Jeopardy, US Debt, and funny cigarettes

Jeopardy is the hazard or risk of or exposure to loss, harm, death, or injury.

Jeopardy is always around us – and thankfully we have loved ones who seem to never cease to remind us of it:

·         If you keep playing basketball someday your knees are going to give out

·         If you keep drinking wine like that your liver is going to explode

·         If you keep eating corndogs you are going to turn into one

·         If you keep spending more than you earn you are going to get into trouble

·         If you keep smoking those funny cigarettes, then you may get to visit the hokey pokey

As the definition and the above brilliant examples suggest, some decisions or actions you take can have negative consequences. When we are young or otherwise foolish, we tend to engage in these actions with relish and try not to think about the consequences.

It is useful to point out that many actions and decisions do not involve this kind of jeopardy. We invest money at the peril of losing it. We take one job instead of another. We take calculated risks all the time knowing that there is some chance that we might be negatively impacted. But this post on jeopardy is not about those kinds of risks – jeopardy is about an almost sure negative thing. It is about a current pleasure or habit that interferes with better judgment. Jeopardy means that the negative consequence has not yet arrived – but it is clearly on the horizon.

Think about the recent housing and stock market bubbles that proceeded the last recession. Most people knew that the bubble was going to burst but they kept buying anyway – they were having too much fun making money. That fun got into the way of logic. We told ourselves that the bubble would come later…always later.

This is exactly what we have been doing with respect to government deficits and debts since the time the baby boomers were old enough to smoke those funny cigarettes. We all know the data – except for a few fleeting government surpluses during the Clinton presidency the US government has been racking up deficits since the boomers first starting doing the twist in the basement to the sounds of Chubby Checker.

One doesn’t have to be an economic historian to know that economists and others have repeatedly warned over all these decades that such behavior had to stop. But government spending is like a drug. You can never get enough of it. There will always be less-fortunate people to help or bad guys to police. There is no end to the list of groups that “need” help. Such helping leads to votes and votes mean power. It is a simple equation. The people who receive the benefits feel them deeply but when you divide the bill among enough people they hardly notice it. It is an easy game for politicians to play. Being against helping makes you seem hard and cruel.

So what puts an end to this process? I don’t really know. There seems to be no end to the jeopardy. I haven’t said much about the private side of the debt but we all saw the negative consequences of too much spending and too much borrowing by the private sector. The last recession was alarming. Because the government was already in hock it had to go even deeper into debt. Great economic minds with a long list of prestigious prizes dangling around their educated necks spoke with united voices that we must have EVEN MORE GOVERNMENT DEBT to solve the alarming economic problem.  

They convinced us to add trillions of dollars in debt, equating this to a magical pill or drug that would produce marvelous restorative effects. And like drugs and unlike real remedies the magic potions kept us high for a little while until the effects of the drugs wore off.  To summarize so far:

·         Decades of government debt increases put us in a precarious position

·         At least a decade of private sector debt increases led to a financial collapse

·         Almost four years of unprecedented increases in government debt now threaten to lead to a second recession.

So in the Saturday edition of the Financial Times:

·         The headline on the front page says “Jobs data stoke US recovery fears”

·         On Page 6 the top editorial “Dealing with the evils of stagflation” concludes with these words, “The real peril now is double-dip recession rather than inflation. This is no time for tightening.”

·         On Page 7 the lead comment titled “Apologies – we need a toxic rethink on the economy” ends with this advice “Let us hope that no more stimulus is needed. But that option cannot be taboo.”

Sorry to say this but “BULL CRAP!” is about all I can say. Honey quit hitting your head against the stone wall. But Mom, it feels really good. Honey it will put a dent in your head. Mom, can I do it one more time?

They never give up.

So what are we supposed to do? Let’s review. Too much debt, whether by the private or public sectors, got us into a mess. Yet there is a loud and well-educated howl to do even more of it. If we do even more, then the jeopardy stakes rise even more. Doing even more debt puts us in an even more precarious position down the road. As the next round of stimulus starts to wane and the economy slows threatening a triple-dip – will these same people ask for even more debt?

If we do the obvious and prudent thing we will find ways NOW to stop the growth of debt – and then reverse it. But some argue that the country is like a drug addict in the hospital with a heart problem – if we remove the drug too quickly it might kill the patient. I can understand that.  I can go along with that.

But let’s be clear. That doesn’t mean that we give the patient more drugs. It does not mean that we stand frozen in the face of fear. What it does mean is:

·         We quit playing games and recognize that the source of our country’s most pressing problem is too much debt. Too much debt is public enemy #1.

·         We focus our policy work on this and only this policy issue and not play political games with hot button issues until we are done with public enemy number 1.

·         Recognize that past jeopardy has put us between the proverbial rock and hard place – there is no way to exit this situation without severe repercussions.

·         Those negative impacts are large and will be with us for a long enough time that everyone will have to share them.

·         And that it is very possible that while we legislate the policies TODAY, the implementation and the beneficial impacts will come GRADUALLY.

·         For gradual policies to be effective it is critical that they not be easily reversible. Attention must be paid to making sure that these policies cannot be changed in coming years.

Finally we have to recognize that government or private credit is a drug and we have not been very good at managing its use. A realist recognizes that government isn’t going to go away and the Federal government is probably never going to be much smaller than the 20% of the economy it achieved over the last half century. But keeping it near 20% is not going to be easy as the interest burden of the debt doubles and triples, as the population ages, and terrorism grows.

We cannot continue to beat our collective head against the wall. It is time for some common sense. A gyros is tasty but if we aren’t careful we may soon be more like Greece than we really want to be.