What Does “Broke” Mean?

As China now officially passes Japan as the world’s second largest economy, people are looking at the United States, with looming deficits that will equal or exceed the perceived value of the entire U.S. economy. Deficit anxiety looms as headlines like “We are Broke!: Debt Now Equals Total U.S. Economy” (LBN Alert, February 14^th) are popping up everywhere. Far from the 30 plus-to-1 debt to equity ratios that pushed Bear Stearns and Lehman Bros. off the cliff, the numbers are still disturbing, but is this a true cause for alarm? With looming accelerating demand on commodities and deficit peril, should Americans be piling up the suitcases for the cash they might need for a cup of coffee?

Let’s assume that we “do what is prudent and necessary” to restore fiscal balance by cutting education, infrastructure and energy research budgets as a majority of House members seem to advocate. Are we fiscally better off with failed and snailing highways littered with unbearable and growing traffic demands and hampered with potholes and failing steel-reinforced concrete? Do we save money by holding back fixing dams and levees until they burst? Is the United States in a superior position with a balanced budget and oceans of under-educated people searching for higher paying jobs in a sea of global competition? Is our balance of trade improved as we allow other nations to develop and implement the technologies in alternative energy that inevitably we will have to buy?

The problem with thinking that cutting is good no matter what we cut is beyond stupidity. This instinct might look good in the halls of empty sloganeering, a rapidly expanding place where too many outsource their opinions to those with unrealistically simplistic solutions to our economic crisis, but the methodology simply accelerates the decay of the United States as the truly giant economic superpower that it is and should remain. This way of thinking simply fails to differentiate between profligate spending and prudent investing. If done remotely correctly, infrastructure, education and energy research are investments, and investments have the hallmark of creating growth or dividends or both. Failing to invest relies on the assumption that what exists now will not wear out, will not become obsolete and has perpetual value without upgrades… which each and every one of us knows is absolutely not true. But still, bright people campaign as if there were truth in this assumption, that a crumbling inefficient infrastructure and employees who cannot create solid values are a tolerable side effect if only the budget can be balanced.

Paying for past employees with current money, is a bad idea whose time has come… or rather the piper has come to be paid. Paying for wars – especially wars that abet our enemies (like handing Iraq over to the policy-makers in Iran by eliminating those opposed to Iran from power) – that don’t bring safety or value to individual Americans isn’t tolerable anymore. Spending almost half the planet’s military expenditures is becoming unsustainable. But investing in our future cannot be lumped into “expenses”; they have to be viewed as investments.

But as the January 29^th Economist points out (and thank you for the reference Dennis Duitch), we have come to point of irreconcilable differences, where the battle over our debt ceiling has profound long-term consequences for our country: “AMERICA FACES TWO HUGE, LINKED PROBLEMS: First, the unemployment ‘rate’ is running at 9.4%; adding in those who want full-time work but can find only part-time jobs, it is almost twice that and job ‘creation’ is not even keeping pace with the rise in population. And second, the budget deficit is running at almost 10% of GDP’ – at the worst level since WWII for the third year in a row – while interest on government debt is ‘already eating up 10% of government revenue and will rise as interest rates go up.’ So far, neither the President nor either party of Congress has any ‘workable plan’ for dealing with even their own main priorities, much less for dealing with each other’s. ‘Both parties’ ideas are rotten, but the collision between them looks like being worse… The stage is set for a savage spring.’” We could, however, transition to a nation of investment bankers and dishwashers… Or we could decide to invest in ourselves and our future.

I’m Peter Dekom, and I am truly puzzled at the utter refusal to understand the reluctance of major politicians to believe enough in our future to invest in it!