Coming: A Potential For Galloping Inflation That Destroys Middle-Class Purchasing Power: Part I
Why out-of-control yearly deficits and, in turn, our mounting accumulated public debt could lead to galloping inflation and cripple middle-class purchasing power
Members of both the Democratic and Republican parties have chosen to ignore America's growing debt problem.
Rethinking how to defuse America's ever-increasing yearly deficits and accumulated public debt (i.e., the sum total of all past deficits) has been impossible because agreement among influential political leaders has proven futile.
Further, lobbyists and special interests of all persuasions are united in opposition to proposals to lowering yearly deficits by slashing government expenditures.
Harvard's Ted Levitt wrote more than 40 years ago: "A problem is something with a solution…If there is no solution, there is no problem."
One can only conclude that when both parties ignore the need to solve "the deficit problem" they fool themselves into believing "there is no problem."
President Trump has vowed to reduce yearly deficits and the accumulated public debt by abandoning unproductive and obsolete government programs, activities, and projects and reigniting economic growth via pro-growth tax cuts, pro-growth energy policies, eliminating job-killing regulations, and a host of other actions "to make America great again."
Outside of the economics departments at universities and colleges, "everybody with real world experience now knows: business people, labor leaders, military leaders, bankers, investors, the stock market, the bond market, that damage is all deficits can do."
This article (Part I and Part II) coupled with our accompanying article on Strength of the U. S. Economy Depends On Re-strategizing & Permanent Cost Cutting explains – in clear, simple language – why America's debt crisis must be addressed…and President Trump's aggressive plans to begin liquidating the deficit.
Concentrated Attention: Focused Attention Is What Gets Work Done
Perception can be defined as consisting of two major components – namely, knowledge and experience. People with different knowledges and/or different experiences see things differently.
Those who understand the lessons from economic history and related subjects, perceive those who ignore the nation's growing debt and the dire need for entitlement reform, "as playing Russian roulette with the nation's future."
Many in the public and the media have, for the most part, ignored the consequences of a looming debt crisis. They simply do not perceive it as a problem.
Deficits and the accumulated public debt are off the radar screen because of what might be termed ignorance, that is, lack of knowledge and lack of experience with real-world realities.
Needed: A Change In Perception
In Innovation and Entrepreneurship, Peter F. Drucker reminds us: "when a change in perception takes place the facts do not change. Their meaning does."
Bottom line: How we see things influences how we understand them and how we respond to them.
Our point? The Trump administration understands the dangers of past "Tax and Tax, Spend and Spend" policies that are responsible for the current deficit/accumulated public debt crisis.
In essence, the Trump administration is attempting to implement policies designed to avoid the predictable results of uncontrolled government spending which inevitably leads to a higher and higher accumulated public debt which, in turn, eventually causes stock market drops, a flight of capital, vanishing business investment, and high unemployment.
Myth Versus Reality With Respect To Deficits
Let's face it: Deficit spending (the difference between what the government spends and what it receives in tax revenue) is much too attractive for most of today's government leaders to embrace what the so-called Neo-Classical economic model prescribes – austerity and self-discipline.
President Trump's declarations to "cut back government" and to "fight the insiders" is really quite similar to many past political leaders.
Jimmy Carter was elected on such a platform; followed by another anti-government candidate, George Bush; in the UK, Margaret Thatcher was elected on the promise to streamline government agencies.
In every case, including President Reagan's similar anti-government promises, government expenditures related to government costs (i.e., deficits) increased faster under these anti-government leaders.
The Blame Game Accomplishes Nothing
No administration in American history has run a larger deficit than that of President Obama.
Yet there is no point in blaming this or that president for the ever-growing deficit crisis. It is the fault neither of the Democrats nor of the Republicans.
A different type of thinking is now required. Peter F. Drucker summed it up when he said: "Government has outgrown the structure, the policies, and the rules designed for it and still in use…If it continues in its old ways, it becomes ungovernable, unmanageable, uncontrollable…"
President Trump's administration is attempting to "rethink" what government must do or can do to successfully reduce the accumulated public debt.
Rethinking will, in all likelihood, not give us the answers, but it might force us to ask the right questions.
Properly viewed, if the right questions are asked, but results are not forthcoming, changes in strategy and tactics will be made until required results are achieved.
Many voted for President Trump because they believed – and rightly so, he is results-focused. In other words, if deviations from the planned course of events demand a change in strategies or priorities, he will take proper corrective action.
Rethinking Mission-Critical Areas
To restore government to solvency requires serious rethinking of entitlements. We strongly believe certain entitlements such as Medicare and Social Security should remain intact to the degree possible.
But there are many other entitlements that should be carefully evaluated. Why? Because the cost of these entitlements threaten worldwide Democracies' prosperity, health, – and indeed their very survival. (We will discuss this in more detail in a future article).
By now, most are aware that in terms of income America's welfare recipients are doing quite well. Said Drucker: "if non-cash benefits (e.g., food stamps or housing allowances) are included, the incomes of most are above the' poverty line.'"
The evidence, observed Drucker, is crystal clear. "First, modern welfare destroys. It does not build competence; it creates dependence…It does not alleviate poverty even though it provides middle-class or near-middle-class incomes…"
We all know being financially rewarded for staying on welfare and financially penalized for getting off it, has created what some call "welfare cripples."
"Encouraging the competence of the poor and promoting their capacity to develop themselves is clearly in the self-interest of the affluent and the self-respect of currently dependent (but capable) members of society."
There are many other areas where we have to redirect resources in order to achieve true results. These include education, healthcare, energy, the environment, housing, agriculture and the like.
Focusing On Results Not Needs: The New Necessity
The discipline of thinking through what results will be demanded of government agencies protects them from squandering their resources. Results are the key to effective government.
Said Drucker: "It's time to stop talking about needs, but of results required and achieved… Government agencies have to become performance focused…"
Let's return to the above welfare example. "The one thing the poor need is money – what might be called the Social Worker's Creed," Drucker observed was one of the basic assumptions underlying the Neo-Keynesian Deficit State economic model. He attributed, in part, the corrosion and spreading decay of domestic society to this false belief.
Welfare, Drucker reminded us, was supposed to be a "safety net." It was never intended to become a "couch" or a permanent resting place. To slightly paraphrase John F. Kennedy: "We are willing to give those in need a helping hand, but not a handout…"
According to Drucker, "Welfare can work… But only if the axiom is changed from 'All the poor need is money,' to 'all the poor need is competence'… Of course, there is a need for money…But by itself alone money encourages incompetence and irresponsibility…
…Today's welfare focuses on needs…There will be true' welfare,' however, if the focus is on results."
To generalize, all government agencies have to deliberately focus on results not needs. Once that occurs, the deficit/accumulated public debt liquidation process will have officially started.