Post Wedding Blues

My daughter got married last weekend and I was sworn, along with other family members, to not discuss politics at wedding events. I managed to honor my promise Thursday through Saturday but then at the Sunday brunch, a wonderful relative found me and egged me on.

I am not writing about the specifics of that interchange. But our back-and-forth did make me think. It made me think about the impossible situation we find ourselves in today. This rock and hard place defines us. The rock is the fact that we have threatening problems in this country. We have a highly tilted distribution of income. We have a very expensive and failing health system. We have a drug epidemic. We have too many people making insufficient incomes. We have lackluster economic growth. That’s the rock. The hard place is that government spending is rising faster than tax revenue, creating larger yearly deficits and a bigger national debt. 

“Caught between a rock and a hard place” is a way to say that there are no easy choices left. Solving the problems I listed above will take a lot more money. But there is no money. And like anyone with a tendency to have larger and larger debts, the USA can and most likely will reach a point when people will stop lending to us. They will also stop investing in us. So on the one hand (do I sound like an economist now?), it is going to be very hard to spend more on these critical problems. On the other hand, if we try to reduce our debts, we will need to reduce the growth of spending relative to tax revenues. How can we reduce the growth of spending when we have so many needs?

If there is a robust (better than saying hateful) debate among the citizens, it is for a good reason. No matter which side of the rock and hard place you begin with, there is going to have to be a very negative impact. At Georgia Tech, I had the honor of taking a course from a professor named Phil Adler who introduced us pimply-faced Industrial Management majors to a concept called bubble management. If a well-inflated balloon has a bubble on one surface, any attempt to push it in will lead to a bubble on the opposing surface of the balloon. That is, if a management problem surfaces and you attack it, you should know you will ALWAYS create another problem. The trick to good management is having solutions that reduce the size of the problems (bubbles).

Unfortunately, most of today’s politicians did not have the opportunity to learn from Professor Adler. Unfortunately, what works in business management does not work in the political arena. So here we are with a really big and ugly bubble today, and no one has the guts to push it in. Why? Because we are afraid of the bubbles that will be created. Any politician who creates a bubble by trying to escape today’s problems fears he or she will be punished by the voters.

Is this problem new? No, but our current dilemma is really severe. Seems to me we had a similar situation in the late 1970s, and it required a Fed that raised the interest rate to 22%. That took guts. It smacked us into a recession. But someone knew that the only way forward was to take a step backward. And they had the guts to take on the wrath of a whole country. These extreme rock-and-hard-place situations are rare but they always require the same solution – wherein policymakers understand they must do something very unpopular to exit a very bad situation and make things eventually better.

That’s where we stand today. The public watches politicians on all sides abdicate their sworn duties as they lead cheers and rile up their constituents into thinking that rants against their opponents will somehow help us. They appear caring and intelligent as they enumerate all the bad things that will happen if their adversaries get their way. But as Professor Adler would say, there is always going to be another bubble. Let’s accept that and try to make the next bubble smaller than the current one.

The short-run impacts of any new policy cannot be absorbed by one group. And the impacts should be of manageable size and limited duration. This will take a bipartisan effort. There’s no other way. Otherwise, we are stuck between a very hard rock and a very hard hard place. 

What do we need to do? Generally, we need to reduce the budgetary risks that haunt us today. Specifically we can begin by controlling government spending. This won't be easy because we will have to prioritize. We will have to determine which programs will be slowed the most. Second, we have to permanently raise government revenues. The surest way to do this is to raise the long-term growth rate of the economy. Third, long-term growth can be raised by attending to factors that inhibit growth. We need to aim policy at increasing labor force participation and productivity. 

If we do all this, we will probably take a step backward. Some will be temporarily injured more than others. Howls will be heard from many sources. But this situation is no different than that facing a drug addict. Without a time of withdrawal from the drug, there is no miracle cure to end an addiction. Withdrawal hurts. But it is the only way to find a permanent cure. Putting it off just makes the eventual pain even worse. 

As far as the wedding goes -- it was an incredible weekend filled with happiness and love at the joining of two wonderful ladies.