IT'S THE ECONOMY, STUPID

This Monday morning seems to be the morning for gloomy predictions about the financial health of the United States. They seem quite justified to me.

For instance, Robert J. Samuelson wonders how much deficit spending does the Obama Administration have to propose before people start calling the President "irresponsible"?

Let's see. From 2010 to 2019, Obama projects annual deficits totaling $7.1 trillion; that's atop the $1.8 trillion deficit for 2009. By 2019, the ratio of publicly held federal debt to gross domestic product (GDP, or the economy) would reach 70 percent, up from 41 percent in 2008. That would be the highest since 1950 (80 percent). The Congressional Budget Office, using less optimistic economic forecasts, raises these estimates. The 2010-19 deficits would total $9.3 trillion; the debt-to-GDP ratio in 2019 would be 82 percent.

Read the whole thing...and weep.

Clive Crook also sees the ugly numbers, and wonders if the recent 'stress test' the Treasury Department conducted on the big banks was simply a political exercise that did not use tough enough assumptions about poor economic growth conditions moving forward.

The idea of a stress test is to make pessimistic assumptions -- assumptions with no more than a 15 percent chance of coming true, according to the tests' designers -- and then work through the implications. The assumptions have to be pessimistic, otherwise there is no stress. The problem is, the exercise carried out by the Federal Reserve Board and by Treasury did not consider a seriously bad case. The tests imagine unemployment rising to 10.3 percent in 2010, for instance, compared with 8.9 percent in the base case. But unemployment is already at 8.9 percent and headed higher. In an improbable but entirely possible bad case, unemployment could go well over 10.3 percent next year.

Read that whole thing...and weep some more. I am not an economist. My area of expertise is in politics and the media. But these numbers are truly frightening. As Mathew Continetti points out in this piece in The Weekly Standard about the recent reports made by the trustees of Social Security and Medicare...

The saying goes that the federal government is nothing more than a giant insurance company with a side business in defense. Most federal expenditures, after all, go to just four things: Social Security, Medicare and Medicaid, interest on the national debt, and the Pentagon. But here's the bad news: The insurance company the government most closely resembles is AIG.

Read the whole thing...and weep if you plan to live past 65 (or have children or grandchildren that you care about). The Baby Boom demographic tsunami is drawing near, we are now adding to our debt in levels not seen since the Second World War, and our economy is, quite possibly, going to be mired in this recession for some time to come. I hate Doomsday scenarios, and I remember talking with people who were sounding the alarm on this issue back in the mid-1990s. Doomsday didn't come then. But, just because we managed to grow our way out of the problem then, doesn't mean we'll do the same today.

In a related issue, economists Arthur Laffer and Stephen Moore take a look at how the economic crisis is causing state legislators to look for ways to 'soak the rich' in their states, and why that does not work. Why? Because people, especially wealthy people, can move, taking their wealth and expertise with them. So, do the actions of the low tax states cause a race to the bottom on social services and quality of life?

Those who disapprove of tax competition complain that lower state taxes only create a zero-sum competition where states "race to the bottom" and cut services to the poor as taxes fall to zero. They say that tax cutting inevitably means lower quality schools and police protection as lower tax rates mean starvation of public services.

They're wrong, and New Hampshire is our favorite illustration. The Live Free or Die State has no income or sales tax, yet it has high-quality schools and excellent public services. Students in New Hampshire public schools achieve the fourth-highest test scores in the nation -- even though the state spends about $1,000 a year less per resident on state and local government than the average state and, incredibly, $5,000 less per person than New York. And on the other side of the ledger, California in 2007 had the highest-paid classroom teachers in the nation, and yet the Golden State had the second-lowest test scores.

Read the whole thing...and weep if you live in California, New York or New Jersey.

More economic news, as the folks in the media try to figure a way to make money in the Internet Age. Read the whole thing and weep...if you work (or still hope to) in the traditional media (especially newspapers, but also radio and TV).

China is emerging as a leading maker of automobiles, and the torch may be passing from Detroit to the Middle Kingdom. Read the whole thing...and weep if you work in the automobile industry, or any related industry, or care about American economic power and security.

What do all of these things have in common? An empire stops making things, instead spending all of it's energy in moving money around and overextending itself through the accumulation of global security responsibilities, which leads it from being the world's greatest creditor nation to a debtor nation, all the while a continental-sized competitor is busy turning itself into the manufacturing center of the world. I think we've seen this story before. It led to something called The American Century.