Top 5 Problems Facing the Economy 4

Among the top five problems facing the economy is politics trumping what needs to be done.  In the government space, I consider the following to be big problems:

• Continued deficit spending and growing national debt
• Lack of a coherent foreign policy – including fighting two Asian wars
• Lack of financial support for financial regulators

In this series I have already talked about the Federal government’s inability to run a balanced budget.  As of 2 May, 2011 this inability to balance a budget has resulted in a total national debt of: $14.3 trillion.

Budgeting has two levers, revenues and expenditures.  Given that there seems to be very little willpower or sense of sacrifice on the part of most U.S. citizens to have taxes/revenues increased, then a balanced budget is going to have to come about through a reduction in expenditures.

According to www.justfacts.com many of the expenditures that are to be made and that are massively underfunded, are things like Social Security and Medicare.  The 2009 breakout of the debt is as follows:

• 61% for social spending
• 22% for national defense
• 10% for general government and debt service
• 4% for economic affairs and infrastructure
• 2% for public order and safety

In the realm of social spending there is a lack of political willpower because any politician that threatens to roll back these expenditures is labeled by his/her political opponent as wanting to kill them.

As long as the voting public continues to vote for candidates who do not favor a serious national discussion about these programs then it will be difficult to witness real change in the national debt.  So here, unfortunately, politics trumps what needs to be done.  We truly need to come together on this issue as citizens of a single country, not a divided body politic.  Duh!

Another gigantic source of the national debt is military spending.  Unfortunately, most budget discussions don’t include the full costs of the wars in Iraq and Afghanistan because a lot of the funding for these wars has been considered of an “emergency” nature and therefore is not a part of the annual budgetary review process.

According to the Congressional Research Service’s “The Cost of Iraq, Afghanistan and Other Global War on Terror Operations Since 9/11,” the costs for the War on Terror have been:

• $806 billion for Iraq
• $444 billion for Afghanistan
• $29 billion for “enhanced security”
• $6 billion for unallocated, miscellaneous expenses

So here we have $1.285 trillion in costs so far for these two wars, both of which, in my opinion, are well past the point of conclusion.  In Iraq, we so destabilized the balance of power between Iran and Iraq that Iran has filled the power vacuum created by the deposing of Sadaam Hussein.

Unfortunately, the Iraqi people were never a homogenous nation.  Instead, they were held together by a ruthless, murderous bastard.  But  nonetheless, Iran was held in check.  Sans Saddam Hussein, the Iraqi people have coalesced into their old sectarian divisions with a majority of the people sympathetic to Iran.  In the absence of a true Iraqi national identity that trumps religious sect loyalties, Iraq is sure to be unstable for generations.

Given that it is going to be unstable there regardless of U.S. action, I say get out now.

A similar situation exists in Afghanistan.  Though, the power vacuum there will be filled by the Taliban, instead of Iran.  We never “won” the war in Afghanistan.  Instead, like every population that has occupied that region for thousands of years when the realm was invaded, the native folk fled to the hills to wait for the occupying nation to lose interest.

Despite U.S. military power, it is designed to destroy, not to occupy.  Virtually nothing we can do militarily there will make a difference for the long-term.  What’s more, we literally have zero strategic interest in being there since al Qaeda’s ouster almost ten years ago.

Given that it is going to be unstable there regardless of U.S. action, I say get out now.

The relief to the U.S. national debt burden of ending these two unnecessary wars will be huge.  Unfortunately, politics has trumped what needs to be done in this arena.  In fact, Obama specifically ran his presidential campaign saying that Afghanistan should have been the real war.  It was and its goals were accomplished.

As an American do you feel safer than you did just after 9/11?  If “yes,” then “mission accomplished” and we can move on and make better use of the monies tied up in the wars.

If your answer is “no,” then might I ask you just how many trillions of dollars it will take to make you feel safe?  I would argue that a sense of personal safety begins within, and that it has very little to do with what is going on without.  The fact is that most of us live in a very safe neighborhood, within safe states, within a safe country, on a generally safe planet.  It’s time to move on.

But coupled with this is President Barack Obama’s lack of a coherent foreign policy.  He is been in office for almost 2.5 years and I still am not sure what he stands for internationally.  What I would like to see him do with foreign policy focus is to find a way to cope with two regional hegemons: Iran and Russia.  Additionally, it is appropriate to put real pressure on China to end its fixed yuan to dollar exchange rate that has cost the U.S. economy billions and billions of dollars.

Last, but not least, I have written many, many times about the chronic under regulation of the financial markets, and the chronic underfunding of the regulatory bodies actually charged with enforcing what regulations are in place.  So I won’t belabor the point.

However, I will point out that the Securities and Exchange Budget of $1.4 billion compares to approximately $4.1 billion spent on “Recreational and sporting services,” or $2.3 billion in salaries and benefits spent in just one quarter by one Wall Street firm, Goldman Sachs.  Tell me that the comparison doesn’t make the SEC’s budget look absurdly low to you.

Jason