Former Senator Alan Simpson recently spoke with Financial Sense Newshour to give an “inside look” at Washington politics and the difficulty of implementing entitlement and tax reform.
Given his disappointing experience as co-chair of the Deficit Commission under President Obama and, most importantly, the vitriol with which the Commission’s recommendations were fought by special interest groups, Simpson’s interview provided another sad reminder of the forces working against long-term fiscal reform.
With U.S. debt levels currently over $17.5 trillion and growing, Simpson voices the concern of many objective observers and wonders when America’s foreign creditors will say, “Enough is enough. Pay us more interest or we’re not buying.”
Although China recently bought our debt at the fastest pace on record and foreign buyers still show a healthy appetite for U.S. Treasuries, we should not assume this trend will remain in place indefinitely.
What about U.S. citizens? How will they be impacted if the mismatch between government spending and revenues isn’t addressed? One of the primary effects, Simpson says, will be less payouts from entitlements: Social Security, Medicare, or things like disability insurance.
Although this may result in an additional hardship for many as they age, we should note that this will probably reorient more of the caretaking responsibility away from the State and the nursing home and back towards a more traditional arrangement seen outside the U.S. where such care (shelter, food, transportation, etc.) is provided by the family.
Simpson notes that other cuts will have to be made, which may actually be beneficial in the long-run also.
For example, “The defense budget of America is $600 billion a year,” says Simpson. It is bigger than the “next 10 largest countries on earth including Russia and China combined at $550 billion.” Are the threats to America so great that we must spend this amount?
Although it’s easy to point the finger at special interest groups and politicians for America’s bad spending habits, Simpson implies that this problem largely reflects a nationwide mindset of always wanting more and refusing to make sacrifices.
What is the result? A country that goes deeper into debt.
The former Senator of Wyoming ends by saying, "Gold is the money of kings. Silver is the money of gentlemen. Barter is the money of peasants. And debt is the money of slaves."