Many people have been saying that the U.S. government debt level is too high. Even people that the government sometimes listens to, such as Helicopter Ben (Bernanke), although he doesn’t really make a good case and is a horrible example. But they have been ignored. Certainly, policy makers and legislators have ignored anyone who starts off with an appeal to reality. The only real voice that the government types will listen to are those who can sway the voters. That is the politician’s only “reality”, the voters, i.e., those people who keep the politician in office, in power. If the voter can remain blind to the real situation, today’s politician doesn’t care.
Or at least that was what many of us were thinking. But we forgot some actors on the national scene who can upset the politician’s applecart. There are people connected with the bond markets who can shake up things in Washington, by shaking up their spending source. One of the underlying premises of the “plans” being proposed by both the Dems and the Repubs is that interest rates stay low. It has been so long since the interest rate on government debt was above 5% that I am sure that most of those people have forgotten that rates can actually rise that high. But they can, and dimly, the politicians remember that somehow it isn’t good for them if interest rates do rise.
One set of actors with a voice that can influence markets are the companies that evaluate the credit worthiness of debt. Events in the last few years have led some to regard the credit evaluators as less than useful. Standard & Poor (S&P) and the others did a very poor job, almost to the point of committing fraud, in evaluating the mortgage-backed securities. They tended to let their cozy connections with the government and outfits like Fanny Mae cloud their professional judgment. As with the bankers, I am sure that there were significant elements in the management of those businesses who were appalled at what their company had done. I suspect, as with the bankers, that they are attempting to regain their self-regard as professionals. Today, when they see a spade they intent to call it a spade, errr, bad debt is bad debt, even when the debt is that of the U.S. government.
So, S&P says that they have judged that the credit worthiness of U.S. government debt is deteriorating (surprise) and the people in charge (and the opposition Republicans) aren’t going to do anything about it. So they, S&P, spoke up. Washington, on the other hand, firmly believes both that the real world does not pertain to their activities, so they are merrily playing S&P’s announcement to suit their own political agendas, and that no good deed goes unpunished. I’m sure that the Dems are plotting revenge on S&P. The only people who really paid any attention (as far as we can see at this point) were those who already thought that things were out of control. The Dow lost some ground for a day, but has since hit new highs in the current market. It will be interesting to see if S&P sticks to their guns and lowers the rating for U.S. government debt in the future.
Then, a day or two later, the IMF (International Monetary Fund), of all people, popped up and declared that Washington has no credible plan to return to fiscal rationality (my paraphrase). (Note that the IMF would be happy if the debt was just not increasing so fast. Its standards for “rationality” are somewhat low.) I’m not sure if the IMF is talking from a principled conclusion or just using the opportunity to take a potshot at Washington. Either way, their observation happens to be true. Neither the Dems nor the Repubs have any clue how to deal with the situation. It should not be a surprise that they have no creditable plan. It is a surprise that someone mentioned it out loud.
Then there is the poll released this week that shows the American public doesn’t want to give up their entitlements. Whatever solution there might be to the debt, the American public is apparently saying, they don’t want to give up what is causing the problem. And here we have the fundamental problem. They think they have a choice. The American public is just as confused and deluded as the Greeks, the Irish, and the populations of the other Western mixed economies. They all think that they have a choice as to having their wonderful “safety nets” or “social programs” and the altruistic, state controlled economies. They don’t. No choice. Reality is coming and it is all going to fall down and go BOOM.
Certainly the leaders and even some of the followers of the movement supporting the funding of the entitlements are doing so because they are sworn to altruism without regard to the consequences. It will be reality they curse when their programs fail. But there are many, perhaps a majority, of the supporters of entitlements in America, whose support is founded on altruism (in some form), but who do not want the country to self-destruct. Our way out of this mess is to bring the reality of the situation to these people. We must remove their delusions and confusions.
Actually, it is easier than you might think. We don’t have to provide some argument founded on what might appear as a convoluted, discarded economics, i.e., capitalism. We can merely point to the coming tsunami of retiring baby boomers and the catastrophe of funding Medicare and Social Security. We can’t really fund them now. It shouldn’t be hard to communicate the rest, the whys and the alternatives.
What really bothers me is that from what I can see, few of my fellow Objectivists seem to have figured all of this out. There was tremendous energy during the days of the ObamaCare fight. But, the coming depression seems to be as insignificant and unreal to them as it is to most of the country. Really people, if we don’t get something done on this in the next few years, the depression will be unavoidable. And it will be a depression that will make the 1930’s look like a picnic. The consequences for capitalism and freedom will be catastrophic.