The President’s FY 2007 budget includes the sale of 304,370 acres in 35 states, including 3,572 acres in Oklahoma, now held by the US Forest Service. The sale is intended as a source of funding for the Secure Rural Schools Act. The Forest Service downplays the sale, stressing it is less than two-tenths of one percent of Forest Service land. And, taken out of context, it’s probably no big deal. But let’s put it in context.
In a period we now call the Dark Ages, Europe stagnated. Innovation was suppressed, philosophy and literature banned, and achievements in the rest of the world, ignored. The average European counted with his fingers. The contemporary Hindu-Arabic number system had something the European couldn’t dream of – something for nothing – a zero.
Zero is handy for a lot of math, and also for double-entry accounting. “Double-entry” uses a set of accounts which, taken as equation, add up to zero. Without the “credit” side of the accounting equation, you might know how much money was in your pockets – but you wouldn’t have
a clue where it came from. That was the case in those Dark Times. Princes loved money, and they borrowed a lot. Lacking adequate accounting methods, it was squandered. Merchant banks foreclosed on their manorial estates, speeding the decline of feudalism, and the beginning of capitalism.
Americans love money, too, and we also borrow a lot of it. We have sophisticated methods for accounting debts, and equally sophisticated methods for hiding them. One such sophisticated method is the “tax cut.”
Americans love tax cuts, while government spending continues to grow. It has grown an average of 5% in each of the last 5 years – the highest rate of growth since the Great Society, Vietnam War and race to the moon during the Johnson Administration. But this time around, taxes were cut. Result - the federal debt has grown by half in the current Administration – to $8.37 Trillion.
Staggering as that may be, the number is mere cash accounting – it does not include unfunded commitments like pension guarantees, new Medicare drug benefits, environmental cleanups and flood insurance. Liabilities like these have doubled in the last five years to $46 Trillion.
There’s a lot of talk about the Social Security trust fund in the next half-century. In a couple of CBO scenarios, the fund will run a deficit of 1.3% of GDP in 2042, down from its current surplus. If the Bush tax cuts are made permanent, the combined budget would yield a deficit of 10.7% of GDP the same year.
And where do the tax cuts go? Supply-siders recall the Laffler Curve, depicting higher federal revenue from lower tax rates. The napkin drawing ignores the business cycle, as demonstrated lately; and, it assumes tax cuts produce higher domestic income, despite the fed policy of keeping wages flat. What if the tax dividend is absorbed in a housing bubble or pushes up gas prices instead? Or, what if it is sent to Asia, adding fuel to the trade-deficit.
Another form of debt, last year’s trade-deficit broke all records - $805 Billion. To make up for the tax cuts, the fed has to borrow dollars back, selling long-term debt to finance the current year. Dollars from all over the world flow back in to buy our debt, as well as capital. Americans don’t contribute. Not much. In 2005, for the first time since the Great Depression, American households had a negative savings rate. We’re getting older, and spending like there’s no tomorrow. But tomorrow, the debt comes due. Tomorrow, we may be selling the farm, not just the forest.