Obama economic advisor: OK to let China become #1; bankrupt federal entitlements

Barack Obama's chief economic advisor, billionaire investor Warren Buffett, unleashed a howler which is a thousand times worse than Phil Gramm's "whiners" remark.

Gramm suggested we stop complaining about economic hardship.

But Buffett suggests that it will be unavoidable and we ought to get used to a permanent level of quasi-recession.

I know Barack Obama thinks pretty highly of Warren Buffett's economic wisdom. The so-called Oracle of Omaha has helped persuade Obama that higher taxes will have no effect on economic growth. Obama mentions it in his book, The Audacity of Hope. And in a recent New York Times interview, Obama said the following: "If you talk to Warren, he'll tell you his preference is not to meddle in the economy at all—let the market work, however way it's going to work, and then just tax the heck out of people at the end and just redistribute it."

But I wonder if Obama also buys into this little bit of Buffettology that the billionaire unleashed at a symposium on the U.S. indebtedness to promote I.O.U.S.A., a new documentary: "Even if we grow at 1 percent per year, we double the GDP per capita in 75 years. The pie will grow enough that everyone will get more of the pie."

http://www.usnews.com/blogs/capital-commerce/2008/8/25/obama-adviser-buffett-to-america-youre-rich-enough.html

One word, Warren : NOT!

James Pethokoukis points out that one inevitable result of accepting such tepid long term economic growth will be the Social Security Trust Fund will be fully depleted by 2030, and as their annual mailer cheerfully predicts, massive tax hikes or benefit cuts will be required at that point.  

Now let's look at the other results herein. U.S. GDP is about $14T/year and China is about $4T/year http://en.wikipedia.org/wiki/List_of_countries_by_future_GDP_estimates_(nominal)

In 2013 China is estimated to reach $7T.  Even assuming a slow down over time, let's assume a maturing Chinese economy continues to gain $600B/annually in economic performance. Do the math. The US is outpaced by China within a generation.

Now if the US managed a 4% growth rate, due to our larger existing economy we would stay well ahead of the PRC indefinitely.   Even a 3% rate keeps us well ahead of the PRC over the relevant time horizon. 

Over a 20 year period 4% growth yields a $30T US economy, 3% growth yields a $25T US economy  1% growth yields a $17T US economy. That will be smaller than China's by 2030, with massive and unpalatable geopolitical consequences for the nation.

Perhaps the principal behind the GEICO lizard ought to think about this one again.  With health care inflation running at double digits, what a 1% overall growth rate means is that other sectors of the economy will need to shrink outright to pay for health care. Then, with less investment in infrastructure---educational, public works and industrial----our national productivity goes down, thus creating a self-fulfilling prophecy.

What good is it to promise public services when the overall economy will grow so slowly as to make it impossible to pay for them? What good will be open borders if we have a stagnant economy?

Consider this as well; historic U.S. population growth from 1960-2000 averaged about 1% per year. http://en.wikipedia.org/wiki/U.S._population#U.S._Population_Growth and this is not expected to abate in the next generation http://www.census.gov/compendia/statab/tables/08s0010.pdf

A 1% annual GNP growth coupled with 1% population growth means arithmetically living standards will never improve ( Given the aging population this also means young working people can expect lower wages and higher tax burdens).  

I look forward to the next Obama ad for the swing states in the Rust Belt

"My ecomomic advisor promises to have America be a second tier world power with a stagnant standard of living"  

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