In today’s (11/27/10) Globe, Morton Kondracke likens the imminent entitlement-debt crisis to the Cold War and muses that to combat it President Obama will need to “scare the hell out of the American people”, like Harry Truman did in 1947. Kondracke points out correctly that this new crisis is just as real and threatening as was the USSR back then, because what is at stake is the potential “swift” and “disastrous” collapse of the financial system, akin to what Greece, Great Britain and Ireland are struggling to avoid.
The analogy is interesting, but in my opinion an imperfect one. When Harry pulled it off the nation had only been out of WWII for a couple of years. The citizenry knew then all too well from recent experience that bad things really do happen, and the press was full of the advancing Red threat as Communism took over Eastern Europe and began to do so in China. This was real fear, fear that was to persist and provide public support for the Korean and Vietnam wars. What we have now is complacence by comparison,
although the Great Recession has provided some new taste of fear, as evidenced by a sharp rise in the personal savings rate.
The bi-partisan Debt Commission is united on the subject, but neither we the people nor Congress are. Harry’s crisis was imminent and although Barack’s crisis may also be imminent, it doesn’t seem so. It’s going to be hard to cry “crisis!” to a body politic with the attention span of a tweet and to a subdivided Congress.
This brings me to another article in the Globe today. In Wichita, Kansas the school district has decided to start complying with a 2002 state law requiring “financial literacy” classes. The law appears to be a good example of the futility of legislating with no provision for enforcement, but in this case the G.R. has provided enough incentive to make a modest start. What an idea, that young people should be taught in school about family finances and consumer credit! How to deal with payday loans, mortgage rates, deceptive advertising and household bills. The mind boggles. If this catches on, one wonders how the retail industry is going to cope. But not to worry. Christmas spirit, American style, will always trump education.
The entitlement-debt crisis, the national saving rate, and financial literacy all have something in common, i.e., that old aphorism so instinctively embraced by children of the Great Depression like me:
“The secret of happiness is deferred gratification.”
And how does deferred gratification work? It’s pretty basic. Check out this description of The Marshmallow Experiment:
Yes, the public is the ultimate determinate. Congressmen who ‘do what is right’, despite public ambivalence, are punished. “25 percent said ‘good’ and 45 percent ‘bad.'” – WSJ/NBC poll. Hence the need for such entities as the Debt Commission or the Congressional Budget Office to provide political cover.
Kondrake’s assertion that “somebody is going to have to ‘scare the hell out of the American people'” is a less-blatant expression of the ‘Starve the Beast’ strategy. No one has ever attempted to explain how such a contrived emergency is better than the real thing, except that the disaster comes sooner – as if that is better. Perhaps it IS better for the cadre of traitors who would be credited instead of being blamed.
Senator Simpson’s comment, “And it won’t be a slippery slope. It will be swift, and it will be disastrous.” is a misconception that much of the fearful public has accepted. It exacerbates the politicians’ dilemma.
Economists can offer scenarios for both swift and gradual disaster. Many who have complained about debt in the distant past have claimed that disaster would have happened long before now. There is not a magical number which, when exceeded, predicts disaster. We can only be sure that we have a problem, that the problem will become worse while (and if) we act to fix it, and that the economy must become better for a long time before it is as healthy as we want it to be.
Debt is the problem, not revenues or expenditures in isolation. No remeditation which affects only one of the two will be effective. Intentionally decreasing revenues is as defective a policy as intentionally increasing expenditures.
“Republicans and many tea party enthusiasts … debt can be controlled … eliminating earmarks or by limiting or cutting domestic discretionary spending …” Yes, that is what they SAY. Until after an election. They could not, as with a kid sitting in front of a marshmallow, wait even the 2 months for the next Congress. The enthusiastic, hypocritical backtracking began before all Congressional elections had been officially decided.
A default source for starters:
As best I can understand it, the Starve the Beast strategy contains an implicit assumption that there is a constraining budget, such that diminishing government income would force diminished government spending. If that is right, it won’t work. At least not with the present Congress which declined to even pass a budget. And then there’s the Fed with Quantitative Easing. That’s just printing extra money to spread around through banks. Methinks the beast is completely out of control.