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Nov. 27, 2012 - Freedomain Radio - Stefan Molyneux

13:06

2267 True News: The Fiscal Cliff?

The US will have to raise taxes by almost 90% to pay for entitlement programs, and other fun signs of the economic apocalypse.

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	- Hi everybody, it's Devan Molyneux I hope you're doing well.
	This is an overview of probably the most important political issue of our time, certainly at the moment, which is public debt.
	To understand public debt, you need to understand where it comes from and what it's for.
	Public debt is what is used to fund the bribing of political constituents in the here and now, to give you stuff without charging you taxes immediately.
	If I'm a politician and I offer you $500 worth of goods and then I tax you $1,000 to pay for it because I've got to have my cut, right?
	Clearly the lie of democracy and free lunches and all of that sort of stuff is immediately exposed.
	So you need the drug of deficits in order to bribe people without raising taxes immediately.
	And there are fundamental ways in which this has grown in the 20th century.
	We'll focus on the U.S. here, though this is very relevant as well.
	To the more socialist democracies in Europe.
	So, in World War I... The US government's spending and debt exploded 700%, seven times.
	And to pay that off, or to pretend to pay that off, they did what governments usually do, which is to print a bunch of money.
	This is one reason why anti-war sentiments tend to be diluted.
	If people's taxes were raised 500% to pay for a war they just had, they might be a little bit more wary about the next one.
	But what happens is the government prints money to pay off It's debts, which causes inflation, destabilization in the stock market, causes further misery, which allows the government to expand its powers even further by blaming the free market for the activities of the government.
	So after World War I, the Federal Reserve began printing massive amounts of money to pay off the debts and all this kind of stuff.
	This caused the bubble that went out all the way through the 20s and crashed in 1929.
	Then in the 1930s, the And, of course, it said it needed to do so because free market and capitalism had failed.
	Oh, how tragic.
	It's sort of like sticking a knife into someone's liver and saying, look, they have some mysterious liver ailment called steel.
	So...
	Yeah, so after the start of the Depression, even with all of this money printing, the government, let me just refer to some notes here, the government was about, federal government, about 15% of the size of the economy as measured by GDP. Now between 1930 and 1944, federal government borrowed huge sums of money to pay for the New Deal programs, right, all of the stuff that they put in.
	Because they had screwed up the economy through the Federal Reserve, they then felt that it was very important to screw up the economy further.
	Once you steal people's money through inflation, then you have to give them some money back through deficit financing, which is just a future or deferred form of inflation.
	And then, of course, they paid for World War II. And, of course, they don't pay for World War II. What they do is they borrowed money.
	So by this measure, the public debt went from 15% to 50%.
	of GDP at the start of World War II and then topped out at 120% of GDP in 1935.
	And then things got a little better between 1945 and 1980.
	Public debt fell to about a third of the GDP. And the reason this happens is because war is like a bell curve, right?
	You spend a lot of money and then you stop spending a lot of money.
	That's because wars against external enemies are ended one way or another when those enemies are identifiable.
	We're going to go conquer the Nazis.
	We're going to battle the Huns.
	We're going to fix the Japanese or whatever it is.
	But what happened was in the 1960s, You began to get the war on poverty, the war on illiteracy, the war on drugs, the war on whatever.
	All the precursors to the war on terror can't really wage war against a word or a concept.
	And because these wars could never be won, there was no dip in spending, right?
	World War II eventually ends.
	The war on poverty doesn't end because everything you do to make poverty better only entrenches poverty.
	Violence achieves the opposite of its stated goals.
	And of course, in the 1960s, You had all these social programs come in place, along with the Vietnam War.
	The warfare welfare state was born, and in order to pay for that, the government began, what do you know, going off the gold standard, printing tons of money, and you got the stagnation and inflation of the 1970s.
	Yeah, so the big rise in the federal debt really came over the past 30-35 years.
	In the 1980s, Reagan cut taxes and increased military spending, and the federal budget ballooned by two-thirds.
	And then, of course, in the 2000s, more tax cuts and the invasion and occupation of Afghanistan and Iraq, massive increases in military and security spending.
	And a recession in 2001 and a long jobless recovery.
	Regulations and taxes and unions had made hiring people so expensive that we kind of caught the French disease, or America caught the French disease, which meant that you would really invest your capital in eliminating worker positions, in making robots, in putting in automatic tellers rather than having tellers.
	You will do whatever you can to avoid hiring carbon-based life forms because it's so expensive and so problematic.
	Now, the three major entitlements, Medicare, Medicaid, and Social Security, grew from 15% of federal spending in the 60s to nearly 50% today.
	At the same time, infrastructure has crumbled, of course.
	Highways and all of that kind of stuff declined from a third of the budget to a seventh today, and that's all pretty messy.
	Now, things have gotten truly spectacular under Obama, and people like to pin this on Obama himself, but...
	I don't know.
	The stimulus was, you know, $800 billion, whatever you want to call it, trillion.
	Not huge relative to all of that.
	So $6 trillion he spent over the past couple of years.
	And, I mean, for what, right?
	I mean, it's just to prop up this collapsing tent.
	Now, Warren Buffett said that you should tax all the rich people at 30%.
	Okay, well, let's say that you do that.
	So if you did all of that, you would raise just over $3 billion a year, which would take you 514 years just to pay off Obama's 2011 deficit.
	Everything that people are talking about in terms of deficit reduction is nonsense.
	Even the Republicans talk about deficit reduction.
	What they're actually talking about is a proposed decrease in the rise in spending, and that's what they call a reduction.
	Try taking that to your visa bill or your student loan officer and see how he reacts to that plan.
	Now, things are pretty catastrophic.
	In the U.S., per person debt is now 35% higher than that of Greece.
	The government borrowed over the Thanksgiving weekend over $24 billion, or $200 in change per U.S. household.
	Now, you've probably heard about this fiscal cliffs thing.
	Well, this is not an underutilized character from the show Cheers, but this is a result of...
	There was a budget control act in 2011.
	The Republicans refused to approve an increase in the ceiling, in the debt ceiling, unless there were deep spending cuts.
	You know, whenever anybody says deep spending cuts, what do you know there's going to be?
	Shallow proposed decreases in the amount of spending increases in the future, which will never actually occur.
	So there's all, automatic spending cuts are going to begin on January 2nd, 2013.
	And what is proposed?
	The year-over-year changes for fiscal years 2012 to 2013 include a 19.63% increase in tax revenue and a 0.25% reduction in spending.
	Major programs, Social Security, Medicaid, federal pay, military pay, and pensions, federal benefits are exempted from the spending cuts.
	It's really quite mad.
	I'll put some notes here about some of the details.
	It doesn't particularly matter.
	So at the rate of debt escalation America is experiencing, by the end of Obama's term, there'll be $21 trillion of debt.
	And of course, back in 2008, when Obama was a senator, he criticized George Bush for the national debt, calling it unpatriotic.
	Well...
	So, everybody wants to cut spending, or at least they say they do, but nobody wants to touch military spending, and certainly nobody wants to touch any entitlement spending, and those are the things that need to be more than touched if you're going to do something about that.
	The important thing as well is to understand the social security mess, right?
	So, of course, when social security was first put in place, In 1935, I guess proposed 1935, accepted 1936, average life expectancy was about 55 years old.
	It kicked in when you were 65.
	Now the average life expectancy is like 75 or 80.
	It still kicks in at 65.
	And of course, it was also because a lot of the labor back then was manual labor and people really couldn't be expected to do that when they were in the 60s, especially given the health care or the health care.
	Standards of the time.
	Now, of course, most people don't work in digging ditches and stuff.
	So anyway, it's all nonsense.
	And of course, a lot of people think that the taxes that they pay for Social Security is somehow in the government and people talk about there's a two and a half trillion dollar surplus and so on.
	But the only people who say that are the people who...
	I like to read government pamphlets and ignore facts completely.
	The reality, of course, when your figure tax is taken out of your paycheck, it doesn't get squirreled away in some lockbox.
	Most of it goes out immediately to pay current retirees, and the rest goes into the U.S. Treasury, and it's spent on whatever they want.
	Now, so, let's say that $100 from your taxes goes to the U.S. Treasury, what do they give in return?
	Well, in return for the $100, the U.S. Treasury sends the Social Security Administration a piece of paper that says, I owe you $100.
	And this is what the Social Security counts as an asset.
	It's complete madness.
	They're called special issue bonds.
	They are special in that they're worthless.
	Well, all government bonds are simply a promise of future debt and enslavement.
	And so it's really quite mad that people believe that somehow a lien on their future taxes or the taxes of their children is somehow an asset.
	It's really quite mad.
	And there's been a lot of fight about this.
	The government said, no, no, no, we've got the money.
	But then Obama said that the failure to increase the federal debt ceiling may prevent the government from mailing out Social Security checks.
	And he said that last year.
	It's very, very clear.
	I mean, what that means, of course, is that the government can't meet its obligations to Social Security retirees, among others, without borrowing money.
	So, the reality is that to restrain the US future budget crisis, the federal government must raise taxes by at least 35% and cut entitlements, like healthcare and social security, by 35%.
	If it doesn't cut entitlements, you have the juicy four-barrel number of 88%.
	Of tax increases to pay for the costs.
	This is not going to work in any way, shape, or form.
	So, that I think is very, very important to understand.
	I just wanted to point out, just by the by, sort of interesting, three counties in Texas opted out of Social Security.
	30 years ago, they created these personal accounts that invested in the stock market, and those county workers have never lost a dime.
	They retired with much higher benefits than Social Security.
	And the county's face no long-term unfunded liability.
	So people who say there's no alternative simply haven't done any research into the facts.
	So what does this all mean?
	Well, it all means that you're going to have a whole bunch of politicians who are going to lie to you, of course, and they're going to tell you that, you know, if we screw the rich, we will get the money to give to you.
	This doesn't mean if you tax everything that Warren Buffett has, you could run the federal government for precisely four days and change.
	So that's not going to be enough.
	The people who are preying on you are the people who have the delusion that paper equals money, that debt equals assets, that liabilities equal wealth, and force equals virtue.
	And it's those delusions that we must aggressively take on if we are literally to save Western civilization.

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