A Hegemon No More

A child born in America today is $124,000 in debt the moment he draws his first breath. The newborn’s inherited debt grows daily. Upon reaching working age, an enormous debt awaits.

How does a newborn get into debt prior to having a mortgage, credit card and car payment? Easy. Government assigns each newborn child a share of its debt. $24,000 is the newborn’s share of the accumulated $7 trillion federal debt. $100,000 is the newborn’s share of unfunded Social Security, Medicare and veterans’ health care benefits.

Unlike you and me, government doesn’t care how deeply it goes into debt, because it has the power to pass its debt on to taxpayers. The theoretical limit to government debt is reached when service on the debt requires such a large percentage of national income that the population cannot reproduce.

U.S. Comptroller General David M. Walker would prefer for government to get its spending and its accounting under control and not test how close it can come to the theoretical limit. Last month, Walker told the National Press Club that for the sixth consecutive year the General Accounting Office "was unable to express an opinion as to whether the U.S. Government’s consolidated financial statements were fairly stated."

"The bottom line," said Walker, "is that the federal government’s current financial statements and annual reports do not give policymakers and the American people an adequate picture of our government’s overall performance and true financial condition. This is a serious issue. As Thomas Jefferson once noted, an informed electorate is the basis for a sound democracy. But how can the American people and their elected officials make sound decisions if they aren’t given timely, accurate and useful information?"

Congress and the Securities and Exchange Commission were quick to ask that question about private business when the Enron and Worldcom accounting scandals came to light. Government overreacted to the scandals by passing the ill-considered Sarbanes-Oxley act.

This disastrous piece of legislation criminalizes accounting mistakes. In order to prevent top executives from being imprisoned because of an accounting error, U.S. companies are forced to spend huge sums, both as upfront costs and ongoing operating expenses, to establish internal auditing systems in addition to the external audits.

The costs of complying with this legislation greatly exceed any conceivable measure of the losses from accounting scandals. The higher expenses will reduce taxable earnings and thus contribute to the buildup of government debt.

The president and the director of the Office of Management and Budget would both be in prison right now if government were subject to the same accounting rules and punishments as private business.

However, what happens to taxpayers’ money is not considered important. Government turns a blind eye to its own malfeasance and focuses only on what happens to investors’ money.

Walker notes that as bad as it is, our per capita debt burden is about to become immeasurably worse. "In less than 10 years, the U.S. will be hit by a huge demographic tidal wave (aging population) that is not expected to ever recede! This is unprecedented in the history of our nation."

The U.S. tax burden is already so high that Americans are choosing to have fewer children. Thus, the government’s red ink and unfunded liabilities are growing relative to the population.

The outlook might be worse than even Walker realizes. The two-year cost in red ink of the U.S. invasion of Iraq is $150 billion to $200 billion. The Bush administration has repeatedly declared that a long occupation will be required in order to remake Iraq in the U.S. image.

Moreover, Iraq is merely the down payment on the Bush administration’s plans to reconstruct the entire Muslim Middle East. Neoconservative Bush administration officials are working with Israel to spread the war into Syria, Lebanon and Iran. If they succeed in their intentions, taxpayers will be facing near term costs of $1 trillion at a time when the annual budget deficit is already $500 billion.

Not even the United States can finance a budget deficit of $1.5 trillion. Wider war means crushing taxation for you and me.

At the same time, the United States is losing millions of its best jobs to foreigners. Many U.S. corporations have relocated manufacturing operations offshore. Currently, millions of high-tech knowledge jobs are slated to be shipped out to India, China and the Philippines.

When the jobs leave, so do the incomes and tax revenues.

Last month, the U.S. economy managed to eke out a few new private sector jobs for the first time in two or three years. The jobs are low-paying ones in retail trade, temporary help and building construction. These jobs do not pay incomes large enough to bear the federal debt burden.

The neoconservative fantasy that the United States is a super-hegemon constrained by nothing but its own will is a dangerous delusion for a country on the path to bankruptcy.

(Creators Syndicate)

Author: Paul Craig Roberts

Paul Craig Roberts wrote the Kemp-Roth bill and was assistant secretary of the Treasury in the Reagan administration. He was associate editor of the Wall Street Journal editorial page and contributing editor of National Review. He is author or co-author of eight books, including The Supply-Side Revolution (Harvard University Press). He has held numerous academic appointments, including the William E. Simon chair in political economy, Center for Strategic and International Studies, Georgetown University, and senior research fellow, Hoover Institution, Stanford University. He has contributed to numerous scholarly journals and testified before Congress on 30 occasions. He has been awarded the U.S. Treasury's Meritorious Service Award and the French Legion of Honor. He was a reviewer for the Journal of Political Economy under editor Robert Mundell.