Low Incomes and a Dearth of Good Jobs Have Led to Unsustainable Dependence

During the last election cycle, the American public was subjected to a contentious debate about 'makers' versus 'takers.' Posited on one side of the argument were the industrious, entrepreneurial Americans who produce things (including jobs) and on the other side were the Americans who allegedly mooch off the government.

Republican vice presidential candidate Paul Ryan initiated the dispute when he had previously argued that 60 percent of Americans receive more financial benefits from the government than they pay in taxes.

Quite obviously, the framework for this debate was bound to be controversial. It implied that the majority of Americans are idly sitting around, just waiting for a check from the government so they don't actually have to work. Under this argument, an enormous segment of the American public is deemed as lazy, unmotivated and lacking ambition.

The proper context would be to question why the middle class has been entirely shredded and why so many millions of Americans cannot find work, leaving them to simply exit the labor force as a result. Chronic unemployment has become the new normal.

The U.S. labor market started 2012 with fewer jobs than it had 11 years earlier, in January 2001. The only reason the unemployment rate continues to drop is because people keep dropping out of the labor force.

The percentage of the civilian labor force that is employed fell every single year from 2006 to 2011, according to the Bureau of Labor Statistics. In other words, this ugly trend was already underway a full two years before the financial crisis even began.

Yet, those fortunate enough to have jobs are confronted by the fact that, adjusted for inflation, wages have been stagnant since the 1970s. And the prevalence of low-wage jobs is further hampering the U.S. economy.

The U.S. had the highest share of employees toiling away at low-wage work among all developed/industrialized countries in 2009, according to OECD data. One in four U.S. employees were low-wage workers that year. That is 20 percent higher than in the number-two country, the United Kingdom.

Low-wage work is defined as earning less than two-thirds of the country's median hourly wage.

The number of employees working in low-wage jobs has been rising since 1979, according to to John Schmitt, senior economist at the Center for Economic and Policy Research.

Given these troubling developments, it should come as no surprise that government dependence has reached an all-time high.

Charles Hugh Smith spells out the stark reality quite clearly:

There are roughly 127 million people who receive government transfers or benefits. Sixty-one million recipients of Social Security and Medicare and 66 million people receiving welfare (SNAP food stamps, housing credits, Medicaid, etc.) Since there are about 115 million full-time jobs in the U.S., this means there are 1.1 government dependents for every full-time worker in the U.S. (For context, there are 315 million Americans and roughly 142 million jobs. About 38 million of these jobs are part-time that pay less than $10,000 annually. Fifty million wage earners earn less than $15,000 a year, and 61 million earn less than $20,000 annually.)

The Federal government counts a person who is self-employed and earns $100 a year as "employed" and a person who works one hour a week as "employed." As a result, the only meaningful metric is full-time employment.

A new research paper by Patrick Tyrrell and William W. Beach says the number of Americans receiving money directly from the federal government each month has grown from 94 million in the year 2000 to more than 128 million today.

Whether the number of Americans receiving government benefits each month is 127 million or 128 million amounts to quibbling. It is a serious problem when there are just 115 million full-time workers subsidizing that many of their fellow citizens.

It's not even a matter of morality, or charity, or fairness; it's a matter of practicality and sustainability.

It's reasonable to ask how long the federal government can afford to support 128 million Americans every month. There will always be poor people in any society, including ours. But how can the U.S. maintain first world status with such a rapidly growing portion of poor and low-income citizens?

I wrote about the shocking upswell of low-come Americans in a recent article, Stagnant Incomes Leading to Economic Decline.

According to Census Bureau data, a record number of Americans – nearly 1 in 2 – are now classified as either poor or low income. About 97.3 million Americans fall into a low-income category, and 49.1 million fall below the poverty line and are counted as poor. This means that 146.4 million, or 48 percent of the U.S. population, is now considered to be either poor or low-income.

This is why so many millions of our fellow citizens rely on government transfer payments.

According to the U.S. Census Bureau, 49 percent of all Americans live in a home that receives direct monetary benefits from the federal government. Back in 1983, less than a third of all Americans lived in a home that received direct monetary benefits from the federal government.

Here's the breakdown of the households receiving government benefits: Social Security - 31.6 percent; Medicare - 29 percent (obviously there is a lot of overlap between the two, since those programs mainly benefit retirees); Medicaid - 19.5 percent; food stamps - 12.7 percent; subsidized lunches - 11.2 percent; public housing - 5 percent (again, there is some overlap here); unemployment - 4 percent; and veterans’ compensation - 2.6 percent.

The growth in these various programs has resulted in significant increase in the amount of income that Americans now derive from the associated government payments.

In 1980, government transfer payments accounted for just 11.7 percent of all income. Today, government transfer payments account for more than 18 percent of all income.

Low and stagnant wages, plus an insufficient number of well-paying jobs, have left far too many Americans dependent on government benefits. This is plainly unsustainable. Low wages and chronic unemployment are crippling the economy and leaving the U.S. continually vulnerable to recession. That, in turn, will increase the number of Americans in need the government safety net and continual transfer payments.

Without an abundance of middle-class jobs — millions of new ones each and every year — the U.S. economy will continue to decline. Our economic health relies on quality jobs that allow millions of low-income Americans to participate in the middle class. This would also increase the tax base and lessen the dependance on government.

At the end of 2012, just 58.6 percent of all working age Americans had a job. According to the Bureau of Labor Statistics, the percentage of the U.S. labor force that is employed has been steadily falling since 2006.

Take a look at the percentage of the civilian labor force that has been employed over the past several years. These numbers come directly from the Bureau of Labor Statistics:

2006: 63.1

2007: 63.0

2008: 62.2

2009: 59.3

2010: 58.5

2011: 58.4

2012: 58.6

As you can see, the percentage of the civilian labor force that is employed fell every single year from 2006 to 2011.

In January, only 57.9 percent of the civilian labor force was employed. So the number is trending downward once again.

As a result, the number of Americans "not in the labor force" has absolutely skyrocketed in recent years. There has been an alarming and steady rise every year since 2006:

2006: 77,387,000

2007: 78,743,000

2008: 79,501,000

2009: 81,659,000

2010: 83,941,000

2011: 86,001,000

2012: 88,310,000

In January, there were reportedly 89,868,000 Americans at least 16 years of age not in the labor force.

Despite mainstream media reports, it's obvious that unemployment is "improving" only if you pretend that millions of American workers no longer want jobs.

As long as the percentage of the civilian labor force with a job remains this low — much less continues to increase — the reliance on government benefits will persist and even grow. As it stands, the 75 million Baby Boomers will progressively become eligible for Social Security and Medicare benefits each and every year for the next two decades. That will pose a tremendous burden to this nation.

By 2033, there will be almost twice as many older Americans as today — from 43.4 million at present to 75.7 million — according to the Social Security Administration. Meanwhile, the number of workers for each Social Security beneficiary will decline from 2.8 to 2.1.

The vast number of seniors, alone, will create a tremendous fiscal burden. The additional weight of so many poor and low-income Americans also in need of support could strangle the economy. The current state of affairs cannot continue indefinitely. At some point, it will collapse.

There is certainly enough money in the U.S. economy. The problem is that it is too restricted at the top.

According to a recent study by University of California economist Emmanuel Saez, based on an analysis of American tax returns, in 2010, 93 percent of all new income growth went to the top 1 percent of American households. Everyone else, the bottom 99 percent, divided up the remaining 7 percent.

As long as that persists, the current level of government dependance will also persist — until it can be sustained no longer. At that point, it's game over. Our days as a first-world nation will be nothing more than a memory and a tale for the history books.

Stagnant Incomes Leading to Economic Decline

If you're wondering why attempts to reinvigorate the American economy have been so ineffective, you can blame it on the evisceration of the middle class. The emergence of a vibrant middle class had previously allowed the U.S. to become the dominant economic power in the world. The rapid collapse of our middle class is leading to a historic economic decline.

The facts are striking.

According to Census Bureau data, a record number of Americans – nearly 1 in 2 – have fallen into poverty or have earnings so low that they are classified as low income.

Pause for a moment and let that sink in.

About 97.3 million Americans fall into a low-income category, commonly defined as those earning between 100 and 199 percent of the poverty level, based on a new supplemental measure by the Census Bureau that is designed to provide a fuller picture of poverty. Together with the 49.1 million who fall below the poverty line and are counted as poor, they number 146.4 million, or 48 percent of the U.S. population.

When nearly half of your population is defined as low income, you are merely clinging to 'first world' status. Yet, the whittling down of the middle class has been underway for decades.

Since 1980, the typical hourly wage for a worker has increased just $1.23 cents, after accounting for inflation. The effects of this have been felt most broadly by those on the bottom of the income scale.

The inflation-adjusted average earnings for the bottom 20 percent of families have fallen from $16,788 in 1979 to just under $15,000, and earnings for the next 20 percent have remained flat at $37,000.

Though the problem of falling incomes has been decades in the making, it accelerated during the financial crisis and worsened in the alleged recovery.

Despite record-high corporate profits, the inflation-adjusted median wage continues to drop. And the share of the economy going to wages rather than to profits is the smallest on record.

Median household income in America has fallen for four consecutive years, according to the Census Bureau. Overall, it has declined by over $4000 during that time span.

Remarkably, approximately one out of every four American workers makes 10 dollars an hour or less. That makes growing the economy very difficult because it is choking off demand.

Though salaries and wages have essentially been stagnant, the cost of living has been continually rising. For example, inflation was 27 percent from 2000 to 2010. That's a hidden tax on all Americans, young and old, rich and poor. However, it disproportionately affects the poor and middle class, who can least afford it.

Historically, from 1914 until 2012, the United States inflation rate averaged 3.36 percent. This means that your money has been losing roughly a third of its buying power each decade. This is having punishing affects since incomes have not kept up with inflation.

The Federal Reserve's aggressive monetary policy (money printing), in which it has expanded its balance sheet by $3 trillion (on its way to $4 trillion by year's end), has set the stage for a massive devaluation of the dollar.

When you hear your parents or grandparents talk about how cheap things like bread and milk or cars and houses used to be when they were young, you can blame this on the dollar's continual loss of buying power due to the Federal Reserve's well-orchestrated inflation objectives.

The Fed intentionally creates inflation by printing more money, which devalues all of the money already in circulation. This is not hidden or secretive. In fact, the Fed is quite open about this.

On January 25th, 2012, Fed Chairman Ben Bernanke announced a 2 percent target inflation rate. Simple math reveals that over the course of a decade, this would add up to 20 percent, meaning your money would lose one-fifth of its buying power.

Since wages and salaries for most Americans have not kept up with inflation for many years, this has punished the poor and the middle class (or, what's left of it), while hindering the economy.

Safety-net programs (such as food stamps and unemployment benefits) and tax credits have kept millions of out of poverty, masking the true magnitude of the problem.

Many middle-class Americans continue dropping below the low-income threshold – roughly $45,000 for a family of four – due to the loss of a job, pay cuts and/or a forced reduction of work hours.

A continually growing segment of Americans can be described as 'low income' and the affects of this a can be seen throughout the economy.

Since consumer spending drives 70 percent of U.S. economic activity, lower incomes and falling demand are obviously impacting the broader economy. By and large, Americans have less disposable and discretionary income to direct back into the economy, which is why it no longer operates smoothly.

We are learning about the limits of growth.

Decades of massive debt accumulation masked stagnant and falling incomes. Americans were forced to live on credit just to pay for essentials, such as food, gas, medicine and doctor's bills.

But people have learned that the accumulating interest makes paying off this debt difficult to impossible. As a result, Americans have been defaulting at record rates over the past five years. This has made credit issuers more cautious and made credit more difficult to obtain.

The point is, we can no longer count on debt to propel the economy — nor should we. Despite decades of debt accumulation (total U.S. household debt reached a whopping $13.8 trillion by 2008), it still wasn't enough to stop the long term decline of the U.S. economy.

Historically, from 1948 until 2012, the annual GDP growth rate in the U.S. averaged 3.22 percent. However, since 1973, the U.S. economy has experienced slower growth, averaging 2.7 percent annually. And this slowdown has accelerated in recent years.

In the 1950s and 1960s the average growth rate was above 4 percent. In the 1970s and '80s it dropped to around 3 percent. Yet, in the last ten years, the average rate has been below 2 percent.

After contracting in 2009, the U.S. economy expanded 2.8% in 2010, 1.7% in 2011 and 2.2% in 2012. The Congressional Budget Office projects GDP to increase 1.4% this year.

As GDP growth rates have tumbled, personal disposable income growth has fallen even more precipitously.

In the 1970s and '80s personal disposable income for the average American was rising 10 percent a year. From 1990 to 2008, income growth rate had dropped to an average of 5.8 percent. And since the recession in 2009, when it actually declined, income has been growing an average rate of 3.6 percent.

As incomes have declined, the middle class has declined. Quite predictably, the U.S. economy has declined as well.

That's where we find ourselves in 2013, on a long road to continual economic decline.

Despite its Debt, the US Can't Afford to Ignore its Antiquated Infrastructure

In 2009, the American Society of Civil Engineers (ASCE) gave America’s infrastructure a “D-“ grade and called for $2.2 trillion in investment over the coming five years. However, the necessary investment has not since been made. This has jeopardized our economy and even our safety. Basic upgrades and critical modernization have been ignored.

In his State of the Union Address, President Obama acknowledged this, admitting that we have an "aging infrastructure badly in need of repair," while also noting that there are “nearly 70,000 structurally deficient bridges across the country.”

Roads, bridges, ports, and rail systems allow businesses to move goods, reach global markets, grow their market share and create new jobs. Investing in these critical elements of our nation's infrastructure, as well as our water systems, is the only way to build and maintain a 21st Century economy.

Greg E. DiLoreto, President of the ASCE, put it this way:

For the U.S. economy to be the most competitive country in the world we need a first class infrastructure system—transport systems that move people and goods efficiently and at reasonable cost by land, water and air; transmission systems that deliver reliable, low-cost power from a wide range of energy sources, and water systems that drive industrial processes as well as the daily functions in our homes. Infrastructure is the foundation that connects the nation’s businesses, communities and people, driving our economy and improving our quality of life.

On March 19th, the ASCE will release its 2013 Report Card for America’s Infrastructure. It will be interesting to see if anything has improved in the intervening four years, or if our overall infrastructure has predictably regressed.

The 2009 report highlighted a continual pattern of disrepair and neglect. The ASCE had previously given US infrastructure a "D" grade in 2005 as well. Getting the same grade again in 2009 clearly indicated a total lack of national commitment to correcting these critical problems.

In an economic report on the failure to invest in infrastructure, ASCE has found that "infrastructure investment is inherently linked to our nation’s economic success. The Failure to Act report found that if we fill our infrastructure funding gap by 2020, the U.S. can eliminate potential drags on economic growth, protect 3.5 million jobs, and protect $3,100 in annual personal disposable income."

If these problems are ignored, the ASCE warns, "Your commute will become less reliable, your shipments will take longer. You may experience more electrical outages and water issues."



Those problems will come at a great expense.

The ASCE study finds that the overall cost to households and businesses of deficient infrastructure grows to $1.2 trillion for businesses by 2020 and $611 billion for households, under current investment trends.

The ASCE asserts the following:

Thus, the investment gaps will total $1.1 trillion by 2020, and will grow to $4.7 trillion by 2040.

If we don’t address this funding shortfall of $157 billion a year for our nation’s infrastructure, we will be faced with the following by 2020:

• A projected loss of $3.1 trillion in GDP, almost the equivalent of the 2011 GDP of France

• A $1.1 trillion decline in U.S. trade value, equivalent to Mexico’s GDP

• A loss of 3.5 million jobs in the year 2020 alone, more than the jobs created in the U.S. over the previous 22 months

• A $2.4 trillion decline in consumer spending, comparable to Brazil’s GDP

• A drop of $3,100 in disposable income per year, per household

Obviously, the cost of performing these vital infrastructure repairs and improvements will be great. Yet, the ASCS says, "the real story of this report is that we can’t afford not to."

Whatever the cost, the price of not investing will be even higher.

Repairing, rebuilding and modernizing our national infrastructure would also create jobs, increase demand, circulate money back into the U.S. economy and revive the tax base.

It will be impossible for the U.S. to maintain it's status as a super power and a world leader in the 21st Century with a failing and crumbling infrastructure. Quite disturbingly, the current state of affairs reveals a nation in decay and decline.

The problem is that the U.S. is already running massive annual budget deficits and is burdened by a cumbersome national debt exceeding $16 trillion. Our politicians have squandered our national wealth, as well as opportunities to address these problems, for many years. This decay didn't just happen overnight.

The repairs to our nation's infrastructure are long overdue. Yet, for a nation with such a staggering debt burden, they will prove cumbersome.

Economic growth this year will average only 1.4 percent, according to the Congressional Budget Office’s latest forecast. In other words, growth will be too paltry to pay for these vital repairs.

Yet, they cannot be ignored, and that's the conundrum for the U.S.

The U.S. can't afford $2.2 trillion in infrastructure repairs and improvements, and yet it can't afford not to fund them either.

When the Obama administration unveiled its fiscal stimulus package in early 2009, the federal government’s debt to the public amounted to only 35 percent of our gross domestic product. Today, it amounts to about 75 percent. That's a whole lot of new debt in a very short time frame.

However, according to CBO calculations, the 2009 fiscal stimulus produced about $1 of economic output for every $1 in stimulus, on average. In other words, spending on infrastructure paid for itself.

But there is still reason for caution.

Earlier this month, the CBO produced an analysis of the impact that further deficits would have on the economy. A $2 trillion fiscal stimulus would increase growth for the next three or four years. But as the economy recovered, the deficit would crowd out private investment, reducing growth over the decade. By 2023, government debt would amount to 87 percent of GDP.

Congress needs to weigh the potential return on public investment over the long term. Improving the nation’s infrastructure could ultimately yield much more than a dollar in economic output for each dollar spent.

The reality is that we can't ignore our infrastructure. Even absent the goals of modernizing and improving our infrastructure, old bridges, roads, dams, dikes and levees will continue to crumble.

It is a problem that cannot, and will not, be ignored.

Treasury Using Fed to Create Illusion of US Bond Market

The Treasury Department, in conjunction with the Federal Reserve, has created its own bond market.

The government's monthly borrowing needs are so great that it can't find enough corporate, institutional and sovereign buyers on the open market to purchase the copious amounts of available U.S. debt.

Consequently, the Federal Reserve's printing press has become the alternative.

The U.S. private sector — namely banks, mutual funds, corporations and individuals — reduced purchases of U.S. government debt to a meager 0.9 percent of GDP in 2011, from a peak of more than 6 percent in 2009. That's because everyone is chasing higher yields in riskier markets.

This has put the U.S. in desperate situation where it has sought a buyer of last resort. Enter the Fed.

The U.S. is heavily reliant on short-term funding; only 10 percent of the public debt matures beyond ten years. This creates constant pressure to issue new debt and to get our creditors to roll over their existing debt, with the promise of even more interest payments down the road.

This is an important concept: the federal government — already so deeply in debt — must continue issuing Treasuries just to pay back its current debt holders, in addition to maintaining its deficit spending.

This means the U.S. is on a never-ending carousel of debt. The government has to continue issuing new debts just to support its old debts.

Like any pyramid or Ponzi scheme, the system needs continuous inflows of new money to refinance its debts and keep itself afloat.

The U.S. economy has become so reliant on these Fed purchases, that it's reasonable to wonder if — not when — they will end. Simply put, the U.S. government would cease to function without the absolutely massive interventions of its central bank.

This month, the Fed will buy 75% of new 30-year Treasuries. While that sounds utterly astonishing, such an outsized share is reflective of the increasing surge that has been taking place over the last few years.

In 2011, the Federal Reserve purchased a stunning 61 percent of the total net Treasury issuance. And the Fed has purchased 41% of all the 30-year Treasury bonds issued since 2009.

The Fed is effectively subsidizing the U.S. government's borrowing and spending. It allows the government to repay older, maturing debt that is not rolled over and reinvested by legitimate creditors.

Given that the U.S. is piling ever more debt onto its current $16.4 trillion burden, it's understandable that foreign governments and sovereign wealth funds may feel reluctant — or even refuse — to roll over their existing debts.

In essence, the Fed is monetizing U.S. debt, meaning that it is printing money — backed by nothing — so that the government can maintain its deficit spending and debt payments.

Monetizing the debt will devalue the dollar and eventually spike inflation. That would create a self-perpetuating cycle in which inflation then decreases the buying power of the dollar.

When interest rates eventually rise (and they will), there will be a variety of consequences. Rising interest rates automatically devalue older bonds issued at lower fixed rates. That will be punishing to holders of current Treasuries.

Right now, yields are barely keeping up with inflation and are, in fact, usually losing bets. Last year, inflation ran at 2.1 percent. Meanwhile, the yield on 10-year notes was 1.78 percent at the end of 2012, while the yield on the 5-year note was 0.72 percent.

Famed investor Jim Rogers says he is short long-term government bonds. A short position is a bet that the value of an asset will decline.

With the U.S. dollar used as the world's reserve currency and U.S. Treasuries historically viewed as the safest of all investments, the Fed has long been able to control interest rates.

But if investors demand higher rates due to reckless U.S. fiscal and monetary polices, the general consensus is that the Fed will then lose its control over rates, which would subsequently begin to rise.

However, if the Treasury can continue using the Fed to create an artificial debt market, then it should be able to keep interest rates at paltry levels — at least as long as it is able to maintain this charade.

How long will that be? Who knows?

Everything can seem to be going along just fine, until suddenly it isn't.

Infinite Growth in a World of Finite Resources?

Perpetual Growth is the basic theory employed by all business economists in banks, corporations, academia and at the Federal Reserve. But an infinite growth model cannot be supported by a world of finite resources.

Economic growth is often associated with the accumulation of human and physical capital, as well as the technological innovations that increase productivity. Yet, in the absence of natural resources, there can be no economic growth. Even a limit on resource availability will eventually limit economic growth.

Petroleum and fresh water are perhaps the two most critical resources, and the world is now grappling with the limited availability of both.

For example, in 1964, nearly 500 billion barrels of oil were discovered. By 2011, it had fallen to below 100 billion barrels.

In 1965, the world produced 32 million barrels of oil per day. By 1980, that number had almost doubled to 62 million barrels. However, since 2005, oil production has plateaued at roughly 75 million barrels per day. In that time, total supplies have fluctuated within a narrow 5 percent band.

Early in the 20th century, much of the world's oil was untapped. At that time, prospectors merely had to drill a few yards into the ground and install inexpensive rigs to extract oil at rapid rates.

However, at the beginning of the 21st century, in order to achieve the same flowrates or less, oilfields must be drilled much deeper and managed with sophisticated techniques and equipment costing many hundreds of millions of dollars.

Most critically, Dr. Chris Martenson notes the following:

"In the past 22 years, half of all of the oil ever burned has been burned. Such is the nature of exponentially increasing demand. And the oil burned in the last 22 years was the easy and cheap stuff discovered 30 to 40 years ago."

The world's supply of clean, fresh water is also steadily decreasing. Ninety-seven percent of the water on the Earth is salt water; only three percent is fresh water. Moreover, slightly over two thirds of that is frozen in glaciers and the polar ice caps.

Water demand already exceeds supply in many parts of the world, and as the world population continues to rise so does the demand for fresh water.

Water is obviously the key component for human life. It is also vital to energy, industry, agriculture and livestock. Decreasing water supplies will lead to higher food prices and perhaps even food shortages.

The world is also experiencing a peak in other key resources, such as rare-earth metals. The period of cheap and easy extraction is giving way to complex and expensive extraction.

Average ore grades are in decline for most minerals, even as production is increasing. Easily processed ores are becoming exhausted. Mines are becoming deeper, more remote and more inaccessible. This requires higher inputs of capital and energy for both extraction and processing. Lower quality resources are more expensive to extract, and they eventually become uneconomic when the ore quality is too low.

For example, lithium, which powers the batteries in cell phones, laptops and electric cars, is difficult to find and excavate. The car manufacturer Mitsubishi has predicted a worldwide supply crisis by 2015 if new reserves are not discovered. A lithium shortage would affect the price of laptop computers, as well as cause a slowdown in the production of hybrid electric cars, increasing our dependence on oil.

As the world's population has steadily increased — now eclipsing 7 billion — so has demand for many of the essentials that make our world run so smoothly. The ability to exploit finite resources has provided much of the world with a better standard of living than at any other time in human history. But many of those essentials are finite and non-renewable.

There is a false perception among much of the public that technology can substitute for finite and non-renewable resources. However, while technology can lead to greater efficiencies, it requires energy — it does not create it.

The global population is on track to reach 9 - 10 billion people by 2050. The following should provide some perspective on what that means:

At present, the global population is increasing by 83 million people annually. In other words, each year the world is adding the equivalent of Egypt.

This rapidly growing population will require abundant energy and food. Can that be accommodated? Not likely. Across the board, the rate of resource depletion is accelerating.

According to the Global Footprint Network group of scientists and economists, the current population of seven billion is already consuming natural resources as if we have “1.5 Earths."

According to scientists, 43 percent of Earth's surface has already been cleared for urban development or agriculture. By 2025, the usage level is expected to exceed 50 percent, when the population reaches eight billion.

Our current levels of consumption will have devastating consequences to the forests that provide clean air and to the water resources that all life depends on.

In 1960 there were 1.1 acres of arable farmland per capita globally, according to data from the United Nations. By 2000 that had fallen to 0.6 acre. Yet, during that time, the global population doubled from 3 billion to more than 6 billion.

In other words, productive farm land and the human population are moving in the opposite directions.

Naturally, the developing nations — which hold 80 percent of the world's population — are demanding improved lifestyles.

However, if every person used as many resources as the average North American, more than four Earths would be required to sustain the total rate of consumption, depletion and waste assimilation, according to an environmental "accounting system" developed by researchers William Rees and Mathis Wackernagel.

A recent WorldWatch Institute report put it this way: “If everyone lived like the average American, the Earth could sustain only 1.7 billion people — a quarter of today’s population.”

WorldWatch anticipates “a future scenario not only incompatible with perpetual economic growth but likely to lead to economic and societal decline,” mass starvation, wars and pandemics.

The Pentagon agrees, predicting eventual mega-droughts, famine and widespread rioting erupting across the world.

As it stands, nearly half the world's population — more than 3 billion people — lives on roughly $2 per day. According to the World Food Programme, in some of the poorest countries households spend as much as 60-80 percent of their income on food.

Conversely, food spending in developed countries is quite low. People in most European countries spend over 10 percent of their incomes on food. Americans spend just 6 percent on food, less than people in any other country in the world.

An additional two billion humans competing for limited resources will trigger commodity shortages that will prove disastrous. The world will be confronting shortages of hydrocarbons, metals, water and fertilizer, which will dramatically affect global agriculture. The latter is critical.

Hidden in every calorie of food you eat are 10 calories of fossil fuels. Modern agriculture and food delivery is highly inefficient. In fact, this system is the first in history that consumes more energy than it delivers.

In the absence of abundant water resources, cheap hydrocarbons and the fertilizers derived from petroleum, that system will collapse.

If population growth rates remain as they were between 2005 and 2010, 27 billion people will inhabit the planet by the end of the century, says Anthony Barnosky from the University of California at Berkeley. That would lead to the disappearance of most large and small animals, and the collapse of food chains.

Historically, economic growth was predicated on population growth, as well as cheap and plentiful energy supplies. But it is now clear that, going forward, population growth will be a limiting factor to economic growth. Additionally, cheap and plentiful energy supplies — once take for granted — are a thing of the past.

With all of this in mind, it's time to abandon the perpetual growth economic model and move instead to a model that stresses conservation, efficiency, recycling and renewability. Clearly, the world is on an unsustainable path and, by definition, anything that is unsustainable won't last.

Above all else, we must redefine quality of life as something other than just having "more." The goal should be to simply have enough. Our quality of life should not be measured by "stuff," but instead by the things that make life rich; our relationships, our hobbies, our work and our passions.

Congressional Intransigence Jeopardizes U.S.

Only in Washington could an agreement designed to avert a fiscal crisis actually add to, rather than decrease, the government's annual budget deficits and, ultimately, the national debt. But that's exactly what the deal Congress agreed to on New Year's day has done.

What a gift the American people.

The fiscal cliff agreement added $4 trillion to budget deficits over the next decade, according to the Congressional Budget Office (CBO). As always, Congress put off many tough decisions and even punted on some rather easy ones.

For example, as part of the fiscal cliff agreement, lawmakers extended dozens of business and industry tax breaks to the tune of at least $67.9 billion this year, according to Congress' Joint Committee on Taxation.

The breaks for these special interests are exactly the kinds of things that Congress should have been targeting, not extending. For example, Congress extended tax breaks for the moguls who own car racing tracks, saving them about $70 million over the next two years.

This should have been the easy stuff. What happens when Congress actually has to make the really tough choices, the ones it has been putting off for many years? That moment will soon be at hand.

A great way for Congress to begin addressing its deficits and debt would be to end all corporate welfare to Big Agriculture, Big Pharma, Big Oil and Big Insurance — to name but a few privileged, and very profitable, industries that continue to feed off the American tax-payer.

But those are the wealthy, powerful special interests that pay for political campaigns, and ours is clearly a pay-to-play system. It's quid pro quo, not money for nothin'.

Instead of addressing corporate welfare, Congress did, however, raise the tax rate of the wealthiest Americans. Yet, that alone won't be nearly enough to address our deep fiscal imbalances.

As of January 1, the top income tax rate increased from 35 percent to 39.6 percent for individuals with at least $400,000 of taxable income, or couples with at least $450,000.

The problem for the federal government is that raising taxes on such a limited number of people won't rectify the revenue shortfall.

The original proposal would have raised income taxes on those with household income above $250,000, and individuals earning more than $200,000. But raising the tax threshold to $400,000 shrank the number of Americans affected, thereby sacrificing lots of additional revenue.

While nearly 2 percent of filers have adjusted gross incomes over $250,000, only 0.6 percent have incomes above $500,000, according to the Tax Policy Center. So a very small number of taxpayers have been affected, and the revenue raised will be insufficient to truly address the government's revenue shortfalls.

Moreover, what's the point of this new marginal tax rate if the effective tax rate is something lower?

Wealthy Americans can afford top-notch tax lawyers and crafty accountants who use an array of loopholes, deductions and exemptions to avoid paying the top marginal rate. Additionally, the wealthiest Americans also utilize offshore tax shelters to avoid taxes.

Sen. Bernie Sanders addressed the problem this way:

"We have got to eliminate loopholes in the tax code that allow large corporations and the wealthy to avoid more than $100 billion in taxes every year by setting up offshore tax shelters in places like the Cayman Islands, Bermuda and the Bahamas. This situation has become so absurd that one five-story office building in the Cayman Islands is now the "home" to more than 18,000 corporations."

The obvious solution is to lower marginal rates while closing all loopholes, write-offs and deductions, which would make tax preparation simple and straight forward. It would also make the tax code fairer and more effective. For example, perhaps the top rate could drop to something more like 33 percent.

Sooner than later, the government must get serious about fiscal policy, both on the revenue side of the equation and on the spending side. One or the other won't do.

As I've said repeatedly on this page, the government has a major spending problem. In the last fiscal year, the government spent 22.4 percent of gross domestic product (GDP). Though the government certainly has a role to play, right now it is just too big.

A 1998 Congressional Joint Economic Committee study concluded that the optimal size of government to maximize economic growth is about 18 percent of GDP.

However, the government also has a revenue problem. Federal revenue is now at 15.8 percent of GDP, lower than it was 60 years ago. Tax revenues have a historical average of 18 percent of GDP.

So, If spending were reduced to the recommended 18 percent level and revenues increased to their historical average, it would obviously result in balanced budgets.

However, that still wouldn't begin to address the $16.4 trillion debt; only continued surpluses would do that. But the best way to get out of a hole is to first stop digging.

The three biggest drivers of the debt have been:

1. More than $3 trillion in tax cuts that were not paid for with spending reductions.

2. Two wars that were not paid for.

3. An economic crash that led to the lowest revenues and the highest expenditures — as a percentage of GDP — in 60 years.

The U.S. narrowly averted a depression and, as a result, its debt exploded.

If that wasn't tough enough, now comes the really hard part: budget cutting.

In poll after poll, the most popular budget item for cutting is foreign aid. But that is a very small portion of the overall budget. In fiscal 2010, the United States spent $52.7 billion on foreign aid out of a federal budget of $3.55 trillion. In other words, foreign aid amounted to just 1.5 percent of the budget.

To really address the problem, Congress can't just tinker at the margins with small budget items, such as foreign aid.

However, the concern of almost every economist is the effect that budget cuts will have on the economy, which has grown so reliant on government input.

With government spending now fueling more than 22% of the U.S. economy, deep budget cuts could quickly derail the limited growth coming from the private sector (households and businesses). The Conference Board estimates that the U.S. economy grew just 2.1 percent in 2012, and that was before any of the pending cuts.

Fortunately, federal deficits are on the decline, though most Americans are probably unaware of this. Federal deficits have been steadily dropping as a percent of the total economy, or GDP, for four consecutive years.

For the fiscal year ending in September 2009, the deficit was 10.1 percent of GDP. In 2010, it was 9 percent. In 2011, 8.7 percent. In the 2012 fiscal year, it was down to 7 percent.

Yet, here's the rub: economists agree that a nation's deficit should not exceed 3 percent of GDP in any given year. The U.S. deficit is still more than twice that level.

Low interest rates are the only thing saving the U.S. from outright crisis as present. In fiscal 2012, the federal government spent $359.8 billion in interest payments on the national debt — and that was the lowest in four years.

The federal government collected $2.469 trillion in revenue in fiscal 2012. So the $359.8 billion spent on interest payments accounted for 15 percent of total revenues. That's money not spent on infrastructure, or healthcare or R&D.

Since 2008, the average interest payment has been more than $412 billion annually. But that could change in a hurry.

Historically, from 1971 until 2012, the United States interest rate averaged 6.2 percent. But the benchmark interest rate in the U.S. hasn't been above 0.25 percent since December 2008.

Most analysts expect short-term rates to begin rising soon. A mere 1 percent increase in interest rates could have a huge impact on government debt payments. Consider that 1 percent of the $16.4 trillion national debt is $164 billion. That's significant.

Under the CBO’s rosiest estimates, total Federal Debt is projected to rise to at least $21.7 trillion by 2022. However, the debt could also be as high as $29.2 trillion by that time.

If interest rates were to rise faster than inflation, it could pose a real threat to the U.S. economy.

With the economy growing so slowly, it is not possible to grow our way out of debt. The government's only hope is to inflate its way out of debt. That's because inflation reduces the value of the dollar. Since our debts are based on a specific dollar amount and not a specific value, the less our dollars are worth, the easier it will be for the government to pay off its debts.

Many of the nation's problems are so deeply entrenched that they will not be easily fixed — if they can be fixed at all. But inasmuch as some of our fiscal problems may have political solutions, our government is gripped by partisanship and intransigence.

The fiscal cliff agreement has delayed $110 billion in automatic spending cuts for two months, meaning those cuts will now occur simultaneously with the debt ceiling in late February. That will lead to the next major political melodrama and economic crisis in Washington.

As if that weren't enough reason for concern, the government has been operating since October 1st without a formal 2013 budget. In lieu of one, the president signed a stop-gap measure in the interim (called a "continuing resolution") which is currently funding the government. Aside from the fact that this is no way to run a government, the continuing resolution expires on March 27th. Yet, the fiscal year doesn't end until September 30th.

House Republicans have such deep ideological convictions that they say they are willing to let the nation default on its debt, which is unprecedented in U.S. history. At a minimum, they are inclined to shut down the government on March 27th in order to get the deep spending cuts they desire. Compromise doesn't appear to be on their agenda.

That will likely result in an epic political battle that will make the fiscal cliff fight look tame in comparison.

Perhaps all three of the above matters (the spending cuts, lifting the debt ceiling, and approval of the fiscal 2013 budget) will be negotiated all at once. Congress clearly has a lot to do and it must act quickly. But it would hardly surprise anyone if Congress is undone by its own obstinacy and fails to act.

Raising the debt ceiling is a matter paying bills the government has already incurred, not for funding additional spending going forward. If lawmakers are not wiling to pay for the budgets they approved (especially deficit spending), they shouldn't have voted for those budgets in the first place.

Fitch Ratings said the debt ceiling is an "ineffective and potentially dangerous mechanism" for enforcing fiscal discipline because it doesn't prevent the tax and spending decisions that will push the debt above the ceiling, while the penalty for not raising the limit is the risk of a sovereign default.

In August 2011, a delay in raising the debt ceiling caused one of the major ratings agencies (Standard & Poor's) to strip the U.S. of its vaunted triple-A status. It marked the first time that the U.S. had ever been below triple-A.

The three major bond rating agencies have warned that a failure to reach a credible deal to contain federal budgets deficits could bring yet another downgrade.

However, Congress can't even agree on relatively small budget cuts.

The reductions associated with the fiscal cliff (which had so many people in a panic) amount to about $1.2 trillion over 10 years, or just $110 billion a year.

Here's a little perspective:

The enacted budget for fiscal 2012, which ended on September 30th, had a deficit of $1.327 trillion.

In other words, these planned budget cuts — which will occur over the course of a decade — amount to less than one year's budget deficit.

That should give you a sense of the magnitude of this problem.

Social Security on the Chopping Block

The White and Congress are presently engaged in heated Fiscal Cliff negotiations. With the national debt exceeding $16 trillion and the CBO projecting continued deficits for the next decade, even Social Security has entered the budget-cutting discussions.

However, Social Security is financed by an independent payroll tax, which solely funds the program. For 75 years, Social Security collected more funds than it paid out. By the end of 2011, that surplus had reached $2.7 trillion. Those surplus funds were used to buy special bonds from the U.S. Treasury, creating the so-called Social Security Trust Fund. This fund is expected to keep Social Security fully solvent until 2033.

Even after that time, payroll taxes are projected to cover approximately 75% of program obligations.

Under current law, the securities in the fund represent a legal obligation the government must honor when the program's revenues are no longer sufficient to fully fund benefit payments.

According to the Social Security Trustees, who oversee the program and report on its financial condition, program costs are expected to exceed non-interest income from 2011 onward. However, due to interest (earned at a 4.4% rate in 2011) the program will run an overall surplus that adds to the fund through the end of 2021.

The problem is that, over many years, the government used the monies slated for the Trust Fund to instead finance its annual budgets. In other words, the $2.7 trillion Trust Fund was transferred to the general fund, which pays the government's everyday operating expenses each year. And it's all gone.

In order to repay retirees the money that was already collected from them, the government will have to redirect money from it's future budgets, or general fund, back to retirees. This is why Social Security is suddenly on the chopping block in current budget negotiations.

Though Social Security is independently funded and does not contribute to the government's annual budget deficits, there are some reasons for concern.

According to the Social Security Administration (SSA), just over 1 in 4 of today’s 20 year-olds will become disabled before reaching age 67. That will be a heavy burden for the system to bear. It may also force a reexamination of the definition of "disabled" and result in stricter rules for qualifying.

The SSA also notes the following:

• In 1940, the life expectancy of a 65-year-old was almost 14 years; today it's almost 20 years.

• By 2033, there will be almost twice as many older Americans as today -- from 43.4 million today to 75.7 million.

• There are currently 2.8 workers for each Social Security beneficiary. By 2033, there will be 2.1 workers for each beneficiary.

Given longer life expectancies, the coming tidal wave of retirees, and the diminishing number of workers per retiree, it's clear that some changes may be needed by 2033, when the Trust Fund (aka, the money the government collected and spent on other things) is finally exhausted.

In the meantime, the government owes it to its citizens to return the surplus money that's been collected from them, and it is legally obligated to do so. That money will have to come out of other government programs, such as military spending. Regardless, it will surely have to come from elsewhere in the budget.

It should also be noted that the Social Security retirement age is already 67 for those who were born in 1960 and after. That's something that needs to be considered in any negotiations.

One way or another, the government needs to repay the citizens the money it has already collected from them. And it should not attempt to tax them again in order to repay them.

Despite Headlines, Jobs Problem Continues to Confound U.S.

The government reported that 146,000 nonfarm payroll jobs were created in November. Though the creation of jobs is always welcome news, it must be viewed in the proper perspective.

Over the past year, employment has risen by an average of 157,000 per month in a country with 134 million jobs. That’s an increase of about 0.1% a month.

While the unemployment rate also fell sharply to 7.7%, it was due to a decline in the labor force, not to any improvement in the labor market.

The labor force fell by 350,000 in November and the labor force participation rate (the percentage of people employed and those who are unemployed but seeking a job) fell to 63.6% from 63.8% in October.

For perspective, the labor force participation rate was 67.3 in January 2000. Yet, when the recession began in December of 2007, the participation rate had fallen to 66 percent.

This means that in less than 13 years, the percentage of Americans participating in the labor force has dropped from 67.3% to 63.6%, a rather striking decline.

Clearly the long term trends are not good. The unfortunate reality is that discouraged people continue giving up their search for work.

Additionally, the average duration of unemployment was at 40 weeks in November, near historic highs.

The official unemployment figure doesn't include those who have lost their unemployment benefits. Nor does it count those who only have part-time jobs but want full-time work.

None of that is encouraging.

It takes about 125,000 new jobs per month just to keep up with population growth. Though the economy is currently achieving that, we need 250,000 new jobs per month for a year to truly drop the unemployment rate by a little more than 1%. Yet, in order for that to happen, the economy needs to grow north of 3% per year.

However, U.S. gross domestic product increased at an annual rate of 1.3% in the second quarter and by 2.0% in the first quarter. That does not bode well for job creation.

Unfortunately, at this rate, it will take years to create jobs for everyone who wants one.

At the pace of job creation over the past two years, the U.S. would not return to pre-Great Recession employment levels until after 2025, according to the “jobs gap” calculator from The Hamilton Project.

The Great Recession—which officially lasted from December 2007 to June 2009—resulted in massive job losses that the economy is still trying to recover. In 2008 and 2009, the U.S. labor market lost 8.4 million jobs, or 6.1% of all payroll employment. This was the most dramatic employment contraction (by far) of any recession since the Great Depression. By comparison, in the deep recession that began in 1981, job loss was 3.1%, or only about half as severe.

The economy has since recovered four million of those lost jobs, meaning we are only half way to recovery. Yet, that doesn't even begin to address the monthly increase of new entrants into the labor market, which creates a continual need for even more jobs.

Despite the slow but steady state of job creation, here’s the underlying problem: the recovered jobs on average pay a lot less than did the jobs that were lost. Low-wage jobs like retail and food service workers have made up 58 percent of the subsequent job growth. With less income, Americans have less to spend and spending is what expands economies.

Wages in the retail industry remain low compared to other sectors, with the average full-time sales worker making just $21,000 per year, according to the Bureau of Labor Statistics.

Peter Edelman, a law professor at Georgetown University, says the proliferation of low-wage jobs is the single biggest cause of persistent poverty.

"The first thing needed if we're to get people out of poverty is more jobs that pay decent wages," he argued in a July New York Times op-ed. "We've been drowning in a flood of low-wage jobs for the last 40 years… Half the jobs in the nation pay less than $34,000 a year, according to the Economic Policy Institute. A quarter pay below the poverty line for a family of four, less than $23,000 annually."

And wages in the bottom half "have been stuck since 1973, increasing just 7 percent," Edelman noted.

Jeff Faux, a progressive economist who founded the Economic Policy Institute in 1986, argues that by the mid-2020s, even with the most optimistic assumptions about economic growth, current trends indicate that the average American's wages will drop about 20 percent. One big factor is that more and more good jobs will go overseas, leaving even America's best and brightest no alternative but to enter the service industry.

America's dual problems of high unemployment and low-wage jobs will continue to have negative consequences for our consumption-based economy, which is 70% reliant on consumer spending.

Obviously, there is less consumption when fewer people are working and when so many of those with jobs are earning so comparatively little. Ultimately, there is less disposable income being directed back into the economy. It also results in lower tax receipts at both the state and federal levels.

If unemployment remains stubbornly high, wages will also remain stagnant. That will create a negative feedback loop of both lower consumer spending and lower economic output.

As of now, we're still a long way from recovery, and a full recovery is anything but assured.

Japan's bubble economy burst in the late 1980s and, nearly a quarter-century later, it has yet to recover.

That's a horrible precedent for the U.S.

Fiscal Cliff an Opportunity to Correct Fiscal Imbalances

A point that I've repeatedly made on this site is that the U.S. government has both a spending problem and a revenue problem.

In the last fiscal year, the government collected 15.5 percent of GDP in revenue and spent 22.4 percent. That's a considerable problem and it cannot continue.

Due to high unemployment plus lower incomes and wages, tax revenues have plunged from their historical average of !8 percent of GDP. As a share of GDP, income tax revenues are at their lowest level since 1951, when Harry S. Truman was president.

To offset this lack of private demand, the government increased expenditures to fill the void and undergird the economy. Yet, that has grown the government to excessive proportions, which is not good for the long term health of the economy.

A 1998 Congressional Joint Economic Committee study concluded the optimal size of government to maximize economic growth was about 18% of gross domestic product. The government is now spending well above that.

Washington's profligate ways go back many years.

Over the forty years ending in 2008, federal revenues averaged about 18.3 percent of our economy, while spending averaged over 20.6 percent, resulting in an average deficit of about 2.4 percent. Since 1970, the Federal Government has run deficits for all but four years (1998–2001).

All those deficits have added up to a national debt that now exceeds $16 trillion, and counting. Medicare and defense spending are the biggest drivers of the government’s continual deficits and massive debt.

The U.S. dedicates 18% of GDP to healthcare — the greatest share of any nation in the world and about twice as much as other industrialized nations.

By the end of the Congressional Budget Office’s 10-year budget forecasting period in 2022, Medicare outlays will be more than $1 trillion a year. For the entire ten-year period, 2013-2022, Medicare will cost taxpayers $7.7 trillion.

However, American workers pay a Medicare tax (separate from the income and FICA taxes) that funds the hospital insurance system, which provides medical benefits to eligible individuals upon reaching age 65. That tax may be raised, or benefits lowered, to counter shortfalls. The same is not true with military spending.

Pentagon spending accounts for over 50 percent of all discretionary spending in the federal budget, and overall security spending constitutes two-thirds of the discretionary budget, according to the CBO. Military spending has tripled since 1997. Simply put, the Defense budget is bloated and wasteful.

According to estimates by Nobel Prize-winner Joseph Stiglitz and Professor Linda Bilmes of the Harvard Kennedy School, when all the costs are counted, the Iraq invasion and the Afghan war will each cost US taxpayers $3 trillion dollars. Both were unfunded. In other words, the two wars doubled the U.S. public debt.

When all defense-associated spending is added up — including the Defense Department, Overseas Contingency Operations, the Department of Veterans Affairs and the Department of Homeland Security — all of the mandatory and discretionary programs amount to a whopping $877.9 billion annually, according to the Office of Management and Budget.

And this doesn't even include the money dedicated to the Department of Energy to maintain the nation's nuclear weapons arsenal.

Based on the Government Accountability Office’s latest long-range alternative budget simulation, by the end of this decade our interest payments will become the largest single expenditure in the federal budget. By 2040, all of our federal tax revenues will add up to cover only our two biggest expenses: interest on our debt plus Medicare and Medicaid. Everything else — Social Security, defense, education, road building, you name it — will fail to be funded.

Washington has finally accepted that it has a significant problem that can no longer be ignored and passed on to the next group of legislators. Negotiations are underway to avoid the fiscal cliff. Congress will also have to negotiate another raise of the debt limit. Furthermore, Congress hasn't even passed the fiscal 2013 budget, which was submitted by the White House back on February 13th.

It's worth noting that the fiscal year began on October 1st and runs through next September. So, the government has been operating for more than two months (one-sixth of the year) without a formalized budget.

One of the big sticking points in negotiations to avoid the fiscal cliff is President Obama's insistence that income tax rates go up for the wealthiest Americans. Most congressional Republicans are against that idea.

House Speaker John Boehner claims that raising taxes on the top 2 percent of income earners would be unfair because half of those taxpayers are small business owners who pay their taxes through their personal income tax filing each year.

The Speaker made that assertion again this week. Yet, Boehner has been repeatedly corrected on this by fact-checkers. In fact, the Speaker's office says that he misspoke when he made that claim this week, although it's a misstatement he's made more than once.

Last year, some analysts at the Treasury Department took a closer look at what constitutes a small business, and they defined them as those making up to $10 million.

They excluded all those that were making over $10 million. At the other end, they threw out people who might have a big salary from a day job and then a little small business on the side.

When they narrowed the definition that way, what they found was about one in five taxpayers in those top two brackets is a small business owner. And of all the income in those brackets that would be taxed at a higher rate, only about 7 percent comes from small businesses.

Republicans say that raising tax rates on the highest earners would result in a loss of jobs.

However, when the Congressional Budget Office looked at what the affect of raising those taxes would be on jobs, they found it'd really be pretty tiny — about 200,000 jobs over the course of a decade. That's about as many jobs as the economy has been adding in one or two months.

Additionally, a recent report by the non-partisan Congressional Research Service (CRS) found no correlation between top tax rates and economic growth, a central tenet of conservative economic theory. Specifically, the report found that there is no evidence that tax cuts for millionaires and billionaires leads to improved economic growth. The CRS analysis compared tax policy with GDP patterns over the last 65 years.

The report was first released in September, but was removed from public circulation shortly thereafter because Senate Republicans objected to the findings.

Republicans say any new revenue should be raised by curbing tax breaks.

Given that 45 percent of U.S. households do not pay income tax (either because they don’t earn enough or through credits and deductions) and 3% of taxpayers contribute around 52% of total tax revenues, a major overhaul of the U.S. taxation system is in order. In fact, eliminating tax breaks may ultimately be a better, fairer way to raise more revenue.

The problem is that anti-tax crusaders like lobbyist Grover Norquist, and his Republican adherents in Congress, have insisted that any tax reform which reduces or eliminates write-offs, deductions and exemptions must be revenue-neutral. If that's the case, then what's the point? This cannot be an exercise in futility amounting to nothing more than simply rearranging the deck chairs.

Simply increasing tax rates on the wealthiest Americans would not raise enough revenue to address the nation's fiscal crisis. Additional measures are needed.

If the Bush tax cuts were allowed to expire on couples whose income is over $250,000 and singles over $200,000, it could raise close to $1 trillion over 10 years, according to Tax Policy Center data. Allowing the Bush tax cuts to expire on income over $500,000 ($400,000 for singles) could raise at least $315 billion over a decade. And if the Bush tax cuts were allowed to expire on income over $1,000,000, at least $242 billion could be raised.

As you can see, squeezing additional revenues from only the very wealthiest Americans results in increasingly diminishing returns.

To truly get at the revenue problem, all of the numerous tax loopholes must be closed and deductions eliminated. Lobbyists have spent the past couple of decades getting favored status for their varied interests and layering the tax code with assorted breaks, deductions, write-offs and loopholes.

After all, what's the point of tax brackets if the effective rate people are paying is less than that written into law?

Republican Senator Bob Corker of Tennessee has circulated a proposal to cut the deficit by $4.5 trillion over 10 years. Corker would address entitlements by gradually increasing the age for Medicare and Social Security eligibility and would lower cost of living increases for Social Security.

As for taxes, Corker would not raise rates, but would cap itemized deductions at $50,000. The senator says there are $1.2 trillion in loopholes and deductions in the tax code at present. His hope is to "simplify the code."

Corker says his proposal, "keeps rates where they are but generates revenues from wealthy citizens by closing loopholes."

And he believes that such an idea would popular, telling NPR, "I would say that most Americans would like to see the tax code get rid of all the loopholes that exist there."

He's probably right. What most Americans surely want is fairness. They'd like to know that some taxpayers aren't granted the privilege of special breaks the rest of us aren't privy to. The highest-income households enjoy more than 40% of the benefits of all tax breaks taken every year, according to the Tax Policy Center.

However it is arrived at, the government needs to increase revenue and reduce spending.

Some economists and analysts advance the notion that a country can indefinitely run deficits without endangering its economic survival as long as those deficits remain below its rate of economic growth.

However, the U.S. has a debt that exceeds $16 trillion and is still growing. Though it will be impossible to ever fully repay that debt due to the nature of money itself, it is important to begin continually chipping away at the debt rather than adding to it. Otherwise, the bond market will eventually turn on the U.S., sending interest rates soaring.

The trouble for the U.S. is that we are in a sustained pattern of about 2% economic growth and it is difficult to foresee that changing over the next few years. Any sudden internal or external shocks (economic crisis in Europe or Japan, for example) could easily tip the U.S. into recession.

That's the concern with the fiscal cliff. According to the Congressional Budget Office, the looming combination of tax increases (the end of the payroll tax holiday and the Bush tax cuts) and legislated budget cuts will lead to a recession, shrinking the economy by 1.3% in the first half of 2013.

The upside is that the CBO also says the economy will then expand 2.3% in the second half. There's some pain upfront, but there's some relief in the end.

Congress and the nation are faced with a moment of truth. Though this combination of hikes and cuts will be painful, it is needed nonetheless. Congress needs to swallow this bitter medicine and take a leap off the fiscal cliff.

Yes, it will result in a recession next year, but the long term benefits will make it worthwhile. Congress has avoided these difficult decisions for far too long and to avoid them any further will result in an even worse predicament down the road.

The time for easy choices or good alternatives has long since passed.

Cost/Benefit Analysis of Fracking Reveals That Risks Outweigh Rewards

The news media was abuzz this week with a new report by the International Energy Association (IEA) saying the U.S. will become the world's largest oil producer by 2020, overtaking current leaders Saudi Arabia and Russia.

The IEA also says the U.S. could become self-sufficient in energy by 2035 and a net exporter of natural gas by 2020.

According to the IEA, this will result in a radical shift that could profoundly transform not only the world's energy supplies, but also its geopolitics.

Such an outcome could prove revolutionary, with the potential to reshape global alliances. It would have enormous implications for foreign policy and the military.

It could also result in the creation of up to 600,000 new jobs, according to the Obama Administration. For a nation struggling with such a stubborn unemployment problem, an expansion of well-paying jobs is much needed.

The prospect of the U.S. becoming energy self-sufficient has long been unimaginable and seemingly the product of wishful thinking. For decades, the U.S. has been the world's No. 1 oil importer.

However, U.S. oil production has undergone a sudden and rapid rise, jumping 15% since 2008, and oil imports are now at their lowest level in two decades.

U.S. production has seen a particularly brisk escalation in just the past year. According to the Energy Information Administration (the statistical and analytical agency within the U.S. Department of Energy), U.S. oil production has increased 7%, to 10.76 million barrels a day, since the IEA's last outlook a year ago.

Oil and petroleum imports have fallen an average of more than 1.5 million barrels per day and domestic crude oil production has increased by an average of more than 720,000 barrels per day since 2008.

"North America is at the forefront of a sweeping transformation in oil and gas production that will affect all regions of the world," said IEA Executive Director Marian von der Hoeven in a statement.

So what's behind this remarkable transformation?

The American shale oil boom.

The global energy map, "is being redrawn by the resurgence in oil and gas production in the United States," the IEA reports.

A technique known as hydraulic fracturing, or "fracking," is allowing the energy industry to develop hydrocarbon resources locked in shale and other tight rock formations.

But though this technique will allow the U.S. to gain a previously unimagined energy independence, there is a darker side to fracking.

Fracking involves pumping large quantities of fresh water, coupled with chemicals and sand, into shale formations to crack the rock and extract the fossil fuels. Studies have revealed that fracking fluids contain a host of toxic substances, including known carcinogens and volatile organic compounds.

Fracking has the documented potential to contaminate drinking water sources, as well as pollute air and land. Additionally, the process can spoil millions of gallons of fresh water used in the drilling process that must then be disposed.

In its report, the IEA warned that the emergence of shale gas has a downside risk, contributing to increased competition for the water resources needed for energy projects. The intensive use of water, "will increasingly impose additional costs," and could "threaten the viability of projects" for shale oil and gas, and also biofuels, the agency said.

The vast amounts of water used in the fracking process are troubling, considering how relatively little fresh water is available. Of all the water on Earth, only 2.5 percent is freshwater, and available freshwater represents less than half of 1 percent of the world's total water stock.

This is problematic for the U.S. since groundwater is being used up at a rate 25 percent faster than it is being replenished, according to the government, which also warns that up to 36 states face near-term water shortages.

In June, 2009, the Obama administration released a 190-page assessment of documented and expected impacts of climate change across the United States. “Water permeates this document,” said co-author Virginia Burkett.

Lead author of the report, Jerry Melillo, added, “Water is going to be a tremendous challenge for energy.”

Fracking has been revolutionary because, unlike conventional drilling, it doesn't just create vertical wells.

Horizontal hydrofracking is a means of tapping shale deposits containing natural gas that were previously inaccessible by conventional drilling. Vertical hydrofracking is used to extend the life of an existing well once its productivity starts to run out, making it a last resort of sorts.

Horizontal fracking differs in that it uses a mixture of 596 chemicals, many of them proprietary (meaning they aren't revealed), and millions of gallons of water per frack. This water then becomes contaminated and must be cleaned and disposed.

Generally, 1 to 8 million gallons of water may be used to frack a well, and a well may be fracked up to 18 times. That's an astonishing use of water.

For each frack, 80 to 300 tons of chemicals may be used. Presently, the natural gas industry does not have to disclose the chemicals used, but scientists have identified volatile organic compounds (VOCs) such as benzene, toluene, ethylbenzene and xylene.

The documentary "Gasland," by film-maker Josh Fox, clearly illustrates the dangers of fracking. According to the Gasland Website:

• Researchers suspect that 65 of the compounds used in fracking are hazardous to human health.

• Over 80,000 pounds of chemicals are injected into the earth's crust to frack each well.

• Over 3.5 million gallons of water are used when fracking a single well.

• Fracking fluid calls for 2 million gallons of water, transported by up to 100 water-haulers.

• Upwards of 70% of fracking fluid remains in the ground and is not biodegradable.

• A loophole in the 2005 Energy Bill exempts gas drillers from EPA guidelines like the Clean Water Act.

In areas where fracking occurs, watersheds have become heavily polluted. A scientific study conducted by four scientists at Duke University found that high levels of methane gas in drinking water wells are linked to flammable drinking water.

The problem is so bad that some homeowners have actually been able to set their tap water on fire.

A recent University of Colorado-Denver School of Public Health study showed that living within a half mile of fracking sites exposes residents to pollutants like trimethylbenzenes, aliphatic hydrocarbons, and xylenes at five times above the U.S. Environmental Protection Agency's Hazard Index.

Those concerns led the residents of Longmont, Colorado, to vote to make their city the first to ban fracking in the state.

Additionally, fracking has been linked to earthquakes. Seismic activity associated with fracking has been reported in Ohio, Oklahoma and Texas. The US Geological Survey says the use of underground wells to dispose of waste water produced by fracking is “almost certainly” behind the surge in earthquakes in the central US in recent years.

Cheap natural gas has also shifted resources away from green energy technologies like solar and wind, which don't have the same environmental concerns. It may also shift attention away from energy conservation and energy efficiency, which have long been deemed crucial.

Then there is the concern of the lifespan of fracked wells. Initially, these wells allow abundant production but can soon decline abruptly. The yield for a typical shale gas well generally falls off sharply after the first year or two.

This is a problem that even industry insiders admit. Bill Kinney of Summit Petroleum Inc. acknowledges the most productive years of a fracked well are usually the first three or four.

This may be leading to a false boom in the natural gas sector, in which we soon discover that fracking does not yield nearly as much fuel as industry proponents claim.

Drilling for natural gas is also an energy-intensive business. It relies on diesel engines and generators running around the clock to power rigs, and heavy trucks making hundreds of trips to drill sites before a well is completed. So far, few companies are using natural gas itself to power the process, meaning that it relies heavily on conventional oil supplies.

It's evident that the benefits of energy independence, and the well-paying jobs associated with it, come at a steep cost that must be weighed against all of the tremendous risks.

So while the recent IEA report may be greeted by some as a panacea for our nation's energy conundrum, the numerous concerns associated with fracking may ultimately prove that its risks greatly outweigh the rewards.

Middle Class Battered, Social Mobility Declining

More than five years after the start of the Great Recession, its lingering after-effects continue to diminish the standard of living of the once-thriving American middle-class.

Median household income, after adjusting for inflation, fell 1.5 percent last year to $50,054, according to the Census Bureau's annual report on income and poverty, which was released in September. Meanwhile, the poverty rate, at 15 percent, remained stuck at the highest level since 1993.

The erosion of the middle-class has been a long and continual process. Median household income, adjusted for inflation, has been steadily dropping for 13 years.

While the median income slipped last year, those at the top of the income ladder continued to move ahead. The top 5 percent of incomes rose by 5.3 percent last year, according to government data.

The fact that the rich continue to get richer should surprise no one. What may be a surprise, however, is that the notion that hard work can lead a person from rags to riches is largely a fantasy. The famed Horatio Alger stories were, after all, works of fiction from the 19th Century.

The U.S. has less economic mobility than Canada and much of Western Europe, according to economic research cited by The New York Times. Seven in ten Americans that start out in the bottom fifth of family income stay in the lower class as adults, and more than six in ten Americans that start out in the top family income quintile stay in the upper class as adults, according to a July report by the Pew Charitable Trusts.

In other words, if you are born rich or poor you are likely to remain that way throughout your lifetime. America is simply not the "land of opportunity" that many believe it is.

A new report from the Organization for Economic Co-Operation and Development (OECD) finds that America is 10th in social mobility between generations, dramatically lower than in nine other developed countries. This means that America is now 10th in the world in the American dream.

Just 35 percent of American households can be classified as upwardly mobile, meaning they have a higher household income than their parents at the same age and are at a higher point in the income distribution ladder than their parents had been.

This means that roughly two-thirds of Americans are financially stagnant and will not have a higher standard of living than their parents, which was the norm for generations.

Work and income are the means by which most people historically extricated themselves from the lower classes — not inheritance and not the lottery. However, such a rise up the social ladder is becoming increasingly difficult.

Entry-level wages for high school graduates are actually lower than they were in the 1970s. For college grads, starting wages are below what their counterparts pocketed in the late 1990s. Today, the average wage for all these young adults, no matter education level, is about $15 an hour.

How can a young person start a family or buy a house on that income?

Out of 34 industrialized countries, the U.S. had the highest share of employees toiling away at low-wage work in 2009, according to OECD data.

Remarkably, one in four U.S. employees were low-wage workers in 2009, according to the OECD. That is 20 percent higher than in the number-two country, the United Kingdom. Low-wage work is defined as earning less than two-thirds of the country's median hourly wage.

Low-wage jobs are replacing jobs that can sustain a middle-class lifestyle, according to a new study by the National Employment Law Project. Most of the jobs lost during the recession paid middle wages, while most of those gained during the recovery are low-wage jobs.

However, while the lower and middle-classes continue to struggle and even fade, the wealthiest Americans continue to prosper.

The U.S. now has the biggest income disparity gap of any industrialized country in the world

According to a recent study by University of California economist Emmanuel Saez, based on an analysis of American tax returns, in 2010, 93 percent of all new income growth went to the top 1 percent of American households. Everyone else, the bottom 99 percent, divided up the remaining 7 percent.

Clearly, the problem of wealth inequality in America continues to worsen. The evidence abounds.

American CEOs saw their pay spike 15 percent last year, after a 28 percent pay rise the year before. That's in line with a trend that dates back three decades.

CEO pay spiked 725 percent between 1978 and 2011, while worker pay rose just 5.7 percent, according to a study by the Economic Policy Institute released in May. That means CEO pay grew 127 times faster than worker pay.

Last year, CEOs earned 209.4 times more than workers, compared to just 26.5 times more in 1978. That disparity is mind-boggling and it is indicative of the way in which incomes have been siphoned off to the richest Americans and away from the common workers.

"We've always had inequality, but the magnitude of our inequality has actually increased dramatically," says Nobel Prize-winning economist Joseph Stiglitz. "The fraction of the income that goes to the upper 1 percent has doubled since 1980. The fraction that goes to the upper .1 percent has almost tripled since 1980. So yes, we've always had inequality, but not of this magnitude.

"The United States has become the most unequal country among the advanced industrial countries," says Stiglitz. "Some people have said, 'We don't care about equality of outcome, what we really care about is equality of opportunity. America's the land of opportunity.' We have less opportunity than not only the countries of all of Europe, but any of the advanced industrial countries for which there's data. And what that means is very simple: The life chances of an individual are more dependent on the income and education of his parent than in other countries. And an implication of that is people born in the bottom, who unfortunately chose the parents who were poor or not well-educated, will be more likely not to be able to live up to his potential."

Yet, this is more than just a matter of inequality. It has implications that effect the broader economy.

Rising income inequality is resulting in lower levels of economic growth. In a consumption-based economy, the masses must have adequate resources to maintain the economy. Consumer spending represents 70 percent of U.S. GDP, which is plainly unsustainable given current trends.

Undoubtedly, having a healthy middle class is a requisite to having a healthy economy.

But an abundance of low-wage jobs will not get us there. The vast majority of Americans are in long term economic decline. It should surprise no one that our economy is following right along.

"The tidal wave of low-wage jobs is dragging us down and the wage problem is not going to go away anytime soon," says Peter Edelman, director of the Georgetown Center on Poverty, Inequality and Public Policy.

Our gross inequality will lead to social instability. Obviously, those at the top are heavily invested in maintaining the status quo. But eventually that will lead to societal breakdown.

The American dream is falling further and further out of reach for far too many Americans, and our once-great economy is suffering for it. As that suffering works its way up the economic pyramid, there will be a critical mass, a mass movement for change. But by then it will be too late.

The America that our parents and grandparents grew up in will be irrevocably altered, for the worse.