Growing Government Spending and the Decline of Capitalism

On Christmas Day of 1991, the Kremlin, the center of power for the Union of Soviet Socialist Republics, saw the hammer and sickle of the Soviet Union replaced by the Russian flag thus signaling the end of the totalitarian regimes of Lenin, Stalin and a host of other brutal dictators who terrorized the world as well as their own citizens. The seeds for this destruction were planted by President Ronald Reagan beginning in his first term.

To put it bluntly, Ronald Reagan drove the Soviet Union into bankruptcy. He forced the Soviet Union to spend significantly more than its economy could produce for a sustained period. The lessons from that international economic gambit appear to be lost on President Barack Obama and the Democrat leadership in Congress.

Ronald Hilton described the combination of forces as follows:

“From the outset, Reagan moved against détente and beyond containment, substituting the objective of encouraging “long-term political and military changes within the Soviet empire that will facilitate a more secure and peaceful world order”, according to an early 1981 Pentagon defense guide. Harvard’s Richard Pipes, who joined the National Security Council, advocated a new aggressive policy by which “˜the United States takes the long-term strategic offensive. This approach therefore contrasts with the essentially reactive and defensive strategy of containment’. Pipes’s report was endorsed in a 1982 National Security Decision Directive that formulated the policy objective of promoting “˜the process of change in the Soviet Union towards a more pluralistic political and economic system’. [The quotes from Peter Schweizer, Reagan’s War.]

“A central instrument for putting pressure on the Soviet Union was Reagan’s massive defense build-up, which raised defense spending from $134 billion in 1980 to $253 billion in 1989. This raised American defense spending to 7 percent of GDP, dramatically increasing the federal deficit. Yet in its efforts to keep up with the American defense build-up, the Soviet Union was compelled in the first half of the 1980s to raise the share of its defense spending from 22 percent to 27 percent of GDP, while it froze the production of civilian goods at 1980 levels.” [Emphasis supplied]

Through six Presidents (Richard Nixon, Jimmy Carter, Ronald Reagan, George H.W. Bush, Bill Clinton and George W. Bush federal government spending averaged about thirty-four percent of the Gross Domestic Product (GDP). It went from a low of thirty-one percent in the Nixon years to a high of thirty-six plus percent in the George H.W. Bush years. As government spending increased each year so did the GDP and thus neither the total government spending nor the increase in the national debt caused much concern amongst the nation’s economists.

But the advent of the Obama administration has changed that equation significantly. In less than two years, and before enactment of either a national healthcare plan or a cap and trade program, federal government spending has leaped to forty-three point six percent of GDP and is projected to remain at or above those levels for the foreseeable future. Because of a stalled economy, the nation’s GDP is expected to grow only marginally — if at all for the next two years while federal spending increases exponentially with every passing day.

The direction of the Obama administration is to create new and enlarge existing social or entitlement programs — welfare, unemployment, Medicaid, Medicare, Social Security, federal employees health plans and federal employee pension plans and next national healthcare. Every single one of these existing programs has exceeded congressional and administration budget expectations and the same will be true with national healthcare.

With the introduction of each new program and growth of existing programs America moves closer to the European socialist democracy model — one seemingly comfortable for President Obama and the House and Senate Democrat leadership. But Europe represents nations in their decendancy, basking in a long past history and wallowing in an expectation of life without consequences.

In stark contrast are the bold growth in the economies of China, India, South Korea and Brazil — all of whom follow the traditional capitalist model of hard work, acceptable risk and denial of instant gratification — a model pioneered and proved successful by America.

The question then is whether America will become a nation of social entitlement and begins its decline or return to its notion of self-sufficiency and rekindle its economic growth and standing in the world. The choice is for the next generation. And while President Obama has promised them “hope and change” they are finding neither.