The American Dream: Is It Dying the Death of a Thousand Cuts?

No, we’re not talking about cuts in the gargantuan federal budget. We’re talking about the endless array of smothering regulations, budget-busting entitlements, special interest ear-marks, economically regressive taxes and bureaucratic agencies that have been steadily extinguishing the dream, the American Dream, that drew millions to our shores, raised tens of millions out of poverty and created the greatest locus of hope and opportunity the world has ever known. The slow slicing away at American Exceptionalism (as defined by Tocqueville and not by leftist elitists) could be, we think, the political equivalent of the now abandoned Chinese practice of ling chi, the death of a thousand cuts.

Alexis de Tocqueville, that first and truly prescient chronicler of the American experiment, noted in 1835 in his seminal work American Democracy, “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”

It’s hard to pin point exactly when the first self-inflicted cut of a thousand cuts at the American Dream took place. Many on the right fear, with ample justification, that President Obama seems determined to deliver the coup de grace to the founders’ vision of America. We should, however, recognize that the process of self destruction, that is (to use Toquieville’s definition) when Congress first discovered it could bribe us with our own money, commenced a very long time ago and can be laid at the feet of a wide variety of special interests, and their political enablers of all stripes and from all parties. We are not the first generation to have abused, bent and corrupted the governing model that made America great, but we very well may be the last generation that can right America’s course.

And if we are losing our way, perhaps, we should revisit from whence we came.

We find among the founders, men with very different visions of what America might become as it grew and established a firm footing in the world. What we don’t find, however, is a plan for dictating what America might become. To the contrary, America was, at its birth, a nation deliberately turned loose with no plan, but that which the people individually crafted as they pursued their own best interests within a free society predicated on the rule of law. The national government would, by and large, provide for the common defense, assure orderly commerce between the states, raise revenue (primarily through the levying of tariffs), and establish a means of exchange predicated on the intrinsic value of the silver it coined. They provided for a bi-cameral legislature, a chief executive and a supreme court to assure that the laws produced by the federal and state legislatures were consistent with the governing document, which every significant office holder was sworn to uphold and protect.

The very limited role of the new central government was not an oversight but, rather, a reflection of the genius of the founders. They had created the world’s first meritocracy and a citizenry free to choose the path they would travel.

The first to seek self-serving succor at the public trough were not individuals in search of entitlements, but rather pre-civil war industrialists vying for favor or competitive advantage through the offices of obliging government functionaries or elected representatives. That is when, and how, the entitlement chase started. It has never stopped or paused. The handout or entitlement mentality, once born, became a national meme, almost a contagion. In its first incarnations it merely compromised the American Dream, but as the entitlement craze has grown, it has infected every strata of American society. Farmers large and small, industrialists and bankers, the wealthy and the poor among us, those who own homes (compared to those who don’t), those who buy certain products, those who make certain investments, those who put certain crops into production and those who withhold other crops from production, those who are married compared to those who are not, those who have children compared to those who do not and on and on. The challenge is not finding someone who partakes of the dole in one form or another, but, rather, someone who doesn’t.

President Obama, in his April 13th speech on the deficit, referred to efforts (Republican or Democrat) to reform (think save) the most pervasive and unsustainable of our entitlements, those that deal with Medicare, Medicaid, Social Security and Unemployment Compensation as an attempt to change America’s basic social compact. One must wonder what President Obama knows that Tocqueville failed to understand, for it seems to us that as we continue to raise the largess that we distribute from the income the people earn, we are, to paraphrase Hamlet, hoisting ourselves on our own petard.

The Heritage Foundation, analyzing Congressional Budget Office data, projects that at the rate Medicare, Medicaid, and Social Security costs are rising (these being the big three of all our accumulated entitlements), paying for this spending solely through federal income tax increases would require more than a twofold increase of current tax rates, even for the lowest tax bracket.

As we pointed out in last week’s essay (June 6, 2010) the ratio of workers to every retiree is currently 3.3 to one. To break even Social Security requires a minimum of 2.9 workers paying into the system for every retiree receiving benefits. We will reach that ratio in just five years according to the Office of Budget and Management. This is a precipitous (and irreversible) drop in the ratio of workers to retirees caused by the looming retirement of baby boomers and the fact that these baby boomers produced fewer children than were produced in prior generations. The ratio of workers to retirees is expected to further drop to 2 workers to every retiree beginning around 2030.

Prior to reaching this sad state of affairs more money was being paid into Social Security than the system required to pay current benefits. This surplus was supposed to accumulate in the Social Security Trust Fund to help fund the benefits that would soon be demanded by the retiring baby boomers. However, as we have reported in past essays, no such fund of excess taxes exists. The excess funds have been swept into the treasury to help pay the country’s current expenses. Every time these funds were lifted from the Trust Fund, the government deposited special issue Treasury bonds that the Social Security Administration will soon start redeeming to replace the missing funds. So, no problem, right? Wrong! Given that we are in deep deficit territory, the federal government will have to substantially raise taxes or substantially increase borrowings or, perhaps worst of all, simply print the money to meet its liability to retirees.

Currently, these benefits account for over 40% of our non-interest spending and that is about to ratchet up to nearly 62 percent of non-interest spending as 10,000 baby boomers per day retire (of the 80 million total) and begin to collect benefits.

Keep in mind retirement and health and welfare entitlements are not the only entitlements in the government’s bag of goodies. Massive entitlement funds, tax incentives and subsidies are also dispersed throughout our society engulfing areas as diverse as housing, farming, education, oil exploration, plant expansions, investment in bio-fuel, wind energy, and solar energy and rural development services, and we’ve barely scratched the surface.

Sadly, many of these entitlements and special purpose programs are not need based. This is particularly troubling because so many of the beneficiaries of these programs (think crop subsidy recipients and ethanol producers, to name a few) are middle-class to upper class Americans or corporations with strong earnings. When government grants subsidies to citizens (private and corporate) that are not need based it, by definition, creates dependency on government by those who are capable of otherwise being quite self-sufficient. Why does the government continue to do this and to borrow, print money and tax its citizens in order to perpetuate the practice? Because the beneficiaries of this, often absurd largess, are both voters and donors. It is that simple.

As we have stated in prior essays everyone knows that these entitlements are unsustainable. The Congressional Budget Office knows it. The President’s own Debt and Deficit Reduction Commission knows it, the entire US Congress knows it (the Senate having voted 97 to 0 against the President’s own 2012 budget bill) and, of course, the White House knows it. This debate over the budget is not really about constructive federal policy or about the President’s so-called basic American Social Compact, but, rather, about election posturing.

So is Tocqueville’s implied warning that American democracy will self-destruct when the government begins bribing voters with their own money about to come true? Are we slowly dying the death of a thousand cuts? We think that depends on whether the grass-roots movement growing in America today prevails in bringing common sense to the Congress of the United States.

Perhaps, H. L. Mencken summed it up best when he quipped over seventy years ago; “Federal policy is dividing society between “those who work for a living and those who vote for a living.”

By Hal Gershowitz and Stephen Porter

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