The Commerce Department is set to release a report Friday that's expected to show the economy shrank at an annualized rate of 5.5 percent from January to March. If Wall Street analysts' forecasts are correct, it would mark a small improvement from the 6.1 percent annualized first-quarter drop the government initially estimated a month ago.
There are all sorts of old jokes that are similar to the above. They often start with "Do you want the good news or the bad news" and end with a wife or cat being killed in a fire.
The summation of the Commerce Department's report is that the economy contracted, again. It twisted the presentation to make it appear as a good thing: since it only contracted 5.5%, when it could have been 6.1%, we're supposed to infer that things are better.
The cat is still dead.
There are a number of factors that are going to prevent the economy from recovering, unless we tackle those issues. We need to tackle:
- Entitlement spending (specifically Social Security). We will need to gradually eliminate it, beginning with means-testing.
- Deficit spending (beyond entitlement spending).
- Replacing private investment with government spending (across the board).
There is no political will to do any of the above, until it is too late, and excruciatingly painful.
The financial sites are full of predictions that suggest that we'll recover in the Fall, or next year, or things are already recovering, etc. What I don't expect to see is the truth: That there will be no recovery. This is the new normal. Our children and grandchildren will not have life as easy and prosperous as we did. Mostly, that is our fault (and the fault of our parents and grandparents).
Social Security is the biggest contributor because we allowed a Ponzi scheme to rake-in cash for decades and we allowed the government to maintain the ruse that there was some sort of trust fund, rather than the fact that the government spent all the money. That allowed previous generations to maintain the fiction that we had been more fiscally responsible in the past. The fiction that FICA is not a tax, just like any other tax, continues to this day.
Any report that says that "X % of Americans don't pay any tax" perpetuates that lie. If someone has FICA taxes deducted from their paycheck, they are paying taxes. That tax is put into the General Fund and is spent each year... and that has happened since the program's inception.
This has been a long time in coming. Previous Administrations are constantly blamed for deficit spending, but the real culprits of the deficits are never addressed. Even when Bush ran in his second term on fixing Social Security, the Congress wouldn't touch it. With AARP and similar organizations representing the largest special interest groups, politicians realize that reducing Social Security spending will end their careers.
Federal spending has clearly gotten out of control. Social Security and Medicare has been a net gain to the budgets for decades, but in a few years, it will be a net drain, compounding an already serious problem.
The chart below shows Federal spending for Social Security and Medicare, and all other spending, in 2000 constant dollars:
[caption id="attachment_593" align="alignnone" width="468" caption="Spending 1976 to 2010 (in 2000 Constant $)"]
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