The Deficit is Expected to Reach Beyond $500 Billion

A note from Addison on the Maryland Film Festival:

"When Dick Cheney told Paul O'Neill deficits don't matter," we found ourselves explaining to the audience after Saturday night's screening of I.O.U.S.A. at the Maryland Film Festival "he didn't mean that they don't matter economically. Of course, deficits matter in economics. What he meant is politically, politicians don't get punished by voters for running deficits."

In the movie, former Treasury Secretary Paul O'Neill tells the story about the day Cheney said, "deficits don't matter" to him in a cabinet meeting. He also talks about the day he was fired from the Bush Administration for "a difference of opinion."

"Well," said a gentleman in the second row "let me explain things from the policy makers point of view..."

"Uh ho," Patrick, the director of the film said. He was standing next to me at the front of the theatre. "Are we in trouble?"

The gentleman went on at some length about the "political coalescence" that had taken shape in the 1990s, whereby both parties agreed, that despite their differences, keeping the nation's finances sound should be a priority for everyone.

But that all flew out the window in 2002 when you had the third of the three consecutive tax cuts go into effect at the exact same time that self-imposed "pay as you go" spending laws expired. The nation's revenues dried up. But spending exploded. For the first time this year, we've seen a $3 trillion dollar budget proposal. The deficit is expected to reach beyond $500 billion.

The gentleman, it turned out, was Paul Sarbanes, the former Senator from Maryland whose name gives the willies to corporate legal and accounting firms across the civilized world. Sarbanes co-authored the much-rued Sarbanes-Oxley corporate transparency law. And, now retired, had some extra time on his hands to come and instruct us on the subject of our own movie.

Patrick, a Chicago born, recovering Union supporter was impressed and took the time to raise the issue of disparity of wealth in the country. We were a little more subdued. This is exactly the crux of the problem with I.O.U.S.A. – the film, the project and the nation. Once you get down to brass tacks and start talking about specific solutions you run into two sides of an economic argument that are equally entrenched.

On the one hand you have the Arthur Laffer, supply-side zealots, of which the current president is one. On the other you have the died-in the wool New New Dealers who see government programs – most notably social security and medicare – as the bedrock of their parties' existence. Their current arguments sound like this:

Neo Lafferites: "Let's keep the tax cuts permanent"
New New Dealers: "The nation needs universal health care."

Neither the twain shall meet. If we're successful in getting I.O.U.S.A. into theatres this August and as part of the "national conversation" in time for the political conventions...this is the crux of the problem. With these two sides entrenched, Washington and the political system is broken. And you are the victim. "If we do nothing," David Walker likes to point out "the national debt alone rises by $3-$4 trillion a year. That's if we do nothing."

Which is exactly what we're doing now. Nothing.

Unfortunately, it won't be the Paul Sarbanes or the Arthur Laffers of the world who have to pay the price. It will be you and your family.

*** Tomorrow...more on the coming revolution (yes...you heard that right)...

Bill Bonner
The Daily Reckoning Australia

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