A modest Option on the US Debt Crisis
Only after studying it deeply, dissecting the problem, understanding the problem, internalizing the problem, and attacking it from all angles and direction do we hope come up with a solution. It’s often too easy to throw around solutions and suggest ideas when you don’t know too much about the problem. I had started this blog post some time ago, and never got around to finishing it. I first intended to write about the creative process between problems/solutions. Now, I will focus on the different aspect of accepting that sometimes, you have to put fire out with fire.
Sometime the easiest thing to do is also the hardest. The current debate about America’s debt will continue for some time because the worst has yet to come. With each passing month and escalating debt to foreigners, as a nation there will be less options, and more difficult choices.
The fact is that our expenses as a nation towards carrying out two war campaigns in Iraq and Afghanistan have cost us over a trillion dollars. That is many trillions in terms of the opportunity cost to put that capital to use elsewhere building infrastructure, basic research, renewable energy and many other projects. The choices are clear; we must withdraw from these regions, as it is too costly. If we apply a strict cost/benefit analysis to these activities, we are not getting a return on our investments. Capital can be better utilized elsewhere. The United States does not have infinite resources, for all intended purposes we are pretending to be bigger, larger, better than we actually are, and the cracks are showing.
Social Security and Medicare will bankrupt the United States. We have some of the highest healthcare utilization rate in the world; we spend more dollars per capital than any other advance nations. We do not have the best national healthcare system, and more money spent on healthcare does not equate to better patient outcomes. Eventually the retirement age will have to increase from 65,67,69. I don’t know why people are so up at arms about this, just ask retirees what they are doing in retirement. Working! Or trying to find work. Social security alone will not afford most people a comfortable living. The poorest segments of society are often the elderly. I’m going to write a separate post about this in the future.
Social Security and Medicare are lightning rods, you touch it you pretty much end your political career. Why is that? Because baby boomers vote, and they are well represented in government. A cut to Social Security and Medicare/Medicaid would bring down the federal expenditure drastically. But that’s asking a lot of the baby boomer and the elderly, effectively the rules of the retirement game are changed right before their eyes, and they aren’t going to drink that medicine. As a society, we are asking this segment to make a large sacrifice, and it simply isn’t fair, they have done so much to build this nation over the past 60 years.
A modest proposal would be for the US to default on its debts. In some ways, this is fairer to everybody because it makes capital more expensive for everyone from the international market, to us treasuries, to state bonds, to US corporate bonds, to small business loans, to mortgages. Yes, everything will be more expensive, but at least it is more expensive for everyone. In addition, seeing the devastating impacts to jobs, employment, and trade will open people’s eyes to make the hard choices. In the end, the United States will have a stronger balance sheet. This has never occurred before on a systemic level, so reactions are unpredictable. International lenders are going to be hurt the most, notability China, with current holding over 1.5 trillion dollars alone. It might plunge the world into a global depression. But you know what? If as a society we allow for personal bankruptcy, corporate bankruptcy, municipal bankruptcy, state bankruptcy, why can’t the United State declare bankruptcy?
