You are right about the difference between WWII and the current fiscal mess. As I said, the problem is control of government spending. However, there is no need to take the federal welfare system as a given. The war was imposed on us by the Japanese and the Germans. In contrast, the welfare system is self-imposed, and so is its continuation. We put it there. We can get rid of it. Unlike the war, all we have to do to end the welfare system is make up our minds to do so. It will go away as fast as we want it to. Every bit of the federal welfare system is unconstitutional, so there is no legal impediment to ending any or all of it at any pace that we find acceptable. What the states choose to do is up to each of them to decide.

I personally favor eliminating most or all minor federal welfare programs within one year. The big ticket items are Medicare, Medicaid, and Social Security. Medicare can be eliminated fairly quickly if the federal government opens interstate commerce to competition among health insurance companies (which it has the constitutional authority to do immediately). Don’t forget that medical care, and thus medical insurance, would cost a whole lot less if the government would butt out and let the market work. Medicaid may need a somewhat slower phase-out. I don’t want to drop poor people abruptly on the street with no health insurance, but I do want to eliminate the program quickly. Social Security is the hardest of all because many people have been relying on it and as a result not contributing as much to private retirement plans as they would have done in Social Security’s absence. We need a phase-out, but it has to be short or else it will be infinite. Some hardship will be unavoidable. Maybe people more imaginative than I can think up self-terminating ways to ease the hardship. In any case, though, we must end the program or it will eat us alive, as it is doing now. It is possible in principle to fix the program without eliminating it, say by restricting indexation to inflation rather than real wages, but in practice the politicians inevitably will undo any such fix to buy votes as long as the program exists. The only permanent solution is to recognize the program’s unconstitutionality and eliminate it altogether.

There is a huge difference between World War 2 and today. The war stopped (quite suddenly) in 1945 so government spending collapsed immediately: Millions were demobbed.

There was virtually no federal welfare state to consume the money no longer used by the military (Social Security only a decade old, no Medicare or Medicaid, no Department of Education, no HUD, no FEMA, etc.) so the government simply stopped spending money that it didn’t have. As a result, the US grew out of its debt.

I think the crisis described by the other commenters might be even worse than we fear. The European experience shows that democratic government no longer shrinks when the military shrinks. Instead, other parts of the blob devour the budget that had belonged to the military.

Dr. Bondurant notes that President Obama looks to Sec. Gates to cut programs. However, those dollars will go to expand Medicaid, green jobs, etc.: Not back to the people who earned them.

JMHO.

We must move immediately from a pay-as-you-go (unfunded) entitlement system to one which is funded and in which each generation pays its own way.

The problem is that it costs money to move from defined-benefit to defined-contribution, which means you need either a one-time increase in revenue or a one-time decrease in benefits in order to pay for the transition. And we haven’t even been able to cap the growth in defined benefits let alone reduce or eliminate them.

It seems to me that a cap in the Social Security COLA to perhaps inflation minus one percent is a logical first step. This by itself would have the effect of encouraging growth in defined-contribution plans.

There is only a problem if government continues to spend the way it has been spending. That spending level is unsustainable, but it is not inevitable. Nothing required that the irresponsible spending programs be started, and nothing requires that they now keep going. We can stop them any time we like. They are no more of an obligation than repayment of the debt. Indeed, I would argue that they are much less of an obligation. They were put in place by a coalition of two groups: on the one hand, worthless politicians eager to buy votes and, on the other hand, worthless people eager to steal from their more productive fellow citizens. There is no moral justification for their actions, so there also is no moral impediment to terminating their fiscally unsustainable spending programs immediately. Termination is especially justifiable because it allows us to meet the genuine moral obligation of repaying the debt.

Government at all levels wants to spend huge amounts of money so the politicians can buy votes. That’s what politicians do for a living, but it isn’t a defensible justification for their spending. There is no need to default on the debt or especially high taxes as long as we are willing to default on the politicians’ cynical promises. Debt is a promise, and existing government spending programs are a promise. Taken together, they happen to be incompatible with the physical reality of the lifetime budget constraint (the economic equivalent of conservation of mass). We can’t pay for both the debt and the spending at any tax rate that will not lead to outright revolt. So which promise are we going to default on – repayment of the debt or the irresponsible political spending programs, most of which are unconstitutional anyway? The sooner we face up to what has to be done, the easier it will be to do it.