Is the debt crisis a real crisis or a manufactured one?

My opinon: The debt is a real problem; the debt crisis is political grandstanding at its worst.

With the analogy of the family with too much debt (I’ve been there), strategies for less spending and more income are considered. It’s a balanced approach to turn the situation around. Wish we had some of that “balance” right now in Congress.

Not since Dubya represented our fair land have I been so ashamed. Again, my opinion.

It’s been manufactured by the Republicans as crisis. It wasn’t a crisis on the 7 times under Bush II, nor all the times under Reagan.

The difference between Republican debt and Democratic debt? The Democrats want to raise taxes on the rich to pay the debt down now. Republicans want to keep paying interest on the debt and have their spending paid for by our grandchildren.

To be fair around taxing the rich—the current proposals (to the best of my knowledge) only call for removing some of the many tax loopholes that the rich enjoy. Not a rate increase, per se.

We’re splitting hairs to those who’d be paying more (I’m likely to be one of those), but we HAVE to bring in more revenue through taxation, and that burden has to shift to the wealthy. The middle class have been moved too far down the economic food chain at this point. Again, my opinion.

IMHO, it is real… very real, and has been for a number of years. Unfortunately, we have had the luxury of ignoring it while voting ourselves “Bread and Circuses” due to our wonderful and seemingly inexhaustible credit limit and we have now run up against the limit of our magic credit card.

Making light of a near 100% debt ratio is basically the same as a private citizen trying to make the case that they are financially solvent when their personal debt is nearing their yearly income. Sure, there are plenty of Americans out there in that situation, but that does not make them financially solvent nor does that make them a good credit risk. In fact, I suspect that most in that situation will eventually default (as our nation is in danger of doing). Further, I submit that simply raising one’s credit limit to address the chronic problem of spending more than one takes in is not a sound fiscal policy, for individuals or governments.

Yes, we had a much higher debt ratio at the end of WWII. However, to continue the parallel with personal finance, WWII was the equivalent of a catastrophic medical event. We were forced to take on massive debt in order to stay alive, and after the fact we had the task of paying it off, which we did. Our current situation is quite different, however. It is more analogous to becoming used to having two cars, a boat, a house in the suburbs, the vacation cottage by the lake, etc….. but simply not having the money to cover the lifestyle that credit abuse has allowed us to become accustomed to.

It’s all misleading rhetoric to me…

The fact is, our corporate overlords aren’t willing to give up their lavish lifestyles for the greater good. It’s not unheard of – this virtuous CEO gets it!

Now stop complaining and get back to tilling the fields, peasants! This is America, the land of the free!*

*some people may be more free than others

I keep hearing the government compared to a family that has to live within its means. If that were true, we wouldn’t have been able to have the Civil war, WW2, reconstruction, and the reconstruction after the depression.

There is no equivalence. I agree that there are many things that need cut from our budget like the occupations of Iraq and Afghanistan, over-blown military budget, non-negotiable medicare drug policy, and many others. I also suggest that the budget of the House, Senate, and Supreme court be halved. There are many other places to cut and some places where taxes and tariffs need to be raised The debt ceiling is for bills that need to be paid, not future spending. The whole thing is simply the tea party’s way of holding the country and indeed, the whole world hostage.

Both parties bitch about the debt as a means to create a bargaining chip with which to attack expensive policies they don’t like. The Democrats cited the debt in opposition to Bush’s tax cuts, Medicare Part D, and the Iraq War.

The Republicans are now citing the debt in opposition to… well, it’s hard to pretend they actually have any sort of coherent opposition to any policy. They want to cut taxes despite tax cuts increasing the debt. They oppose the health reform bill, which lowered the debt. They oppose Obama’s stimulus, which had a lot of tax cuts. They oppose Medicare spending, while nevertheless running scary ads accusing the Dems of cutting Medicare. They champion Ronald Reagan who drastically increased our deficit. Many of the tea party seem to be almost anarchists, in that they don’t want the government to spend any money whatsoever on anything.

In terms of fact, our debt is a bad long-term problem but it pales in comparison to our short-term problem of ~10% unemployment. And the reason we have 10% unemployment is a shortage of demand, which only spending can alleviate. Republicans have no problem deficit-spending when it comes to fighting pointless wars or giving huge tax cuts to millionaires or billionaires. Spending government money to help create jobs, which the stimulus has explicitly done? That’s completely unacceptable to Republicans.

@Qingu

“And the reason we have 10% unemployment is a shortage of demand, which only spending can alleviate.”

I guess here is where our points of view totally diverge. Exactly how do you propose to alleviate unemployment by spending? IMHO, the way to address unemployment should be a two pronged approach.

1) Instead of taxing the crap out of small businesses owners (you know, “the rich”) we should be making it not only possible, but financially advantageous for them to grow their businesses, which in turn creates jobs.

2) Use our tax and tariff system to make it less attractive for companies based in America to outsource American jobs to “low cost centers”.

The debt crisis is real, but not because we have too much of it. In fact, we have not borrowed enough to spend our way out of recession (which, of course, is the only way to get out of one). Why we see fit to hobble our economy, I don’t know. It is very clear from nations where there is no borrowing and lending, that it is credit that keeps an economy moving.

The real issues is how much debt is too much, and somehow fiscal conservatives have gotten a bee in their collective bonnet that we are saddling our children and grand children with huge debt. I don’t know why they think their children are incompetent, but I know mine will be able to work and make plenty of money and they will have an easy time paying off the debt if they want to.

Why do I think this? I trust in the advancement of technology and efficiency. I believe it will increase in an exponential way. This debt we have now will be trivial compared to future economies.

Except we aren’t going to get there because we are starving ourselves of capital. We are skanking up the cash flow. No cash flow, no spending. No spending, no need to build further capital. No borrowing. The economy is like one of those rivers dying in the salt flats.

I don’t know what fiscal conservatives are thinking will bring the economy back. So I have to believe they have another agenda. When they do this, they allow the rich to put the screws to the poor, thus transferring more wealth from the poor and middle class to the rich. But even I, who hate conservatives passionately, cannot believe they would be so evil. So I have to conclude that, at best, they don’t understand economics, or at worst, they are idiots.

Of course, with an attitude like that, how could I compromise with them? How could I do something that I know hurts the country just to get legislation through? And, in fact, that is what is happening in Congress. True believers see the world in diametrically opposed ways and compromise would be impossible, were it not for the need to look like you’re doing something.

In fact, the compromise will pretty much keep things going as business as usual. Nothing improves. Maybe things get a little worse. Everyone is waiting for the economy to turn around and tax revenues to go up without having to cut budgets or raise taxes. But the illogic of this is lost on the American people who keep on electing gridlock government.

@YoBob Your #2 would violate G.H.W. Bush’s NAFTA and other similar agreements.

It’s all not ‘real’ in any sense since it concerns money, which is constructed from beginning to end.

@zenvelo – I was never a big supporter of NAFTA.

It’s a crisis if you have a lot of capital.

@YoBob,

1. Small business owners are not highly taxed in any possible understanding of our tax system. And I am confused as to why you even think Obama (or I) have proposed raising their taxes. Many of his stimulus policies lowered their taxes. I am all for lowering taxes of poor and middle income people and making it easier for small businesses to employ people.

2. Okay, what would you do to stop outsourcing? Again, we’ve proposed (and iirc enacted) tax breaks for businesses who hire workers here. Are you suggesting we start a trade war? (ONe that we would lose, by the way)?

And are you seriously not aware how spending can alleviate unemployment? Government spending can directly employ people. Construction workers who fix schools, roads, and bridges are employed by government spending. They can then spend their income on other sectors of our depressed and underutilized economy. This is basic economics.

@Qingu – I can’t help but wonder if you have ever tried to run a small business. Let’s take, for example, a friend of mine who does general maintenance. As an individual, it is true that he only has to pay taxes on his income. However, he only has two hands and if he wants to grow his business he has to hire some help (that’s create jobs, for those who might be missing that). Now suddenly not only does he have to cover his own personal income tax, he has to do matching social security, unemployment insurance, and deal with a host of other fees to ensure those employees are certified, bonded, etc…, all as a result of both direct taxation and indirectly as a result of sometime draconian regulation that seem to be more about providing barriers to market participation on the part of the little guy than they are about actual consumer protection. The result, the prices he would have to charge triple, which means less business and thus no need/motivation to hire help.

As for outsourcing, tax breaks for businesses who hire American workers is a good start. I’m not suggesting a trade war, but I believe placing a tax on the hire of foreign workers would be something worth considering..

@YoBob, don’t play the “I run a business” card with me. That doesn’t mean you know anything about macroeconomics.

And I’m also not sure what on earth your point is. Are you suggesting that we should stop making small business owners make their workers pay taxes on social security? First of all, why would the like 3% of my income I pay for SS make my employer less likely to employ me? Second of all, are you seriously suggesting we end SS? What are you planning to replace it with?

As for government regulations, what regulations are you referring to? There are lots of them, they all have different cost-benefits. Are you suggesting the costs of complying with OSHA for example prohibit your small business owner friend from hiring more workers? That seems absurd to me; can you please quantify these costs?

And more importantly, can you please explain why your small business owner friend would even want to hire workers in this economic climate? Is there extra consumer demand for the extra business such workers would produce? For most businesses today there is not; consumers aren’t buying anything, because they don’t have much money and a lot of them are unemployed. So, businesses see no need to hire workers. Hence why I aid “the problem is with demand.”

As for foreign workers, in order for me to even start to address this suggestion I need to know if the problem you are trying to solve even exists. Or at least quantify it. What do you mean by foreign workers? Do you mean like illegal immigrants from Mexico, or like Foxconn employees in China who manufacture iPads?

If it’s the former, aren’t businesses already penalized for hiring illegal immigrants? And what exactly are the statistics here? How many aliens are crowding out unemplyed Americans? can you show it’s a non-neglible number?

If it’s the latter, the reason Apple manufactures iPads in China is because you can hire workers in China for slave-labor wages. Likewise shoes manufactured in Bangladesh or wherever. I don’t even know where to begin to address this problem, since it is a problem fundamental to the nature of multinational corporations, and I think the only way to meaningfully address it is to raise the standard of living and worker rights around the world. That’s a long term problem, and I’m more interested in short-term solutions to immediately lower our unemployment rate.

And at this point I seriously don’t understand why you just aren’t willing to admit the obvious. That government spending can boost employment.

I did not see this question before I asked pretty much the same thing lol. Sorry for that.

@Blackberry I think yours tackled it from a different angle, so it was basically a different question.

“Are you suggesting the costs of complying with OSHA for example prohibit your small business owner friend from hiring more workers?”

I am not suggesting it, I am saying it outright. According to my friend, that is the reality of his situation.

…“are you seriously suggesting we end SS? What are you planning to replace it with?”

No. However, I am suggesting that we move to an opt in system. Further I am suggesting that individuals be responsible for their social security tax rather than trying to hide it by forcing employers to both garnish one’s wages and then match that contribution as well.

“And more importantly, can you please explain why your small business owner friend would even want to hire workers in this economic climate?”

Well, it’s because as an individual he has more work than he is able personally tend to (he is very good at what he does).

As for the government directly hiring workers, I am all in favor of it, especially when those workers build infrastructure. I would far rather our government be paying the able bodied to work rather than paying them unemployment benifits.

“Do you mean like illegal immigrants from Mexico, or like Foxconn employees in China who manufacture iPads?”

The latter.

“the reason Apple manufactures iPads in China is because you can hire workers in China for slave-labor wages”

And this is the root of the problem.

“I don’t even know where to begin to address this problem”

I believe this is exactly what import tariffs are designed to address. Yes, multi-national corporations would whine and countries like China would bluster. But at the end of the day we command a large enough consumer market share to have a bit of clout in this area.

@YoBob,

First of all, your friend is either a liar or an ignorant moron, no offense. OSHA is not expensive to comply with. Certainly not enough to prevent him from hiring a worker if there is a demand for that worker’s services.

Let me be blunt: I think either you, or your friend, are lying. I don’t think your friend has enough work to justify the hiring of another worker. If he did, he would hire another worker. It is bullshit to suggest that the small cost of compliance with OSHA and social security have anything whatsoever to do with your friend not hiring more workers. Maybe you’ve simply misunderstood your friend’s position. Maybe you are too trusting of your friend’s knowledge of his own business situation.

As for your thoughts on SS, I think you are crazy. Do you understand what would have happened to people’s retirement accounts in the past few years if social security was privatized? What is your plan for dealing with the hundreds of thousands of starving seniors that your plan would create during recessions?

And no, we really don’t have that much clout. Because it’s not just China who would bitch, it’s Apple, a company with many employees in America. Plus all the other industries (A LOT) that outsource work.

Also, didn’t you say he already had two employees? How in the world would hiring a third significantly raise the cost of OSHA compliance to begin with?

And just a general point on the idea that getting rid of government regulations can help lower unemployment.

It’s true that if we got rid of child labor laws, employers could more easily hire child labor. That doesn’t mean it’s a good idea to get rid of child labor laws because, you know, children should be in school.

Which is to say, there is a cost-benefit analysis that must be done when we talk about getting rid of any regulation, even if you think it can lead to more jobs. Maybe getting rid of OSHA would free up more money for jobs (though not much, it’s really not expensive). But it would also create many more worker injuries. That, in turn, puts new stresses on our economy and our society as a whole.

@Qingu – You asked, I answered, and you respond by calling me and/or the friend in my example liars or morons.

I’m sorry if this real world example does not comply with your world view, but I assure you I am not lying and neither my friend nor I are by any measure morons (not that it matters, but he is not only a MENSA member, but a member of another one of those high IQ clubs that are for only the top percentage of the MENSA folks. I, OTOH, make a decent living as a software engineer, a profession that is rather moron unfriendly.).

Really it is more about social security taxes, unemployment insurance, as well as the added book keeping involved (for which he would need to create yet another job) than it is about OSHA requirements. But all play a role. And no, I don’t recall saying he already has a couple of employees. He does, however, on occasion hire contract labor to help out.

Do you really think that the suggestion of reducing the tax burden and/or barriers to entry for the small mom and pop business equates to removal of child labor laws? Do you really think that the suggestion of making people directly responsible for paying their own social security tax rather than having their employers do it and eventually moving to a system where people have the option to opt out equates to just suddenly yanking the rug out from under those who have already reached retirement age? Get a grip!

In any case, I’m sure you will understand why I am choosing not to continue a conversation with somebody who flat out calls me a liar/moron.

Apologies; you said he has “two hands,” I assumed these were metaphors for employees, lol.

So this is just a guy who occasionally does contract labor but who wants to hire a permanent employee, and the culmination of hoops he has to jump through is causing him not to? What you need to show is how you would chip away at those hoops without creating equal or worse problems. I don’t think any one hurdle is on the level of child labor laws (although fyi republicans have called for rescinding them); but each regulation serves a purpose that may not be visible to a small business owner.

Maybe it would help if you would describe precisely how low the barrier should be for small businesses hiring workers. I’m not sure how much you still oppose OSHA but I am presuming you think employers should be required to provide safe working environments. As for the tax code, I absolutely agree it should be simplified; I am however extremely skeptical that your MENSA member friend would need to hire an additional bookkeeper just to keep track of UI and SS associated with one additional employee.

And for the record, I didn’t call you a liar or a moron. I said either you or your friend must be one or the other on the basis of the claim that OSHA was so expensive that he could not hire another employee. You’ve now retracted this claim, so I retract my statement.

I don’t understand how people would have the option to opt out of SS. How would that not cripple the system? If I opt out now, retirees now have to deal with the consequences—not me.

Whether or not it is a crisis is not, in my opinion, the issue.

Here, in my opinion, is the issue.

What is the objective standard of behaviour that would legitimize one generation’s decadent desire for material comfort and “social security” to the extent that they would run up a debt that their children and grandchildren will have to pay after the debtors have died.
If you read in the paper that the parents of a family in your community had lived a lavish life, and died, leaving their children with unpayable debt, you would understandably be disgusted.

And yet there are those in our midst for whom this makes perfect sense.

Screw them. If there is a crisis, it is in the souls of the post WW II generations more than it is in the treasury.

@josie, okay. So how do you prioritize that?

Is dealing with the moral hazard of our long-term debt more important than doing something to deal with our current 10% (or more) unemployment?

Thanks everyone for all the great input and thoughtful debate I can’t respond individually tonight. I agreed to help a client back up his website, and the CSV file I pulled is a mess. Gotta stay up hand editing it in a text editor to get it to open in Excel. Ugh. :-(

The American rating agencies are implementing a hidden agenda sparing the US and making European countries suffer more than necessary. There’s an outrage going on over here totally unnoticed by the American media. More and more European politicians no longer consider the US to be a respected world leader. We realize that we are on our own.

Don’t worry Matt. The way we are heading, we’ll be just another fascist state when the Right wins the next election. Americans are nothing but stupid.

@mattbrowne, what are your thoughts on the Euro crisis? I’ve only read a bit about it but it sounds like Europe is even more fucked than America at this point. (Namely that Italy and Spain might be needing a Greece-style bailout soon?) It sounds really scary.

Europe is in serious trouble, but it’s somewhat less serious than the US situation. Because the problems of Greece, Ireland, Portugal and now Italy and Spain are partly compesated by countries like Germany, France, Netherlands, Belgium and the Scandinavian countries doing reasonably well. In Germany we can’t even find enough engineers and other highly qualified people to satisfy the demand from other countries wanting to buy German products. Companies have started to look for young people in troubled European countries and help them move to Germany. Some of them rather want to go to the UK because they already speak English. In IT companies there’s no need to learn German. But in the smaller traditional engineering companies it’s different.

@mattbrowne, that’s not what they’re saying over here. The way I understand it, if Italy and Spain need to be bailed out, it would basically be the end of the Euro… which would undoubtably spark a double-dip recession (if S&P’s announcement hasn’t just now sparked one already).

Do you think Italy and Spain are going to default?

@Qingu – It’s not clear whether Italy and Spain need to be bailed out. The rating agencies are part of the problem because interest rates for Italian and Spanish government bonds are skyrocketing. The media love the language of doom like “the end of the Euro” or “hyperinflation”. I think it’s unlikely that Italy and Spain are going to default. There’s a lot of talk about new European government bonds so the countries in trouble have access to money without interest killing them. On a smaller scale this was already implemented for Greece. So they no longer have to pay 13% interest. Because if forced to do so the creditors would never get their money back. The tax increases in Greece would not even cover interest let alone paying back the money owed to the creditors.

Well, I guess that’s reassuring to hear…

@Qingu You have to be careful of what “they” are saying over here. A great deal of the press, political machinery and Thank Tanks here in the USA are controlled with the iron fist of would-be fascist right-wingers. They want to initiate an austerity program just like the one Herbert Hoover used so successfully to avoid the depression NOT! They want this because it will produce a world-wide depression in which the oligarchs in charge of the Greedy Oligarch Pig party can buy up most everything in the world at fire-sale prices.

The only thing that worries me about Italy is Silvio Berlusconi. I think of all the 27 member state leaders he’s the worst followed closely by Viktor Orbán who is undermining free press in Hungary.