At Large

Maybe It Can Happen Here

An Argentina in the making?

By 3.31.10

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A friend of mine has sent me a slide show which traces the decline of Argentina from a resources-rich, prosperous nation, akin to Canada, in the 19th century, to its modern state of economic dysfunction.

The presentation is accompanied by Madonna singing "Don't Cry for me, Argentina." The message is that this, too, could happen to the United States.

A bit of a stretch, you might say. Or is it exaggeration, hyperbole or fear-mongering at its very worst?

Well, maybe. But what does it mean when Fred Hiatt, the editorial page editor of the Washington Post, opines that when (if?) President Obama finally "pivots to fiscal reform, as promised, he may look back to health care as the easy one."

Hiatt supported Obamacare while holding his nose given its implausible funding assumptions. In fact, he believes that, at best, the new legislation, tax increases and all, will only generate "true savings" of $44 billion. In other words, he argues "it would take something like 220 health-care bills of deficit reduction" to bring down the accumulated deficits and debt which Obama would need "to undo the $9.8 trillion that his budgets will add to the deficit during the next 10 years, according to CBO." And this is coming from a supporter of the President's agenda.

Robert Samuelson, writing on the very same day as Hiatt, noted that "Should the United States someday suffer a budget crisis, it will be hard not to conclude that Obama and his allies sowed the seeds, because they ignored conspicuous warnings" such as the Moody's Investors Service's warning on March 15 "that the U.S. government debt could cause a downgrade of Treasury bonds."

Even if the CBO estimate that the new health care legislation will reduce the deficit by $143 billion over a decade turns out to be true, Samuelson asks, "So?" Indeed, "The $143 billion saving is about 1 percent of the projected $12.7 trillion deficit from 2009 to 2020."

Writing on the same op-ed page just last week, Charles Krauthammer, predicted, "As the night follows day, the VAT follows health-care reform." That would be the Value-Added Tax, "a national sales tax of the kind near-universal in Europe" which Krauthammer now believes is "inevitable."

The only argument I would have with Krauthammer is his claim that it was Obamacare which is going to usher in the VAT and not the longstanding crisis of exploding entitlement spending which was already baked into the fiscal cake. Moreover, even the VAT is not inevitable given all the other more onerous taxes which might be imposed.

As I have discussed on this website before, even a long-standing supply-sider such as Bruce Bartlett believes that a VAT is necessary, although he does not view it as inevitable but as the best of a bad deal. The current crowd in charge may prefer to tax income and productivity through higher marginal income tax rates on individuals and corporations and steeper taxes on capital gains. From a liberal or "progressive" perspective, taxing income also satisfies a craving for redistributionism, an impulse not to be underestimated in the modern Democratic Party.

One prays that America is not Argentina or Greece, but only a fool would rule out the possibility given current trends. There is a fundamental corruption in our political culture in California, New York, New Jersey, Washington, D.C. and elsewhere which must be recognized and addressed.

Nor have Republicans been immune to this benighted view of public finance. As the Wall Street Journal has stated in a recent editorial, "The reality is that ObamaCare is the price of two GOP electoral defeats caused by the failure of the DeLay Congress and a dismal Bush second term."

"The 2003 Medicare prescription drug benefit compromised the GOP on spending and legislative bullying," says the Wall Street Journal editorialist. "Republicans had a chance to do better on health care in 2005 but put their chips on Social Security and failed. Mitt Romney also gave Democrats renewed political confidence when he signed a prototype of ObamaCare into law in Massachusetts, though he now claims that these fraternal policy twins aren't related."

There are positive signs that the GOP is renewing itself and preparing itself for the struggle ahead. Party discipline is solid on stimulus over-spending. Intrepid spending hawks such as Senator Tom Coburn of Oklahoma are having an impact, and intellectual leaders such Congressman Paul Ryan of Wisconsin are coming to the fore. Hopefully, it is not too late to avoid the fate of other countries which were incapable of addressing their entitlement cultures.

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About the Author

G. Tracy Mehan III served at the U.S. Environmental Protection Agency in the administrations of both Presidents Bush. He is a consultant in Arlington, Virginia, and an adjunct professor at George Mason University School of Law.