“What a good country or a good squirrel should be doing is stashing away nuts for the winter. The United States is not only not saving nuts, it’s eating the ones left over from the last winter.” WILLIAM H. GROSS
The New York Times reports on its front page today that annual interest payments on the national debt will exceed $700 billion by 2019, compared to $202 billion today.
In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.
Meanwhile, Bloomberg reports today that the price of an ounce of gold has hit yet another all time high, jumping another 2% to $1,170. Oil is back around $80 per barrel and the dollar remains in a slump, around $1.50 per Euro.
I feel like a broken record summarizing this recent news about the bankruptcy of America, but it needs to be stressed: we have decided as a nation to respond to finding ourselves in a deep hole by digging deeper. Not surprisingly, as our mothers used to tell us, if you keep digging a hole in the ground, eventually you’ll find yourself in China.
The print edition of the Times relays what most of us know: there are only four ways out of the current morass – and only one, they report, is “painless”:
1. Raise taxes/cut services
2. Inflation
3. Default
4. Growth
Every “leader” is hoping and praying for the last, but we should be clear about its prospects: almost all of the “growth” of the past several decades has been illusory, built on a firesale of America’s mid-century wealth in a gambit to hold onto our top spot for just another election cycle. Every administration has simply kicked the can down the road while ramping up the outsourcing, the “globalization,” and, above all, the borrowing. We have been a national version of Michael Jackson, living in “Neverland” while borrowing against the things of value that we once possessed from an Asian organization willing to “loan” until it owns us. Like him, we’re having trouble sleeping at night, and like him we’d rather narcotize ourselves (if on our hundreds of cable stations) rather than face facts.
I think it’s highly implausible that there are many more tricks that can be devised that can in turn pretend to be “growth.” Our recent “boom and bust” oscillation that we call the economy has been a string of makeshift efforts to prop up a sinking ship. We have learned that the internet is a sink hole for money, since all it can “produce” are advertisements that can’t ultimately sell products if its viewers are broke. We have already seen the result of the “financialization” of the entire economy, an economic design that ultimately had to feed on itself. We have sucked whatever nominal value from our “homes,” the places that ought to be secure against the foolishness of the age. We have already sought to re-inflate the balloon one too many times, most recently not only by bringing interest rates to zero, but by printing and borrowing funds faster than three generations will be able to pay back. Like a hamster on an dirty-coal electric treadmill, we can’t get off and we can’t slow down, but the speed required to keep the contraption going is getting too fast for our small legs and tinier brains.
Frankly, the idea that “growth” is the one option that will prove itself to be “painless” is laughable, when we consider that much of our current pain is the result of illusory growth. And with our various gimmicks like “cash for clunkers,” “socialism for the rich,” tax “rebate” checks in the mail and so on, as the way we claim to re-boot “growth,” one can only guffaw at the illusion that we can somehow permanently escape the hard bookkeeping of Reality’s ledger.
Brutal honesty requires us to acknowledge that only three options realistically confront us: 1. less government for more money; 2. inflation; and/or 3. default. Any of these will leave us poorer and more miserable. Which poison will we be forced to “choose”? What will be the public response? The populace has grown so accustomed to having it all – demanding low taxes and cradle-to-grave nannying, electing Republican tax-cutters while insisting on the continuation of every program. Let us stipulate that they will be ill-disposed to hearing the bad tidings. If “tea parties” are the order of the day when we still manage to keep this creaky and leaking boat afloat, what will be the reaction when we begin to sink? When it’s discovered that, once again, there are too few lifeboats? Will we stiffen our upper lip, allow the women and children their places, and sing “Nearer My God to Thee”? Or, will there be a mad scramble for the exits, in which the lucky will manage to get out by stepping on the corpses of those caught under the crush? Will our tea parties become “Black Fridays,” with desperate consumers looking for that one last piece of the pie to consume, charged to their overextended credit cards, before the plate is empty?
I think one dividing line which got disastrously crossed at some point is illustrated by some of the older (rural) folks I know — whose ethos is something along the lines of, “If you ain’t got enough money to pay for something, then you simply hold off on buying it until you do.”
What a concept.
Dear Professor Jeremiah Deneen,
Wow, someone woke up on the wrong side of the bed! I’m just kidding, of course, but your skyline is indeed full of black clouds. 🙂
When conservative Republicans decided that starving government was the way to eventually shrink government, they made their crucial, ironic mistake. It actually ended up underscoring the value of government. Americans have discovered that the government does indeed provided services and goods of value, and they don’t want to lose those things.
So now we’re going to pay the piper in taxes—preferably on the rich and large corporations—to make up the difference. Since moderate Republicans would never cut services in relation to the tax cuts they made, they’ve set up this crisis. I just wish that the day of reckoning had occurred under a Republican rather than a Democrat. I fear that Democrats are going to have to pay the price—literally—in 2011 for everything wrong with government finance as perpetuated over the last 30 years (with the only prior relief coming under a neoliberal Democrat).
Sigh.
– TL
Dr. Deneen,
Another picture appropriate for the top of this post would be that of Pizza The Hut from the movie Spaceballs. Ate himself to death in the back of his limo…
I remember my dad telling me when I was a kid “America is the most powerful nation on Earth, but when we fall, it isn’t going to be an outside force, we are going to crumble from the inside.” I know people have been singing that tune for many years, and drawing parralells between Rome and America. It’s easy to laugh it off, but from what I can see, perhaps we should not be…
Is the cup half full or half empty? Well the silver lining of this current crisis in capitalism is that the usefulness of market fundamentalism is being reappraised. Allow me to explain. The United States emerged from a high tariff protection barrier to be the world’s richest country. The downside of being so rich was that the people of other countries sought to export to its markets. To become a wealthy country today you need lots of capital to invest in your country’s manufacturing facilities and infrastructure. If you are a poor country you don’t have this capital you need to import it. What you do have though is lots of cheap labor. To attract foreign capital for investment you need to keep your currency pegged in value below the currency of the country you most export to and the United States remains an important target country because of its wealth. (Buying United States currency to buy T-bonds, etc. ensures that your country’s currency remains under-valued relative to the American dollar.) America is now faced with reducing its trade and public sector deficits since this is putting pressure on the value of the dollar which in turn is encouraging foreign countries to diversify out of their holdings of T-bonds, etc. What can be done? Imposing tariffs to reduce the trade deficit will result in diversification out of T-bonds, etc. since exporting developing countries can more fruitfully use the money to peg their currency against other wealthy countries that don’t impose import tariffs. Selling T-bonds, etc. puts further pressure on the dollar. There would seem to be an impasse. The developing country needs the investment capital because its own people cannot raise enough investment capital through savings. The United States needs to reduce its trade and public sector deficits in order to stop the value of the dollar declining. The logical solution would appear to be to partner on a bilateral basis with the developing country. Agreement would be reached that manufacturing and service companies would operate facilities in both the United States and the developing country with mutually agreed quotas for identical products and services from both indigenous output for home consumption in the wealthier United States and export to the United States from the poorer developing country. In such a way volume manufacturing can be resumed in the United States, price subsidy can be maintained on a slowly decreasing basis within the United States and the tax base thereby increased to pay off public debt as well as reduction of the trade deficit. Both the United States and the poorer countries would benefit because trade would operate on a more stable and reliable long term basis. In fact there may well be the possibility on a fairly wide range of agricultural products to adopt partnering arrangements that help reduce tax payer subsidies to farming in the United States. All it takes is to reduce market fundamentalist fear and greed and adopt the notion we can actually all help each other to be “rugged individualists.”
The darkly hilarious thing about this is that the Global Military, our favorite succubus will be deemed even more vital when and if the natives go mad…and the civil authorities have done a swell job of writing posse comitatus out of the law and “enemy combatant” into it. Not to mention the private mercenary forces .
One can assume that our fellow citizens in the armed forces would not think kindly of turning on those it is intended to protect but when and if chaos ensues, all manner of assumptions go out the window and directly into the gun sights. Civil Liberties and Protections, as we once perceived them are a relic of history.
If anyone still believes that we are somehow going to dodge a bullet on the previous 20 + years of dysfunction, stick around and simply watch the unravelling proceed….it started some time ago and is proceeding against all the very best intentions of a government that does not know what to do because it feels it cannot come clean with the citizenry. Humility and Honesty are kryptonite to these people and rest assured, they will be the last to feel the effects….at least on a personal level.
Well said. Well reasoned. This is a fine essay.
The writing is on the wall. What is one to do when faced with such a scenario?…
I say it would be wise to get out of the cities. Establish a homestead on a section of rural land. Downsize. Simplify. Acquire tools and skills that will help you live a subsistence lifestyle. Work with those tools to provide subsistence for yourself and your family. Eliminate your dependencies on the industrial providers to the greatest degree possible. Develop positive community relationships with your neighbors.
In short, hunker down.
This is what I’ve been doing for the past ten years. There is great satisfaction in such an agrarian lifestyle.
I’d be all for more growth, but I assume the people who say that are among those economists who have been celebrating the supposedly inevitable “transition from an industrial economy to a service economy” for the last decade. That’s never added up to me. I’m fine with the idea of everyone becoming tour guides or “consultants” or whatever it is they expect; but I’ve never seen how a service economy can generate enough wealth to afford all of the goods you would need to import. While those economists kept saying it was all going swimmingly, I suspect what was really going on was a magic trick involving massive amounts of debt. And given that all of the ideas on the table involve going back to how things were the day before the floor fell out, while making vague promises to “start saving more”, I’d imagine we’ll have a replay of the econolypse within the next decade, just much worse. Of course, my skyline is cloud-covered as well.
An inspired post, Patrick. And we learn today that one out of every four American homeowners owes more than the house is worth:
http://online.wsj.com/article/SB125903489722661849.html?mod=WSJ_hps_LEADNewsCollection
Of course, on the other side of the political spectrum, such as Ms. Napolitano of the DHS, they think we’re all a bunch of latent fascist terrorists waiting to copy cat Timothy McVeigh. Can we split the middle at least?
The irony is that the key to growth is downsizing. The current understanding of wealth and the economy measures growth in exchange values rather than use-values. The ideal path to exchange growth is for everybody to throw everything away every year, and buy new stuff. This would keep the factories humming, but at the cost of destroying real wealth. The ideal model for this kind of growth is the “cash for clunkers” program, which required that real wealth be destroyed (the slightly older cars) in favor of newer wealth. The only way to sustain that into next year is a new round of wealth destruction.
A manufacturing process meant to destroy wealth is likely to be successful. But is that the sucess we can afford? The wealth destruction requires more borrowing, requiring more wealth destruction, etc. No way out.
I think the article is understating the interest on the debt; it is already at $500B, including interest due to the SS system.
How to maintain a system of perpetual piracy, that is the question.
I am aware that FPR has its own views of what constitutes economic growth. But Patrick Deneen’s comments here puzzle me. How can the massive technological expansion of the past three decades not be growth?
Sure, internet media advertising depends on the real economy. But that’s a side market. The internet itself has considerably increased economic efficiency simply by organizing and distributing information vital to the real economy.
The triumphalism of Wired magazine has many problems, but their laughter at Deneen’s comments here would seem to be justified.
This is a great, albeit short, piece of internet-erature. However, I have one question: will I still be included in the crowd of those with a “stiff upper lip” if I enjoy the Pats-Saints game tonight?
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