'Good economy' remains an illusion ......"Enron-faked"

Former Sen. Ernest Hollings


With the Iraq debacle, the Washington establishment campaigns for the elections in November on: "The economy is good, the economy is good." As in the old movies, let's have a "preview of coming attractions."

First, Washington hasn't paid a bill in five years. Inheriting a budget "with surpluses as far as the eye can see," the president and Congress have been spending. In five years they have added $2.5 trillion to the national debt. Beginning in 1789, we paid for all the costs of wars and government before this nation reached a trillion dollar debt in 1982. The $300 billion Iraq war didn't cost $2.5 trillion. The Congressional Budget Office now projects that interest costs on the national debt next year will exceed $1 billion a day ? $399 billion. Spending $1 billion a day for nothing. We have just paid personal income taxes to the government ? amounting last year to $927 billion. This means that with interest rates rising the government will spend almost half of its personal income tax take for nothing. To keep the government going we have to borrow about $2 billion a day.

How have we gotten by with this scandalous conduct? The answer is by China and Japan financing our deficits. Japan now directly holds $673 billion of our Treasuries and China $265 billion. China could stop financing our deficits and we would be in trouble.

To observe a good economy, everyone cites that the GDP (Gross Domestic Product) grew last year by 3.6 percent and today's unemployment is low at 4.7 percent. No influence in finance is more corrosive or less recognized than the systematic distortion of U.S. economic reality by government agencies. The government's greatest deception is quoting a deficit less than it is. For example, rather than subtracting spending from revenues, the government credits Social Security surpluses to Social Security and then spends the surplus, reporting a less than actual deficit. I authored the law forbidding the president and Congress from citing a deficit figure that includes Social Security money.

Ignoring the law, President Bush states on page 4 of the U.S. Government Budget for FY 2007: "We now project that the 2006 deficit will come in at 3.2 percent of GDP, or $423 billion ?"

But turn to page 334 of the same budget where it shows the gross federal debt from FY 2005 to FY 2006 increasing $706 billion ? a deficit of $706 billion instead of $423 billion.

The same monkeyshines are employed by the government in reporting the GDP, the CPI (Consumer Price Index), and unemployment. After World War II, the government measured GDP with consumption as 70 percent of the measure. At the time, all we consumed we produced. But today, half of the goods that we consume are produced abroad, and the reported GDP is flawed. For example, the official government GDP figure for the fourth quarter of last year is 1.7 percent. But according to John Williams, a respected conservative Republican economist, the figure "should be close to 2 percent contraction." Alan Greenspan and the Boskin Commission appointed by Congress jimmied the CPI to lessen Social Security payments. Rather than about 3.4 percent, Williams reports that "real CPI right now is running at about 8 percent."

The Clinton administration jimmied employment figures by reducing the number of people surveyed in the inner cities. Now with proper labor force growth, Charles McMillion, a noted Washington economist, reports an unemployment rate at 7.6 percent instead of 4.7 percent.

In the last five years we have lost 2.9 million manufacturing jobs. To keep us going, the government has cut taxes and goosed the economy with $2.5 trillion in "hot" checks to create jobs. Paul Craig Roberts, Ronald Reagan's economist, states: "No sane economist can possibly maintain that a deplorable record of merely 1,054,000 net new private sector jobs over five years is an indication of a healthy economy."

With 17 percent of our manufacturing work force lost, economic support of the government diminishes.

When the economy is good, that's the time to start paying down the debt. But Congress doesn't really believe the economy is good. It is set to cut taxes to make sure the economy gets it by the election.


Ernest F. Hollings served as a U.S. senator from South Carolina from 1966-2004.