(First written and posted on August
24, 2008)
There is a new movie out: I.O.U.S.A. by Patrick Creadon. The title
is an obvious pun: I Owe You/USA. It is about America’s catastrophic indebtedness.
The film is a parallel to Al Gore’s An Inconvenient Truth, which alerted us
to the danger of global warming. Now,
I.O.U.S.A. tries similarly to warn Americans about the grave danger in which
they are as a result of being by far the
world’s most indebted people.
I have been worrying about this
problem for many years. I have told my
students and anyone else willing to listen
that nothing threatens the
survival of our society more than our out-of-control national indebtedness. As
often, I have felt like Diogenes. After all, how sexy is this topic compared to
the media’s and politicians’ other darling issues - gay marriage, terrorism,
racism, sexual abuse, crime, etc? Talking about the national debt has usually only elicited
yawns.
nothing threatens the survival of our
society more than our out-of-control national indebtedness.
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Thanks to Creadon’s movie, it may now
become a little bit more
fashionable to discuss the national debt, and to worry about it. But the first responses to Creadon’s movie
already suggest that the public remains as ignorant as ever.
I just visited several web sites
that deal with the film. Many of the comments
posted show confusion and even appalling
stupidity.
For example, many Americans believe that the US is still the richest
country in the world and that we
constantly give and lend money to everybody.
In fact, we have been borrowing enormous amounts of money from the rest of the
world for half a century (one of the reasons why the dollar has been
imploding). Last time I checked, we ranked number #24 in the world in per
capita income, right behind Malta.
Many
Americans believe that the US is still
the richest country in the world and that
we constantly give and lend
money to everybody. In fact, we have been borrowing enormous amounts of money
from the rest of the world for half a century (one of the reasons why the
dollar has been imploding). Last time I checked, we ranked number #24 in the
world in per capita income, right behind Malta.
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The
Problem
The most aggravating confusion is
the public’s and even the media’s and so-called experts’ continued
failure to understand the dual meaning of the term national
deficit:
Currently,
the American people spend nearly a trillion dollars more every year than they make.
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The US is by far the most indebted
nation in the world in two ways: (1)
due to its (Federal) Governmental Deficit and (2) because
of its Trade deficit. In other words, both the Federal Government and
the American people as a whole are
spending far more than they are making. The government (deficit #1) has been in
the red for several decades, except for a brief interlude during President
Clinton’s presidency. The societal deficit (#2) has been going on
uninterruptedly for many decades.
Currently, the American people spend nearly a trillion dollars more every year than they make.
Confusing the two deficits and
discussing them together (which even the Creadon movie does) is harmful,
because it then permits everyone to rail against deficit #1, which is the
lesser problem, while largely ignoring deficit #2, which is much larger and
more destructive.
Americans now owe $55.25 trillion to
the world. That’s $176,000 per American. Each American would have to work for 4
years for no pay - i.e. be a slave or a prisoner - to repay our debt to the
world.
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Several of the pundits interviewed
by Creadon and many of the reviews of his movie are guilty of this confusion.
They speak of the “federal debt” and of the “national debt” in one breath,
pegging it at $9.5 trillion. But it is only the government debt which stands at that amount. Our nation’s overall debt to the rest of the
world is much worse!
Indeed, of the two deficits, the
second one, the societal
deficit, is by far the more serious one.
It threatens to destroy all of American society, not just immobilize its government. Collectively, Americans now owe $55.25
trillion to the world. That’s $176,000 per American. Each American
would have to work for 4 years for no pay - i.e. be a slave or a prisoner - to
repay our debt to the world. Our
country is allowing itself to become colonized,
as it is sending billions upon of billions of dollars overseas every year to
finance its debt to the rest of the world.
So the term national debt can refer
to (1) what the federal government owes, and (2) what American society owes. But people confuse the
two deficits, either deliberately or because of ignorance. As I said, this enables most commentators who express their concern
about “the national deficit” to decry
the federal government’s deficit, while
rarely mentioning the other, much more dangerous deficit.
The
societal deficit has nothing to do with either political party....Politicians
did not cause the national debt. We, the American people did. We have simply been
spending ourselves into poverty.
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This is exactly what many commentators do, both in the movie and
on the Internet: We are told that the problem is “fiscal” and that our
nation’s catastrophic indebtedness is caused by runaway entitlement programs. Many misguided people blame either Bush or
the Democrats, when in fact the societal deficit has little to do with either
political party. Blaming politicians is
one of the few things Americans still know how to do. It is de rigueur among comedians like Jay
Leno. But politicians did not cause the national debt. We, the American people
did. We have simply been spending ourselves into poverty.
Instead of facing the fact that we have
collectively been living
far beyond our means for half a century, most commentators prefer to
focus on the fact that the government spends too much (which it does). On this, Democrats and Republicans all
agree. The only difference is that
Democrats say that the government spends too much on things like the military
and prisons, while Republicans say that it spends to much on social services.
So the most often heard solution, including in the Creadon film, is to argue for a reduction in federal
spending. And since most government spending is in social services
(entitlements), a majority of people agree that the bulk of the cutbacks will
have to be in entitlements, e.g. in Social Security, Medicare, etc.
Most of the
rest of the civilized world (Europe, Japan, Canada, Australia, many newly
developed Asian countries such as Korea) provide social services that are far
more generous than ours, and these countries are not descending into
bankruptcy.
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But this is wrong: Most of the rest of the civilized
world (Europe, Japan, Canada, Australia, many newly developed Asian countries
such as Korea) provide social services that are far more generous than ours,
and these countries are not descending into bankruptcy, certainly not at the
rate that we are. Furthermore, many of
those countries have more top-heavy population pyramids that we do. This means
that they have more old people who must be supported in retirement and in
sickness by a relatively small base of working and tax-paying people, than we do. So what’s our excuse?
The
Solution
Whatever
solution is implemented, the first, last and fundamental principle to keep in
mind, if we are to get out of this
quagmire is simple: STOP DIGGING YOUR GRAVE. That means, stop increasing your
debt, and start reducing it. How?
No other
country on earth spends as high a percentage of its wealth on medicine, yet
dozens of other countries are healthier than we are.
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1) Stop spending nearly a quarter of
your national wealth (GDP) on medicine. The AMA, the Insurance companies and
the pharmaceutical companies are
fleecing the American people. No other country on earth spends as high a
percentage of its wealth on medicine, yet dozens of other countries are
healthier than we are.
Wean yourself
from dependency on foreign oil. That means alternative energies, including
the massive reintroduction of nuclear power plants.
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2) Stop spending yourself into
bankruptcy for oil. Wean yourself from dependency on foreign oil. That means
alternative energies, including the
massive reintroduction of nuclear power plants.
3) Stop protecting and policing the
world, mostly by yourself. Cut your military budget to the same percentage of
GDP as your allies, i.e. 1.5% to 2%, from the current 3.5%. America’s military
budget exceeds that of the rest of the world combined, i.e. it makes up more than half of the world’s military expenditures. That’s too much. This
will reduce the federal government’s annual deficit by $250 billion, i.e. half.
America’s
military budget exceeds that of the rest of the world combined, i.e. it makes up more than half of the world’s military expenditures. That’s too much.
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Our obsession with terrorism vastly
exaggerates its importance and the magnitude of its threat. 9-11 was a tragedy and a fluke. There is no such thing
as absolute security, so vigilance is good, but all in good measure. I do not
advocate weakening homeland security.
However, thanks to geography and history, we are relatively safer from
terrorism than are the Europeans, yet we are more obsessed by it, and we spend
too much on foreign wars which do little to protect us against terrorism.
4) True, part of the solution - but
only a part - is to cut back on public (= government)
spending. However, the areas where our government vastly and wastefully
overspends are not the usual suspects - the safety nets for the elderly, the sick and the indigent,
Social Security, Medicare, etc. No they are the military (see above) and:
Our gargantuan criminal justice
system. We lock up over 800 people per
100,000, which is by far the highest rate of incarceration in the world. It is
about 10 to 20 times higher than the incarceration rates of all
other industrialized nations. It is
higher than that of totalitarian countries such as China and Iran. Five
million Americans are under the jurisdiction of the criminal
justice system, i.e. 1.6% of the
population. America spends far more on
this and on lawyers than does any other country on earth. The criminal
justice system and the ABA are fleecing
the American people.
We lock up
over 800 people per 100,000, which
is by
far the highest rate of incarceration in the world. It is
about 10 to 20 times higher than incarceration rates of all other industrialized nations.
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5) Sell more of your products to
foreigners and buy fewer products from
them. The single largest part of our indebtedness is caused by our balance of
trade, which has been negative for half a century.
6) Buy fewer things, period. You eat too much, consume
too much, buy too many useless machines, live in houses that are too large,
drive too many miles, carpool too little, walk too little. You’ll feel a lot
better and live longer if you do all these things.
7) Start to save, as your grand parents
did. Currently, it is not that you are not saving enough. You are actually not
saving at all. Collectively, your savings rate is negative.
Buy fewer things, period. You eat too much,
consume too much, buy too many useless machines, live in houses that are too
large, drive too many miles, carpool too little, walk too little. You’ll feel
a lot better and live longer if you do all these things.
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8) The solution does not
include massive cutbacks to
social services. Leave those as they are. If Social Security threatens
to become non-solvent in a few decades from now, the solution is simple: it is not to privatize it, as the Bush
administration tried to do, urging the American people to gamble with the only
secure income they can count on in old age. It is not to drastically increase contributions. No, the solution is to
simply raise maximum benefit age by a year or two. After all, we live nearly
two decades longer now than we did when the program was introduced by President
Roosevelt. It is not much of an imposition on the population to delay
fully-paid retirement by a couple of years, after which the retired population
would still enjoy a far longer life in retirement than it did two generations
ago.
As to other social services - Medicare,
welfare, child support, unemployment benefits, sick leave, parental leave, etc. - ours are already very
stingy in comparison with the rest of the developed world, so it would be
unconscionable to reduce them further.
Conclusion
I am reminded of the 18th
century British economist Thomas Malthus. While Malthus wrote about a different
problem, namely the threat of world over-population, his reasoning is very
applicable to the subject at hand: in
his warning against the danger of over-population, he explained that we had two
choices: (1) either smartly and relatively painlessly control population growth through various
forms of birth control (including abstinence) or (2) let nature do it for us painfully, as it does in the animal
kingdom. If humanity failed to do the first, then the painful Malthusian checks
would take effect, namely starvation, war and pestilence.
We can
implement the eight recommendations I have suggested, or history will take
its course and solve the problem for us - painfully...The system will become
unstable, there will be radical social
upheaval, and the upper strata will be expropriated, forcefully.
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America is at a similar crossroads.
We can implement the eight recommendations I have suggested, or history will
take its course and solve the problem for us - painfully. How will it do that? Well, after the American economy goes through such utter devastation
as to make it unrecognizable, and the American people descend to a
generalized level of hardship which we
have never experienced
in our history, the system will become unstable, there will be
radical social upheaval, and the upper
strata will be expropriated, forcefully. After all, our bills and our debts - both current and
past due - will have to be paid back
somehow, if necessary through the
confiscation of wealth. And where else
will the money be found, but in the pockets of the Warren Buffetts, Alan
Greenspans, Steve Forbes and other people interviewed in Creadon’s movie
I.O.U.S.A. So which way will be it?
© Tom Kando 2014
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