Hegemony No More

A child born in America today is $124,000 in debt the moment he draws his first breath. The newborn’s inherited debt grows daily. Upon reaching working age, an enormous debt awaits.

How does a newborn get into debt prior to having a mortgage, credit card and car payment? Easy. Government assigns each newborn child a share of its debt. $24,000 is the newborn’s share of the accumulated $7 trillion federal debt. $100,000 is the newborn’s share of unfunded Social Security, Medicare and veterans’ health care benefits.

Unlike you and me, government doesn’t care how deeply it goes into debt, because it has the power to pass its debt on to taxpayers. The theoretical limit to government debt is reached when service on the debt requires such a large percentage of national income that the population cannot reproduce.

U.S. Comptroller General David M. Walker would prefer for government to get its spending and its accounting under control and not test how close it can come to the theoretical limit. Last month, Walker told the National Press Club that for the sixth consecutive year the General Accounting Office “was unable to express an opinion as to whether the U.S. Government’s consolidated financial statements were fairly stated.”

“The bottom line,” said Walker, “is that the federal government’s current financial statements and annual reports do not give policymakers and the American people an adequate picture of our government’s overall performance and true financial condition. This is a serious issue. As Thomas Jefferson once noted, an informed electorate is the basis for a sound democracy. But how can the American people and their elected officials make sound decisions if they aren’t given timely, accurate and useful information?”

Congress and the Securities and Exchange Commission were quick to ask that question about private business when the Enron and Worldcom accounting scandals came to light. Government overreacted to the scandals by passing the ill-considered Sarbanes-Oxley act.

This disastrous piece of legislation criminalizes accounting mistakes. In order to prevent top executives from being imprisoned because of an accounting error, U.S. companies are forced to spend huge sums, both as upfront costs and ongoing operating expenses, to establish internal auditing systems in addition to the external audits.

The costs of complying with this legislation greatly exceed any conceivable measure of the losses from accounting scandals. The higher expenses will reduce taxable earnings and thus contribute to the buildup of government debt.

The president and the director of the Office of Management and Budget would both be in prison right now if government were subject to the same accounting rules and punishments as private business.

However, what happens to taxpayers’ money is not considered important. Government turns a blind eye to its own malfeasance and focuses only on what happens to investors’ money.

Walker notes that as bad as it is, our per capita debt burden is about to become immeasurably worse. “In less than 10 years, the U.S. will be hit by a huge demographic tidal wave (aging population) that is not expected to ever recede! This is unprecedented in the history of our nation.”

The U.S. tax burden is already so high that Americans are choosing to have fewer children. Thus, the government’s red ink and unfunded liabilities are growing relative to the population.