Déjà Vu

The President and just about everyone else tells us that the sky will fall if a deficit reduction plan is not implemented by Aug 2nd. Am I the only one who gets a feeling of déjà vu?

Think back about three years when the Bush administration told us all that the sky would fall if we didn’t immediately bail out the Wall Street firms whose criminal irresponsibility sunk the economy. Government officials (most coming from those same Wall Street firms) stampeded Congress (who were as complicit as Wall Street) into approving the too-big-to-fail legislation. The taxpayer’s money went down the drain.

The sky didn’t fall, but maybe, just maybe, if wouldn’t have fallen had no bailout occurred. Maybe, just maybe, the Wall Street titans and major bankers who played fast and loose with our money would have learned the true meaning of moral hazard—investment firms would have closed, bond traders would have lost their jobs, and the economy would have corrected over the long term. It would have been brutal, but I suspect lessons would have been learned. But then again, maybe not. So in an abundance of caution, we pissed away a $1.5 trillion over two administrations.

Now, we again hear that the sky will fall if the debt limit isn’t extended. “We won’t be able to pay our bills,” states a concerned President. Really?

The federal government has between $170 and $200 billion of revenue each month without borrowing a nickel—more than enough to pay our debt obligations, to print social security checks (Wait, wasn’t there supposed to be a separate lock-box somewhere? Okay, never mind), to pay the military and meet our contractual obligations. Sure, we’d have to furlough a significant percentage of federal employees, but I suspect the country could get along just fine if say, 30 or 40 percent of all non-military employees were furloughed until the debt limit debate was settled. For those who might worry that federal offices would be empty, note that even after the furlough, there would still be 1.5 million federal workers on the job!

Private sector employees have gone through layoffs and furloughs repeatedly over the past two years. In the interest of “balance” and “fairness” (terms the President uses ad nauseum) a temporary work force reduction at the federal level would seem appropriate. After all, to quote the President, "We’ve got to pay our bills."

More important, the capital markets would respond favorably to such a serious move. It would demonstrate that we’re serious about debt reduction, not with words, but with actions.

And maybe we’d discover that some percentage of those federal employees would be better off in the private sector, and through retirements (some forced), attrition, layoffs, and the like, we’d reduce federal employment for the first time in, oh, 70 years.

We are at a tipping point.

If we follow the President’s lead and continue to spend, we become Greece, where class warfare proved to be an ineffective tool when used to combat irresponsible government spending and out of control entitlements.

If we truly do strive for a smaller government, we’ll have a chance to rebuild America. And that’s the only way our children and grandchildren will ever recapture the American dream.