Those long-term fiscal liabilities staring down the nation?
They’re nothing a little loving won’t fix.
Well, a little loving, plus some good, old-fashioned economic growth and a cold dose of reality regarding entitlement reforms.
That was the message noted business journalist Stuart Varney brought to Las Vegas Thursday at Bellagio, where he addressed more than 500 attendees on hand for the Nevada Development Authority’s annual luncheon. In his speech, Varney, a graduate of the London School of Economics and a former CNN anchor who now contributes to the Fox News and Fox Business channels, discussed the recession’s origins and talked about how the Nov. 2 election might alter the nation’s economic course. He also pointed to both coming economic growth and a pending “generational clash” between the ever-expanding senior set and the dwindling ranks of youngsters who’ll fund the oldsters’ retirements.
His overriding conclusion? There aren’t enough babies these days to save entire nations, and even states including California and New York, from crushing debt and pension liabilities.
To illustrate how those population shortages will affect the nation’s — and world’s — fiscal future, start with the global financial panic of 2008.
“That was ground zero for everything that flowed after it, and it was the starting point in getting us to where we are now,” Varney said. “It’s also the breeding ground for our future.”
He traced the financial panic to Sept. 18, 2008 — at lunchtime, to be precise. That’s when Bruce Bent, inventor of the money-market mutual fund, was called home from a vacation in Italy after his Reserve Funds group’s value dropped below $1 per share, thus freezing investor redemptions. Similar woes hit other mutual funds and investment banks, creating the worst money-market freeze since 1907. The Dow Jones industrial average fell 18 percent in one October week, several European banks failed and Iceland went bankrupt.
Federal interventions in the United States and Europe ended the crisis, as hundreds of billions of dollars and trillions of euros hit financial markets and backstopped banks. But the aid also marked the first time that the word “trillions” entered the country’s, and world’s, financial vocabulary, Varney noted.
“Think of the financial inflation that was built into our vocabulary at that point,” he said. “The panic was over but that was the start of everything that flowed thereafter. The Great Recession began almost immediately.”
The tense times also led three weeks later to the election of President Barack Obama, who epitomized a calm, cool and collected demeanor, Varney said. That election, in turn, yielded nearly $1 trillion in stimulus spending five months later, plus two straight record-setting federal budgets.
Two years later, the country is “deep into income-redistribution and wealth-redistribution territory,” Varney said. “I think that is the financial culture of this day. You’ve heard a lot about what’s fair. Fairness. That is the overriding characteristic we’ve imposed on our financial culture over the last couple of years. Our tax policy, regulatory policy and trade policy have been geared toward redistribution and fairness.”
The media — Varney included, he said — helped stoke the “anticapitalist fires of outrage” by giving endless publicity to cases of bankers gone wild. Consider John Thain, the Merrill Lynch head who bought a $35,000 chest of drawers for his office on the eve of his brokerage’s bailout by Bank of America.
But the recent election will usher in yet another shift, Varney said.
Gone are prospects for further trillion-dollar stimulus programs, carbon cap-and-trade laws and union-preferred card-check rules. The Bush tax cuts are likely to be extended for everyone, he added.
“What Congress cannot do, and what Congress may do to shift economic policy, will change confidence,” Varney said. “The confidence of our private sector will now go up.”
Those green shoots of economic revival should thrive in coming months. By spring, Varney said he expects the nation’s economy to grow at a 3 percent clip, with 4 percent expansion likely to visit in the fall. Unemployment should drop from 9.6 percent to 9 percent, and some of that $1.8 trillion in cash businesses have stashed away should begin finding its way into the economy.
“We’re just in the beginning of an improvement in growth, and you surely will feel it in Nevada,” Varney said to applause from the crowd.
But that growth is only part of the solution to the country’s fiscal troubles.
Varney spent a good chunk of his talk discussing plummeting fertility rates in the developed world. Birth rates are important because it’s the younger workers and citizens of tomorrow who’ll support today’s middle-aged and older workers in their dotage. Those seasoned workers are living longer than ever, and they’ve been assured entitlement payouts.
“More and more people are retiring, and they’re living on health and pension benefits supplied by a smaller group of people who are working, and who are in turn having fewer children,” he said. “You see the generational clash emerging now in America, in particular with the near bankruptcy of many of our states, with their (public-sector) pensions.”
Among the cases Varney’s research has uncovered: The 10 San Diego public employees who’ll collect $61 million between them in the next 25 years; California firefighters retiring at 55 and taking in $284,000 in pension payments each year for life; and a nurse in Cincinnati who’ll earn $154,000 in annual pension income after making just $54,000 a year on the job.
“You simply cannot afford that, but that’s the promise we’ve made,” he said.
Varney sounded a hopeful note, though. The United States has a higher birth rate and lower ratio of seniors to youngsters than just about any other industrialized country.
“We are a young, vigorous, dynamic, innovative, capitalist society. Why? Because we accept — willingly or otherwise, legally or otherwise — mass immigration,” said the native of England, who had six children after he moved to the United States.
Varney also sounded hopeful that two recent, high-profile proposals for debt reduction and fiscal reform called for “sharply lower tax rates.”
“That is the way out: Lower tax rates and getting a grip on future entitlements. You might have to have a consumption tax of some form, but you need to lower tax rates to stimulate growth,” he said. “If you can grow the economy at 3 or 5 percent, you’ll have a sharply lower deficit, and you can control entitlement programs in the long term. If you can show them you’ve got a plan, the bond market will be with you. Growth is the answer, period.”
Contact reporter Jennifer Robison at
jrobison@reviewjournal.com or 702-380-4512.
