A famous poem written by T.S. Eliot includes the line, “This is the way the world ends, not with a bang but with a whimper.” Years later, this may have inspired Soviet premier Nikita Khrushchev (or whoever wrote the quote that is often attributed to him) when he said, “We cannot expect Americans to jump from capitalism to Communism, b
At dinner recently with a coworker, the discussion turned to the upcoming election. My friend stated his belief that President Obama would be re-elected and that the second Obama term would seal the fate of the United States, not with the bang of a nuclear holocaust, but with the whimper of an economy that is doomed to collapse under the weight of a bloated federal debt that can no longer be financed or paid off without painful and draconian cuts that are not politically possible. In short, my friend believes that the United States is about to experience a Greek economic crisis.
He justifies his belief by noting that almost half of all Americans pay no income taxes. Many of these people who pay no taxes get large tax “refunds” nonetheless. Further, the percentage of Americans who are receiving government benefits is at an all-time high. He believes that the vast majority of these people will vote to return President Obama to the White House in order to keep the gravy train rolling.
My own opinion differs slightly. I agree that the current economic situation is dire. However, I believe that many of the Americans who are not paying taxes and who are getting government checks are doing so because they are unemployed and unable to find a job. Many of these people might be persuaded to vote for a Republican challenger with a pro-growth platform that will help the economy recover. I believe that my opinion is backed up by the Republican landslide of 2010 and early indications that the Republicans may well take control of the senate in 2012. Polls also show that Americans want competition and free markets rather than more federal regulation.
Getting the Democrats out of Washington is only half the battle. The other half of the battle is more difficult. Once the free-spending Democrats have been shown the door, the Republicans have to maintain discipline and avoid a return to their own free-spending ways. In this, recent events offer some encouragement.
Most importantly, Republicans in the House of Representatives have held the line on spending and taxes since the election of 2010. In 2011, the GOP house members held spending almost level in spite of the vocal objections of President Obama and the Democrat-led senate. This was the first time in decades that federal spending had not increased sharply, but instead remained almost level.
Republican successes at the state level are also encouraging. Republican governors in Wisconsin and Indiana have rolled back the power of unions. Wisconsin governor Scott Walker was vilified for breaking the teacher’s union’s power of collective bargaining, but the legislation arguably put Wisconsin on the road to economic recovery. In Indiana, Governor Mitch Daniels passed right-to-work legislation that gives employees the freedom to choose whether to become a union member or not. In contrast, deep blue states like Michigan, California, and New York are basket cases.
According to the Washington Post, at 85 percent, the United States has the world’s seventh highest debt-to-GDP ratio. Under Barack Obama’s borrow-and-spend policies, this ratio is increasing. This puts the U.S. close behind such nations as Portugal (101 percent), Italy (120 percent), and Greece (168 percent). The number one debtor nation with respect to GDP is Japan at 233 percent. Where the U.S. has some advantages over the European countries, such as the ability to manipulate its currency and the size of its economy, there are also disadvantages as well: There is no country big enough to bail out the U.S. President Obama pays lip service to deficit reduction, but his 2012 budget adds $8 billion to the deficit according to MSNBC.
My friend was under the impression that no nation has ever recovered from debt-to-GDP ratio of 100 percent, but this appears not to be true. According to Global Financial Data, several nations including Australia and Canada have paid down extremely high levels of government debt in the past. The process of paying down these high debt levels is long and politically difficult, often taking decades. According to the National Bureau of Economic Research, the consequences of not paying the debt down could mean be continued economic stagnation, high unemployment, and slow economic growth, especially as the ratio goes above 90 percent.
It could also be as bad as the hyperinflation as experienced by Germany in the 1920s when the Weimar Republic used their version of “quantitative easing” to print money to pay reparations from WWI. PBS tells how the price of coffee could almost double at a restaurant between ordering and getting the bill. In 1923, one dollar was equal to a trillion marks. Even a milder inflation such as the U.S. experienced in the 1970s led to a dismal and stagnant decade.
Holding the line on federal spending is not enough. Since the federal government borrows almost 40 cents of every dollar it spends, heavy cuts are needed in order to actually reduce the federal deficit and debt. With Occupiers already rioting in some cities and Democrats using scare tactics over Social Security and Medicare reform, cutting entitlement spending is sure to be difficult. A large and looming question is whether Republicans in Washington and Americans in voting booths around the country have the intestinal fortitude to make the needed cuts and stand by them.
If not, then it is only a matter of time until the collapse of our economy. American will end, not with a bang at the hands of the likes of Osama bin Laden or the Soviet Union, but with a whimper of government paralysis, inflation, and economic stagnation. The United States of America may continue to exist as a country, but it will bear little resemblance to the America that we know.
My belief is that the Republicans will win big this November, but on the long-term question, I rate their chances at about 50-50.
What do you think? Let me know by leaving a comment below.
Originally published on Examiner.com: