately, the principle was abandoned, and now the demands of budget discipline apply only to spending.

What was pay-go? It was a rule that required Congress to pay for new welfare state programs by either reducing spending in other parts of the budget (politically impossible) or by raising taxes (preferable for Democrats), but still politically risky. The law did not apply to Medicare or Social Security. It lapsed in 2002. President Obama signed a new version into law in 2010. It has not reduced spending.

As a result, tax breaks have not been paid for by reductions in Federal spending, and thus the only way to pay for them has been to increase our deficit to historically high levels and borrow more and more money. Now we have to pay for those tax breaks plus the cost of borrowing for them.

This was correct. The Bush tax cuts were paid for by increased borrowing. But that tactic ended in February 2010, when pay-go was signed into law.

Instead of reducing the deficit, as some people claimed, the fiscal policies of this administration and its allies in Congress will add more than $600 million in debt for each of the next 5 years. That is why I will once again cosponsor the Pay-go amendment and continue to hope that my colleagues will return to a smart rule that has worked in the past and can work again.

He got in 2010 what he wanted in 2006: pay-go legislation. The deficit has skyrocketed.

DEPENDENCE ON FOREIGNERS

He then raised the issue of borrowing from foreign governments. Voters know who is lending: Asians. What they do not understand is that the lenders are mostly the Bank of Japan and the People’s Bank of China. These central banks create fiat money and buy dollars; then they buy Treasury debt.

Our debt also matters internationally. My friend, the ranking member of the Senate Budget Committee, likes to remind us that it took 42 Presidents 224 years to run up only $1 trillion of foreign-held debt. This administration did more than that in just 5 years.

Today, the Obama administration is setting records that dwarf the records set by George W. Bush. But his point was accurate in 2006.

Then he gave us a fine example of double talk. Borrowing from abroad isn’t bad, except that it’s really dangerous.

Now, there is nothing wrong with borrowing from foreign countries. But we must remember that the more we depend on foreign nations to lend us money, the more our economic security is tied to the whims of foreign leaders whose interests might not be aligned with ours.

This is like saying there is nothing wrong with eating a couple of gallons of ice cream, except for the fact that you might gain weight.

Increasing America’s debt weakens us domestically and internationally. Leadership means that “the buck stops here.” Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

I therefore intend to oppose the effort to increase America’s debt limit.

There they are: the children of the future. They will be burdened with a huge debt load. Oh, woe!

Oh, yeah? They will vote in a new Congress and demand that Congress cut back on pork for geezers. They will force Congress to vote for pork for themselves. Spare your tears.

“I WAS WRONG”

Lawyer Obama now has a new client: himself. Lawyers have a phrase regarding the mental capacity of a lawyer who hires himself to represent him.

Actually, Obama did not hire himself to represent him. He had his press secretary announce that the President now regrets his vote in 2006. No doubt he does. It makes him look like a hypocrite. It makes him look like a lawyer. But I repeat myself.

The President now believes that leadership is marked by voting to increase the debt ceiling. This kind of leadership is in short supply in the Congress these days. But we will see a rush of leadership when the government has to start cutting payments.

The Administration has not yet provided a list of budget cuts that will be mandatory if there is no increase in the ceiling. The President has talked about cuts in Social Security and Medicare – a warning that is supposed to put the fear of oldsters into the hearts of House Republicans. So far, they have refused to budge. They figure that other less sacred cows will be slaughtered before these two are. Discretionary spending is in the range of 37% of Federal spending. These can legally be cut. That would take care of most of the deficit. Of course, that is not going to happen.

WHO WILL BLINK FIRST?

The House plans to send another bill to the Senate. The Senate Democrats say they will vote it down if it contains tax cuts.

Senate Democrats and House Republicans do not want to be the first to blink. It will be far easier for Reid to hold his party in line than it will be for Boehner. The Democrats are not going to accept tax cuts. Some Republicans in the House will accept an increase in the ceiling without tax cuts. Whether the ceiling will be raised enough to get the government through fiscal 2012 is doubtful. So, we get to go through this again.

The public is not visibly worried about raising the debt ceiling. The debt ceiling has been raised so many times without any pain being inflicted on voters that they assume that the process can still go on. They may make noises about their concern for future generations, but they have shown little concern in the past. I see no looming crisis on the immediate horizon that will create as much fear as a fear of spending cutbacks does.

Sacred cows must be fed. Porkers must be fattened. If the government has to borrow, so what? Economists don’t care. Few voters care. Politicians have not cared in the past, except in 1995, briefly.

The path of least resistance is to pass an increase in the debt ceiling.

CONCLUSION

The capital markets do not indicate any significant fear of a default. Things are calm.

The politicians in Washington are milking this for as many votes as they think they can get in a year. They are positioning themselves for the elections. They are assembling sound bytes.

The voters just want their monthly checks.

Obama in 2006 offered reasons for not raising the deficit. They were based on his commitment to expanding the welfare state. Now it appears that he is still trapped by the debt. There will be no major new programs. His goal is just to keep the train moving forward, not add more freight cars filled with voters’ goodies.

This year, the Democrats are not trying to add new programs. They are refusing to cut old ones. I think this is the new normal for Washington. Washington can barely fund the fulfilment of old promises. I see no new promises in reserve. This is good news, other things remaining equal.

There will come a day when lenders will demand higher interest. That will launch the sacrifice of pork. Let us hope that this comes sooner than later.

July 30, 2011

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2011 Gary North