The November 14, 2009 lecture by Professor Jeffrey D. Sachs at Columbia University was billed as: “CHOICES FOR AMERICA’S ECONOMIC FUTURE” and I was convinced that it will deal with climate change and sustainable development as the rational choice for America’s and the World’s future. Little did I know that he will open by saying that as usually he would have spoken about these latter topics, but today the news are such that he will be speaking rather about American politics.

This was a 4-6 PM lecture but it went well overtime. His own presentation was two hours and then questions and answers for close to another hour. The place was full – some 300 – 400 people – students, faculty, local activists – who knows, maybe they had some prior hint that this will be an unusual lecture – and indeed it was an extremely well made presentation of America’s inner workings.

It was about the economy. It was documented with slides showing numbers and history, and the bottom line was very simple. The United States of America will have to institute additional taxes if the people want to reach a level of development, and a situation of quality of life in the 21st century that gets anywhere near those known to the democracies of the West. Going around and saying that life, health care, education, and so on … are great here but bad in the Scandinavian countries, France, UK, Germany … etc is untrue, uninformed, self-destroying and disingenuous.

Professor Sachs said that he was too young to remember the McCarthy era, but from his own memories, he does not know a time thing were worse then right now.

Having put the end result before the horse – let us see how we got to that result.

Today 80% of the world population is in the Developing countries. The US has 5% of the world population but accounts for 25% of the global CO2 emissions. There is poverty in Africa, something Sachs dealt with as consultant to two UN Secretary-Generals – but he is speaking on a problem that he regards now even bigger then the problem of African poverty for which he had solutions. This bigger problem is American politics and this problem does not allow the finding of ways out from the climate change issue.

When Sachs spoke – this was the day after we learned that the Senate, preoccupied now with Health Care, will line up after that the debate about the financial institutions, so climate and energy will not come up before mid-2010, and with the November elections will then be postponed to 2011. But nature does not care about US politics and does not wait.

There is really no easy way out – this because the US has already over-spent the budget – so there is a systemic problem that must be dealt with first in order to make money available to searching solutions to what ails America, and that is an issue of politics.

Sachs pulled out charts showing that the US has had for the last 25 years a constant 17-18% of the GNP Federal Taxation level. To this when one adds State and Local taxes we end up with total taxation reaching a steady 31-32%.

Looking at the expenditures – the Federal Government covers just three entitlements and pays interest on the debts.

The three entitlement – 5% each ad up to 15% and the debt service payments for the increasing debt is 2% – that accounts for all the 17-18% of money taken in – and there is just no money for anything else – period.

The three entitlements are: (a) Social Security, (b) Medicare for the retirees, Medicaid for the sick that have it, and (c) for Defense – that is the military and veteran benefits – Sachs loooking at the recent years prefers to call it rather “offense.”

The moment we balanced our budget with the material mentioned up to here – we find out that there is no money for anything else and to do anything else WE BORROW. The choice seems to be to borrow a lot or to do little – and we find that we do both – borrow a lot and do little.

NOW – IF WE UNDERSTAND WHAT WE SAID ABOVE – EVEN IF WE DO NOT BUILD A BRIDGE TO NOWHERE  – STILL  WE CANNOT CUT TAXES BECAUSE THAT WOULD CUT INTO THE ENTITLEMENTS  – THIS BEFORE WE LOOKED AT EDUCATION, TRAINING, SCIENCE, RESEARCH, TECHNOLOGY, WATER, POWER, SPACE, .DIPLOMACY, ROADS, ENVIRONMENT, UNEMPLOYMENT COMPENSATION, PUBLIC ADMINISTRATION, COMMUNITY DEVELOPMENT, HOMELAND SECURITY, CHILD-CARE, PRE-SCHOOL ….. etc. ALL THE LATTER ARE NOT PAYED YET FOR.

Looking at the political system – the Republican’s keep repeating – “cut taxes” and the Democrats said – “we will not raise taxes.” Both statements are wrong. You cannot cut taxes because you do not have from where to cut easily, and you must raise taxes if you want to do anything.

President Obama said he will not raise taxes on 95% of the population – but he just cannot raise taxes period because of Congress that will not let him raise taxes even on the 5% he left in limbo.

IN 2008 THE EXPENSES INCREASED BY 5% BECAUSE OF THE BAILOUTS – SO WHERE DID THE MONEY COME FROM? You guess! What about the increase in military expenditures in 2009? – so in 2009 the deficit will end up being of 10% of the GNP for the year – and we have not touched yet any other need! The GNP is about $14 trillion so the deficit this year will be $1.4 trillion. It is hard to grasp these figures when you look at the comparably small amounts actually needed to do the good things for which we do not find the needed money.

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Ronald Reagan told us to decrease the administrative expense – so we ended up contracting a lot of things to the point we do not know what we are doing because we do not have the administration to supervise this. The mess is simply called “OTHER” when talking about expenses. It amounts now to 4% of the GDP. That is the money actually needed for all these other activities beyond what was mentioned as entitlements, bailout and further military expense.

Sachs had a graph showing the taxes and outlays of the US Federal Government as percentage of GDP starting 1930.

We see the outlays moving from 3-4% to 10% in the 30s and then an increase to 44% for WWII – then stabilizing after the war at the 17-18% we spoke about earlier.

The increase in the 30s was for the introduction by FDR of the Social Entitlements. Then came the war effort, and after the war – the PEACE DIVIDEND that allowed for use of the money from decreased expenditures on the military – to be used for expenditure on infrastructure. That allowed Eisenhower Administration to build the Federal; Highway Network in the 50s.

(Another graph showed the military outlays increasing during the Korea War to 14% – then falling to 4% – another peace dividend that happened in 1953. After that we moved to the present 5% for defense.)

In the 60s, there was the Civil Rights Movement and social issues like Medicare and Medicaid where introduced. That was a decade of massive social improvements. and increase of expenditure on social issues to over 10%. But, by the end of the 60s we reached the end of the fiscal space – that was what happened to the Johnson Administration. He tried to fight in Vietnam and expand the Great Society at the same time and it did not work. He realized that if he wanted to do that he has to raise taxes and lost the country – Nixon got elected on saying – NO TAXES – and we had no new initiatives since the 70s. WE ARE STILL FROZEN TODAY.

The US and Europe reached the same level of development at the end of the 60s. Then started the fundamental divergence.

IN EUROPE THEY SAID WE WANT MORE IN THE SO CALLED WELFARE STATE. They introduced one more tax that the US does not have – The Value Added Tax – that is 10% of GNP – and that made a world of difference. Now Europe is taxed at 40% and the US only at 32% when State and Local is included.

That reminded us of President Reagan who liked to say that he was there to dismantle as much as possible from “our” Administration system because government is not the solution but the problem – now we reap his fruits that are problems and no solutions. We have poverty rate of children of 20% back from what it was at 15%. There is a slide among women, and the only area still holding are the aged that have a system that was put in place as an entitlement.

On social issues – the total US expenditure is now 15% of GDP while in the Nordic countries it is 27%, Europe in General 26% and in the English speaking counties 17%

We slowly moved to a polarization of inequalities and we spend little to improve it. We do not help our own poor and as a corollary – we also do little for the world’s poor. While the Nordic countries give to the World’s poor 1% of their GDP, the US allows only for 0.18% and Prof. Sachs made the chilling point that by doing so we end up eventually to have to fight in those countries that we did not want to help. IT DOES NOT MAKE SENSE SENDING THE TROOPS RATHER THEN THE MONEY – said Professor Sachs – just while the US considers sending more troops to Afghanistan and sending its financial emissaries to China in order to get the money needed to finance those troops – but has no money to spend on global warming issues.

The drop out rate in lower school is now 16% – in high school – 11% – the result shows in unemployment rates higher by 15% as for those that have high school education. Last year 6% in the US were hungry.

Sachs said that in the last elections we saw the country was about Joe the Plumber, even the Obama campaign had to take a lesson from the Reagan book in order to win – but what do you do now?

“We gave away billions to Goldman SAchs etc. to get the bonuses and that is considered normal. So, the new normal is the complete paralysis we see. The new OMB budget predicts the expenditures for all the “OTHERS” to go down from 3.8% now to 3.1% in 2019 and we got the reference to www.OMB.gov to see this for ourselves. This is a dirct result for a country where half of the people say “Do Not Raise Taxes” and the other half says “Cut Taxes!”

SO WHAT SHOULD WE DO?

GO TO A NEW ECONOMIC STRATEGY – BOOST DEMAND THROUGH PUBLIC INVESTMENT AND EXPENDITURES. WE COULD INVEST IN INFRASTRUCTURE, SUSTAINABLE ENERGY, NEXT GENERATION TRANSPORT.

EXPORT PROMOTION INCLUDES FINANCING OF INVESTMENTS IN LOW INCOME COUNTRIES.

CUT MILITARY SPENDING – OUT OF IRAQ AND AFGHANISTAN.

Budget 1% of GNP for each one of the following: Renewable Energy, aid to children, infrastructure, higher education, Development Assistance, Climate/Energy, an active labor market policy and he gets to a 7-8 items list for which he calls to be funded by a value added tax form of a new Federal Sales Tax – up to 12%. The States themselves, for their own purpose, could come up with a form of Carbon Tax.

Regarding the military – he thinks we can go back to a 2% of GNP expenditure without geoperdizing US security.

So, we need a new tax, and when Sachs published an article saying just that, January 7, 2009 in Time Magazine, he said he did not get a single e-mail from readers. There is just nobody out there in the US ready to listen he said.