Americans are experiencing big-number fatigue, as President Obama and the most radical Congress in generations roll out one massive spending plan after another in amounts that boggle the mind. I’m a numbers guy, but even I have lost track of the “score” of trillion-dollar bills. To paraphrase Everett Dirksen, a trillion here, a trillion there – before you know it you’re talking about real money.
Soon your eyes and your mind just glaze over, and you can’t comprehend how much debt it represents per family – projected out into the later years of the century. It is a spending spree like never before in the country’s history. Liberal mainstream media organs (is that a redundancy?) – agog over the “historic” scope of Obama’s “vision” – are near-orgasmic over how much is “being accomplished.” But they ask few questions about whether these expenditures are actually prudent, necessary or productive. The title-question also goes unasked.
Most politicians (including Mr. Obama) also ignore concerns about how these massive expenditures will be funded, and the media’s supine “watchdogs” are, for the most part, letting them get away with it. The messy details are put off for another time. They will be dealt with “when the time is right” – possibly by Republicans, once they are again relegated to being “tax collectors for the welfare state”, as they were for 40 years, starting in FDR’s time. (If the GOP falls for this again, they will deserve to be in the minority indefinitely.)
Mr. Obama has shown himself to be an adroit politician who knows where the political landmines are and uses modern political tools well. Reassuring, reasonable-sounding talk is his most formidable instrument. Brilliantly heading off conservative criticism, he has recently started talking about “reducing the deficit” in ways that sound almost plausible. But they aren’t, really.
For example, he says he will let the Bush tax cuts expire for people who earn more than $250,000 per year – implying that this extra revenue will fund the gazillions in new spending enacted during his first month in office. Analysts note that even taxing those high earnings at a 100% rate – effectively killing all future incentive to earn – would not come near to paying for all the extra spending. His deficit-reduction story is just a nice story meant to reassure us and put us to sleep.
Absurd though it might be, Mr. Obama’s explanation of how he will pay for his big spending will probably sell. This is because it is a Big Lie – a construct popularized by Josef Goebbels (Hitler’s propaganda minister). Dr. Goebbels (among others) found that a significant part of the public will believe even the biggest whopper if it is published often enough and loudly enough. The new electronic media – radio in Hitler’s time – enhanced this tactic. Experienced politicians know that a large segment of the public is not curious enough or sharp enough to parse details and evaluate whether a Big Lie holds water. Later, when the truth hits them where it hurts – right in the wallet – they are finally shocked into reality. But by then, it is usually too late.
The cost of today’s big spending will hit voters’ wallets in one of two ways – and possibly both. First, people making far less than $¼ million a year will soon find themselves paying higher taxes. Yes, I know The Big O swears on a stack of (non-sectarian) Bibles that lower-income people will have their taxes cut, but you have to read the fine print. Mr. Obama is talking about income taxes. Other tax increases are still on the table. Some will certainly happen.
For example, a plan is afoot to tax us on how many miles we drive each vehicle we own. Drivers currently pay 18¢ in federal taxes on a gallon of gas, but they might soon pay new mileage taxes, too. Carbon taxes and other “green” measures that will raise energy bills are flying below the radar. They won’t be detected until they impact our pocketbooks. Despite Mr. Obama’s studious avoidance of the topic, taxes will have to go up – and not just on “wealthy” people. Somehow, it always works out that way.
The more subtle way to handle government deficit-spending is via inflation. Based on the experience of our own history, most analysts would probably say this is government’s preferred method for dealing with large budget deficits. Democrats almost always use it. In fact, one can reasonably argue that Republicans’ failure to use it led to their congressional defeat in 2006 and presidential defeat in 2008. Many people’s incomes went down, and there was no inflation to pump them back up. That made people feel poorer, and they blamed Republicans for it.
It is 30 years since we had serious inflation – a long time in political terms. Since Ronald Reagan slew inflation in the 1980s, a whole generation of young people has grown up having no experience with it. We have still had inflation of 3-5% a year, of course – but not the “galloping” 10-15% inflation of the Carter era. At 4% inflation, prices double in about 18 years. But 12 % inflation doubles prices in just 6 years. (This is the “rule of 72” – i.e., divide the annual inflation rate into 72 to get the approximate number of years needed to double prices.)
The great thing about inflation, politically speaking, is that most voters love it because they are able to ride its wave. As prices go up, so do their wages. Clerks earn salaries that make them feel like a Rockefeller. On my first real job, in 1963, the company’s executive secretary made $300 a month. She was a bright, efficient lady who practically ran the place. Today, a person like her makes 20 times that salary. Top executives in the firm made $15,000 a year then. Today their pay would also be close to 20 times that. Inflation is the reason for these big numbers. It makes workers (voters) feel rich. It’s fun to handle all that cash.
The downside – the dirty secret – of inflation is that our “progressive” income tax grabs more tax out of inflated salaries. We pay higher rates of tax, not the same rate, on more income. Your tax on $80,000 a year won’t be just twice as high as on $40,000 a year. Progressive rates might make your tax three times as high. Savvy politicians love inflation because they know that inflated wages will produce disproportionately higher taxes. This is why conservatives always want to lower taxes. They know inflation has pushed people into higher brackets.
Like a frog being gradually boiled to death in a pot of water, taxpayers don’t know they’re being had by inflation. Instead, they think they’re beating the game by seeing their incomes go up. Very few are able to see through the inflation scam.
The other great thing about inflation – and here’s where we intersect with the issue of the big deficits – is that it trivializes debt. Most people don’t know this term, but they can probably see that paying off the $100 you borrowed in 1960 with dollars you earned last year is a great deal. If you were of age in 1960, as I was, you know that $100 was serious money. Today, you might blow that taking the fam to the movies, if you buy popcorn and drinks for all the kids. Your $100 today buys far less than it did in 1960. Paying off debt with “cheaper” dollars is what inflation is all about, in political terms. Politicians love it. In fact, there’s not very much about inflation they don’t love. That’s why inflation is coming back. It wasn’t dead – it was only sleeping.
Why is this a problem? Because inflation trivializes not only debt but savings. Most voters are net debtors – meaning that their debt exceeds their savings. They love inflation. Millions of others are net savers, however. Many older people, in particular, live off savings they accumulated for their retirement. If inflation really gets cranked up again, the value of that million dollars you saved – and the $50,000 a year income it produces – will swiftly evaporate. Combine that fact with a greatly reduced portfolio, because the stock market has crashed by 50% since late 2007, and you have a real financial problem for millions of net savers.
One would think, then, that government would try hard to keep inflation at bay, since it brings the serious byproduct of wealth-shrinkage. But one would be wrong. The thing to remember about progressive government, particularly, is that it is not about helping people to accumulate personal wealth and keep it secure. Progressives are innately suspicious of wealth that remains outside the control of governing elites. They prefer a kind of shabby gentility for everyone – not too rich, not too poor, and always in need of government largess. Handing out goodies to preferred groups is their source of power. Check out the focus of the “stimulus packages,” and you’ll get the lay of the political landscape. This is where progressives always want to go.
So the answer to W. C. Fields’ famous question, which titles this article, is: YOU. Whether it’s via higher taxes or inflation, when the bill for the Obama-extravaganza comes due, we’ll all pay. All grownups know there’s no free lunch. For us, that lesson is about to be reinforced. Others who bought Mr. Obama’s shtick are about to do a lot of growing up in the near future.