The United States of America, except for a short run during Clinton’s second term, has been running deficits and accumulating debt for decades. As Fareed Zakaria points out in this week’s issue of Time (“The Debt Deal’s Failure“) Ronald Reagan was the first modern President to cut taxes dramatically without accounting for proportionate cuts in spending. George H. and Bill Clinton raised taxes and curtailed spending to minimize debt and even create a budget surplus, but W. came in and slashed taxes, secured a drug benefit, and started two foreign wars. Still the deficit to GDP ratio W. ran before the financial collapse of 2008 was modest compared to his predecessors. When he left office the national debt was roughly $10 trillion dollars, $4 trillion more than when he took office.

By the time Bush left office, the debt was a thing of great concern. Not so much because of its size or novelty, but because of its prognosis. I remember distinctly from business school that some debt is good, because it creates a leverage and  credit history that is essential for a growing organization. The United States of America in the last 30 years prospered under this theory. However, if the organization loses its earning power, and the debt grows out of control, then the creditors lose faith in the organization, and the organization is in danger. When the economy collapsed in 2008 the U.S. lost is earning power, and the prognosis for debt since President Obama took office has become exponentially worse.

Today the debt is $14.3 trillion and the current budget deficit is on an unsustainable path, thanks in large part to an economy that does not bring in the tax revenues it did before the fall of 2008. But also in large to part to a disastrous stimulus package. If a well meaning but impractical Obamacare is not repealed before 2013, things will get even worse . What adds to the gloom is that the government has just shown, in an ugly and ineffectual debt-ceiling debate, that there are more filibusters, blame-games, and rivalries in the near futre than there are solutions.

This is a big reason why the S&P downgraded the U.S. credit outlook last Friday. This is also why corporations are not hiring and sitting on large amounts of cash. There is no faith in Washington, and little more in the economy in general. The U.S. might be nearing a point of critical mass, where people don’t work, don’t get paid, and don’t get basic services. The dollar is in realistic danger now.

The problem in America is deeper than economics and politics. The daunting numbers and meaningless legislation is a reflection of the population’s unrealistic expectations of government, corporations, and modern life in general. America has turned into the biggest entitlement society the world has ever known. I spoke recently with South Americans who were simply amazed to hear that teachers in Wisconsin who make $40K to $100K per year were striking over bargaining powers.

Polls show Americans want to cut spending in general, but they don’t want to cut anything specific. It just doesn’t make sense. People want to tax the rich too, like the rich are a band of 100 or so criminals in the mountains of Utah who devise schemes to make the rest of us suffer. But the rich are normal people, most of who got rich in a fair and legal way. They already pay most of our taxes anyway. Half of America doesn’t even pay federal income tax, yet the average Joe wants the rich, who give up 50% of their income, to give up even more.

There is some debate whether getting rid of the Bush tax cuts would even increase federal revenues. On the Right they argue it would hurt the economy, which would expose less income to taxes. They site that the Bush tax cuts of 2001
and 2003 lead to the good economy in the mid 2000’s, which did increase government revenues. The Left argues there is no evidence that repealing these tax cuts would hurt the economy, nor hurt the rich. It reminds me a lot of the global warming debate, but in reverse.

Meanwhile we have a President, who I and many other Americans are losing patience with. He says plenty, speech after speech after speech. But not much in policy is coming from the White House on this economic free fall. Rumor has it that he wants to throw even more money at the problem?! Wall Street is so averse to this guy, that the market dropped 200 points after he addressed the nation on Monday.

I wanted to give Obama a chance. He came into office with a lot of challenges, but there was definitely more room to go up than down. Yet somehow he had the nerve to throw billions of dollars at a problem with a private sector solution, on the verge of a debt fiasco. He is now in his 3rd year of office, and the W. excuse is running real thin. Now he is shifting the blame on the Tea Party, a group whose only sin is organizing, demonstrating, and demanding that the government stop running a deficit. To use a football analogy, Obama took a 4-12 Bush economy and turned it into a 2-14 team.  He will need the same misinformed masses that came out for him 3 years ago to come out again, if he wants to keep his job.

However, as long as the Big O is President, I’ll continue to pull for his success. This country really is a great place, and I now believe it faces one of its greatest historical challenges. There will be no revolutions or violence in the street so don’t stock up on canned foods like Glen Beck suggests. But American exceptionalism as we know it might come to an end if the leadership in this country doesn’t get it together. Moreover, people need to lose their sense of entitlement, and the rich need to carry us just a little bit further. Cut entitlements, repeal the Bush tax cuts, pass legislation in congress, and start hiring again. Lets get back to prosperity. Now. No debate. Leaders, people, businesses — just do it.

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