The Needed Government Turnaround: The Forces Behind Tomorrow's Headline News

mmn logo
Posted: 09/08/2016

The Problem and Its Setting

Robert Samuelson, a Harvard educated economist, in a series of thoughtful and thorough articles in The Washington Post asks the question: Are Both Parties Ignoring Deficits?

Samuelson makes a strong case for why we can’t avoid liquidating the Deficit State. It can’t be postponed much longer.

The annual deficit (the difference between what the government takes in from taxes and what it spends) has been cut from $1.4 trillion in 2009 to an estimated $544 billion in 2016.

But there's a caveat associated with the budget deficit reduction that cannot be ignored.

Slightly paraphrasing Samuelson: The nonpartisan Congressional Budget Office (CBO) warns that the deficit will soon begin ballooning again as Social Security and Medicare costs soar to cover an aging population, interest payment increase on previous debt, and the U. S. economy struggles with slow/low economic growth.

Take-home message: Annual deficits will soon skyrocket.

Annual Deficits Versus the Accumulated Public Debt

 Let's clarify one point not understood by the majority of Americans. There is a difference between the annual deficit and the accumulated public debt.

The accumulated public debt is the total of all past yearly deficits.

The accumulated public debt is inching towards $20 trillion. The CBO projects America will add another $8.5 trillion by 2025.

Says Samuelson: "Many economists think the rising debt is unsustainable and could endanger the country's solvency in a financial or military crisis."

Simply put, democracies worldwide (including America) are so deeply in debt that they can pay their daily bills only if their creditors lend more money, the government prints more money, or individual and corporate taxes increase.

Of course, there is another way to tackle the accumulated public debt without raising taxes.

Our accompanying article entitled Strength of U.S. Economy Depends on Re-strategizing and Permanent Cost Cutting details Peter F. Drucker's approach to preventing the horrific, potential consequences of mindless government spending.

Take-home message: The government will be overloaded with an accumulated public debt and will not, if current trends continue, be able to meet its financial obligations (e.g., Social Security, Medicare and all the rest).

Something must be done fast and successfully. And it can be!

We believe Peter F. Drucker defined the root causes of today's debt problem. His astonishing body of work provides all democracies with the thinking, knowledge, and methodologies for confronting this looming crisis.

Insolvency Forces Government to Downsize

To repeat: When a government, like any organization, suddenly realizes it cannot meet its financial obligations, "hasty hatchet work" prevails.

Every organization must distinguish between healthy growth (i.e., muscle) and unnecessary excesses (i.e., fat). The ability to distinguish muscle versus fat prevents damaging the performance capacity of the organization.

Organizations go bankrupt slowly then suddenly. Bad managers tend not to see the inevitable. For them bankruptcy is always sudden!

Harvard's Ted Levitt once said: "If there is no solution, there is no problem."

We believe by not having a carefully crafted solution to the consequences of our nation’s crippling debt, government leaders have come to believe there is no problem.

Take-home message: In the midst of turmoil, there's little time for sober thought and harassed executives lose their ability to think clearly. In the haste of the moment, much damage will be done.

In short, "An ounce of prevention is worth a pound of cure."

Amputation Without Diagnosis

Times change. People don't. When the inevitable does occur (because no actions were taken to prevent it), panic sets in. That's a near certainty.

Insolvency brings with it the likelihood of what Drucker called "amputation without diagnosis."

Said Drucker: “We face downsizing for the sake of downsizing—that is, slashing and cutting for the sake of the numbers rather than to restore government to function, to strength, to performance.”

The government will be exposed to something very similar to what has happened in a lot of big companies: wide slashing without any clear idea of what to slash, why to slash, and what to keep.

That practice won’t reinvent government, it will severely damage it.

Translated, this also means entitlement spending (good and bad) will be sharply reduced. Why? Because the government will be forced to downsize quickly and without any real strategic thinking.

If that happens, many truly important entitlement programs such as Social Security and Medicare (to name just two) will be dramatically reduced.

The government will simply not have the monies to pay for these programs.

Take-home message: Tomorrow always arrives. And then even the mightiest of institutions (including nations) are in trouble if they have not worked on the future.

Cutting Entitlement Programs Could Bring Civil Unrest

Government's inability to meet entitlement program obligations could lead to the possibility of massive civil unrest, says Jim Clifton, CEO of The Gallup Organization.

We believe, when the promised or earned entitlements are no longer forthcoming, civil unrest is inevitable.

How do we prevent or minimize this? Jobs. High paying jobs! Jobs that create tax payers to increase government revenues.

We call this authentic job creation. More authentic job creation generates more government revenues because more jobs translates into a bigger tax base.

Take-home message: Discussions about our debt crisis have produced only a nationwide yawn with the general public.

Few realize and understand how the accumulated public debt relates to their earned entitlements and maintenance of a civil society. When they finally do, it may be too late!

The Entitlement Crisis

We sincerely hope Social Security and Medicare will remain intact. But changes do have to be made.

Sooner or later, entitlements will be cut in all developed countries. The only question is by what method.

Indeed, the Keynesian Welfare State make saying no appear heartless and almost immoral. Said Drucker: "Saying no is indeed painful. For a politician it is risky."

However, tackling the problems of the accumulating public debt now makes saying no necessary.

Ever-increasing entitlement programs have become a threat to the very survival of our democracy. Yet any attempt at cutting entitlements—or even at slowing their growth—is still bitterly resisted. (France, Italy, Sweden, and Greece are proof of this assertion).

Take-home message:  By ignoring the accumulated public debt and the dire need for entitlement reform, politicians are playing Russian roulette with the nation's future."

Free! A Two Part Mini-Book Related To The Economic Teachings of Peter F. Drucker!

If you enjoyed this article and want a complete understanding of all-important economic policy decisions and their potential consequences, we've prepared a two-part mini e-book series. 

The series contains a collection of MMN articles related to making America grow again.

Further, we've added very important value-adds, including a bibliography of Peter F. Drucker's astonishing contributions to the fields of economic theory, effective government, and economic policymaking.

Click here to receive: Clinton vs. Trump, Who's Better For The Economy, Business & Maintaining Social Security/Medicare?– Part I 

mmn logo
Posted: 09/08/2016

membership