Common Sense Economics

Posted on November 5, 2013 by


Alan Greenspan was being interviewed about his new book The Map and the Territory in Time magazine recently and responded to the question, “Knowing what you know now, what would you have done differently during your time as chairman of the Fed?”  His response was in part, “I always knew debt was important.  If I could go back and recalibrate my psyche and fully understand how toxic debt really is, that would have been very helpful.”  That comment leaves me incredulous.  Chris Carter might respond with “C’mon Man!”  My daughter might say something like “Duh!”  I am holding back a “You think!?!”  I never cease to be perplexed by the inability of individuals to use common sense once they get into a position of power.  Given the insulated nature of the position Mr. Greenspan held, I cannot understand how he could have thought otherwise while leading the Fed.  Everyday Americans understand why debt is a problem.  They know that they pay a premium to use other people’s money.  They also know that if they don’t make their loan payments, someone will come and foreclose on their houses or repossess their cars.  Most Americans live with some debt, but they seek to make it manageable and work hard to prevent it from being passed on to their kids.  They don’t allow it to overwhelm all that they are trying to achieve and they certainly don’t allow it to take away everything that they have worked for in life.

Not so the U.S. government.  It thrives on debt.  Our politicians seem to think there is no debt level too high.  I have a theory about why that is. Our political system is corrupt.  I don’t mean that the politicians are on the take, though there may be an argument there. I mean that we have allowed our indirect democracy to become corrupted by giving our government the ability to give people what they want.   Once we opened that door, we gave politicians the ability to make promises that would be paid for from the public till.  For much of our country’s history, we did a pretty good job keeping this from occurring. There were certainly favors and preferential treatment, but that is significantly different than what we are seeing today. The New Deal began this downward spiral.  It escalated with the advent of the Great Society programs of Lyndon Johnson.  In today’s America, it can be seen in all forms of entitlements from mortgage tax deductions to subsidized loans to food stamps and welfare checks.  Most recently it has taken on the form of healthcare.  Politicians can now come to the American people and without flinching say, “Vote for me and I will increase your Social Security check” or “Vote for me and I will give you health insurance.”  Someone might argue that this is not the same as buying votes, but the distinction is lost on me.  The Founders of this great country wanted to separate the people from people who ruled when possible.  That is why senators and presidents were not elected directly by the people.  I have a hunch they did this in part to prevent the political system from becoming the quid pro quo it has become today.

I would be interested in the thoughts of my economist friends on this one, but common sense seems to suggest that increasing debt above the levels we have now is a problem for the government.  Perhaps it is too simplistic to compare individual debt with governmental, but I think there are some clear indicators that we have gone too far. We have an entire continent to look at across the Atlantic to show us what happens when you let debt get out of hand.  But what constitutes “out of hand”?  During the government shutdown and debates over the debt ceiling, I kept hearing news reporters say that Congress was debating whether or not to raise the debt ceiling so we could borrow more money from foreign countries.  I thought to myself, is anyone listening?  This country has been the creditor for other nations for most of its history.  We rebuilt Europe after World War II, for example.   Now we are the debtors.  Often that debt is owed to countries that don’t have our best interests at heart.  I recently heard that our national debt has risen to the point that if it was divided among individual Americans, each one of the more than 300 million citizens of this country would owe over $50,000.  That is 35% higher than that of the beleaguered nation of Greece.  Now you see why I think we are running out of common sense.  Perhaps Mr. Greenspan has finally regained his, though I am not sure. Later in the interview he was asked about how bad the conflict was in DC.  He responded by saying that “Clearly the problem is within the Republican Party.”  I agree that there is a problem in the Republican Party, but its members were the only ones I heard during the government shutdown saying enough is enough.  We cannot continue to raise the debt without restraint.  But there is plenty of blame to go around.   What will we do when our creditors come to collect?  Foreclosure won’t be an option.   It is time for Americans to stop expecting something from government.  It is time for Americans to demand some common sense.