"The problem with socialism is that eventually you run out of other people's money."
"Nobody, no individual or country, can indefinitely spend more than he or she earns."
The bond market, having registered its strong disapproval of the spending habits of Greece, Portugal, Spain and Ireland, seems to be taking a break. It will be our turn soon - unless we move rapidly to control spending - and there is no Germany waiting in the wings to bail us out.
We do, however, have options: default, inflate the debt away or cut spending. Raising taxes significantly is not a real option although rationalizing and reforming the tax system would likely increase growth and so raise some additional revenue. By itself, however, additional revenue will not be sufficient while default, or even the relatively modest inflation rate (nearly 14% in 1980) seen during the latter two years of President Carter's single term, is a recipe for greatly reduced living standards. Were inflation to rise to the level seen quite recently in Zimbabwe, only some of the well prepared and a very favored few others would survive financially.
The solution, therefore, is to reduce spending but the American people do not yet understand the seriousness of the situation. The sooner that politicians - President Obama as well as Members of Congress and Senators - become willing to lead, the better. Given Mr. Obama's pathetic lack of leadership with respect to the very real problems of health care, his careful avoidance of the eight hundred pound budget gorilla is, unfortunately, not surprising.
Without immediate action, the costs of Social Security, medical care (Medicare, Medicaid, Veterans Benefits as well as care for civilian employees of the government together with active duty and retired members of the military and their families) and interest on the national debt will soon consume the entirety of tax receipts leaving nothing for defense, diplomacy, infrastructure, research and development or education among many of the important activities undertaken by the government.
We would, perhaps, be better off if elected officials were to forswear opinion polls in favor of persuading the American people that some sacrifice - even quite a lot of sacrifice - now is preferable to great pain in the not so distant future. Edmund Burke, in a speech to the Electors of Bristol in 1774, accurately described the essence of an elected official's job description:
"Your representative owes you, not his industry only, but his judgment; and he betrays, instead of serving you, if he sacrifices it to your opinion."
There is still time but not much. More time can be bought with leadership but there is yet little sign of such a thing among the self aggrandizing, re-election driven, publicity seeking political classes.