Last week the House and Senate agreed on a $2.6-trillion budget for fiscal year 2006. There was much chest-thumping about the fiscal restraint imbedded in this budget blueprint–which was mystifying since federal outlays will grow by well over $100 billion in 2006 when the cost of the War in Iraq is added to the equation. Just the increase in the budget this year is equal to what it cost for NASA to put a man on the moon. Republicans in Congress have become so enamored with big government that they now celebrate a budget with a $100-billion increase as a sign of progress. Fiscal Niagara Falls But our real budget crisis–and what Newt Gingrich aptly calls the “crisis in conservatism”–is the worrisome longer-term trend line in federal spending, as calculated by the Congressional Budget Office (CBO), if we stay on the course we’re on today. To put it bluntly, Uncle Sam is in a canoe, without paddles, swirling around in foamy waters, headed toward Niagara Falls. Here are the depressing numbers in brief: Today, we spend about 20% of our total economic output on the federal government.That percentage will rise to a record 25% of output in 2025 and then to 34% in 2040. These numbers do not include what state and local governments spend. Today states and cities swallow up roughly another 12% of our paychecks. Even if we assume unrealistically that the state and local component of national output remains constant, what the new CBO numbers tell us is that America is on a path toward government’s taking 46% of all output. America will be half private ownership and control and half government ownership. Let’s not mince words: This is a path toward socialism–albeit we are taking it in slow motion. Walter Williams, the brilliant economist from George Mason University (whose columns appear in HUMAN EVENTS and who is a frequent guest-host for Rush Limbaugh), has a special talent for putting these foggy numbers in terms we can all easily understand. He says that if slavery was someone else’s owning all of a man’s output, then government’s taking ownership of 50% of GDP means all Americans are half slaves and half free. Depressing but true. The economic impact of this spending path is not hard to envision. We know what happens when a nation becomes half Socialist. It begins to look like Old Europe–France, Germany, Italy. These nations with their obese welfare states, confiscatory tax systems, government ownership of industry, and stifling regulations, are economically catatonic. They are not growing. They are not creating jobs. They are rusting. They have twice the rate of unemployment we have in the U.S. today. The latest budget forecasts have hardly caused a peep of concern from our political class. Some budget hawks–such as Rep. Jeff Flake (R.-Ariz.) and Sen. Tom Coburn (R.-Okla.)–have taken up pitch forks and are raising Cain. But they’re about as popular with their colleagues as the bartender at a bachelor’s party who announces last call. Too many Republicans, says Coburn, have made their separate peace with big government and have no intention of cutting it down to a more manageable size. And, of course, the Democrats, behind their new philosophical torchbearer, Hillary Clinton, want health-care, child-care, pension, transportation and energy-policy socialism accelerated. Where is the growth of government going to come from? That question is answered in the graph below. Almost all the future explosion of government spending and debt comes from Social Security and Medicare, with Medicare being the primary future borrower.
The prescription drug benefit bill from last year alone added more than $10 trillion in government outlays with one stroke of the pen. I recently asked Congressional Budget Office Director Douglas Holtz-Eakin what the total unfunded liability is for the long term with respect to the prescription drug bill. His answer: “It is infinite.” Too big to be counted or calculated. This Republican bill may have been the most financially irresponsible legislation of the last 30 years. Treasury Secretary John Snow recently announced that the total unfunded liabilities of the United States government total $80 trillion. Ouch! That’s a debt load equivalent to about six times our current GDP. It is almost twice as much as the value of all goods and services produced everywhere in the world last year. And it is more money than has been earned by every American cumulatively since the Mayflower landed here 500 years ago. What is speeding us toward this fiscal collapse is the hyperinflation in health costs. Since we turned our health care system largely over to government, medical inflation has outpaced inflation of everything else we buy by 142%. These numbers should frighten even welfare-state liberals. John Goodman, president of the National Center for Policy Analysis, finds that, if we don’t slam on the brakes of big government, within 25 years all of our federal revenues will go to pay for hospitals, doctors, and retirement checks to senior citizens. There will be no federal money left for roads, for military weapons, for our soldiers, for schools, for the courts, the FBI, or the air traffic control system, let alone pork items such as the Cowgirl Hall of Fame, honey-bee subsidies, and the Grammys. The Republican budget, in short, is on an unsustainable and economically reckless course. The bond raters at Standard & Poors recently declared that if we don’t change our fiscal eating habits in Washington, one day during our children’s working lives, Uncle Sam’s credit rating will be junk bond grade–which is where Argentina is today. President Bush has taken one enormous step toward fiscal sanity by trying to fix the Social Security long-term crisis. Democrats are floating around on the planet Pluto when they say “there is no crisis” to fix. President Bush’s plan would lower the long-term liabilities of Social Security by half–and that’s a very good first step in fixing the leakages in our ship of state. The next logical step is one that President Bush won’t be so enthusiastic about, but it must be done. The financially catastrophic Medicare prescription drug bill must be repealed immediately before seniors get hooked like opium on this new feature of American-style socialism. Once they do, there’s no taking the benefits away. Reagan Republicans Needed Next we need to radically overhaul Medicare. David M. Walker, director of the U.S. Government Accountability Office (GAO) recently told Congress that the unfunded liabilities are so gigantic that “There is no way we are going to deliver all of Medicare’s promises. No way!” The Bush Administration’s cost-containment strategies–such as health savings accounts, co-payments, and medical liability reforms–are a promising start to slowing the stampede of medical costs. But a whole new philosophical shift must occur in health care so that today’s workers understand that they themselves will be primarily responsible for paying their own health care costs, not their children and grandchildren. The slow road to socialism is a path to tyranny and economic decline, as F.A. Hayek warned us 50 years ago. That is why Newt Gingrich is right that the conservative movement has arrived at a crossroads. For 25 years the strategy of conservatives has been to elect Republicans to rein in big government. But the beast has escaped and is now back on a rampage–and this has occurred on the GOP’s watch. We need a new generation of Ronald Reagan Republicans who, instead of making a separate peace with big government, will fight a containment policy that concedes not another inch of territory to the Socialist agenda. Where such leaders are right now is anyone’s guess–but it’s doubtful they will be found in Washington.