Tuesday, July 19, 2011

The Problem with Rocket Science and the Economy

So we have this cliche, "it's not rocket science."   When we use it, it can be a little bit pejorative.  It can be a combination put-down of a person and whatever they're trying to understand, while at the same time entrenching the idea that rocket science is so unintelligible that who the hell normal people would understand it anyway?  So the convenience is that it quickly imparts the idea of complexity.  Now we can divide the world into things that are like, or are not like, rocket science.  And if it's like rocket science, you can be forgiven for not understanding it, because, well, you're normal.

Let's consider the U.S. economy and its relationship to the federal budget.  Is it rocket science?  Hell yes, and also, not exactly.  On one hand, we've been doing this economy thing for hundreds of years, and our very best minds STILL can't agree on what works, and what doesn't.  Tax rates, interest rates, incentives, tariffs, what's the balance?  And apparently all the historical evidence we have supports all viewpoints, at some time or other.

On the other hand, if you look at just some small pieces, it's pretty simple.  Like, should we raise the national debt limit?  At this particular point in time, sadly, yes.  To not do so would be an order of magnitude worse than "Epic Fail."   But, as the clock ticks toward August 2nd, we find we may have already done significant damage to the long term economic standing of the United States.  I find this intuitive, but a much better explanation than I could give is in this link:


We're teasing the dragon here.  Why hasn't congress acted?  It's complicated, because we have a budget crisis during a recession (depression?) with an election coming up.  We have borrowed an historic amount of money at a huge premium against the future, we have neither plan nor mandate to balance our budget and we can't agree on taxes and spending cuts.  Possibly the most damning: apparently the exact details on a budget compromise will be the "decider" of which party will be best positioned for the 2012 Presidential election.  OMG, we've got to: A. Stay in power, or B. Get more power.  I could say simply it's time to be Americans, not Republicans or Democrats, and do the right thing for the country.  But when has that call really worked?  Even entering WWII there was dissent, and we were attacked, dammit.

The Dems have got to accept spending cuts, and they have--not enough to satisfy the GOP, and not enough to really address the problem.  However, addressing serious spending cuts means going after entitlements, and there is precious little time to tame that beast.  They also want to get back to old taxation rates (not raise taxes, restore them to pre-Bush tax cut levels) or at the very least, restore tax levels for the people who can best afford to pay the old rates.  Raising taxes gets people's attention quick, not for the better.

The Republicans are at risk of fragmentation (think Tea Party).  Working a true compromise seems fatal to their ability to keep a united front.  So apparently rather than mediate the amount of a cut, or even consider taxes, their compromise is to "allow" the debt ceiling to be raised if they get significant spending reductions without raising taxes.  That's not a compromise position, since they have not agreed on what can be haggled.  It's really more like demanding a ransom--most of our congressmen already know we must raise the ceiling.

On a pragmatic level, it seems to me we must do all of it.  Reduce spending, increase taxes (a little?) and dedicate ourselves to fiscal responsibility, i.e. balanced budget.  Something will have to be done to the sacred cow of entitlements; for example, we can't ignore the demographics of a smaller generation's burden from the larger, longer-lived baby boomers.  Medicare, Medicaid, Social Security, Government retirement; all will have to be reconsidered.  Unfair to those who paid into these things, and made lifelong decisions based on promises?  Absolutely.  Unmanageable burden for some?  Sadly yes.  Charity and sacrifice are not two sides of the same coin.  We may have been charitable with our surplus, but we are about to have to sacrifice from our current standard of living.  Such is the risk of embracing an economy primarily dependent upon growth, because that is never a guarantee. 

All the signs are there.  The world looks to us to keep things steady, and that's not a position we have tried to avoid--we have proudly taken center stage on world affairs for nearly a century.  Portugal, Greece and some other countries are about to find out what it means to default.  What will they cut?  Inability to provide basic government services is a path to anarchy.  At the very least, they face a significant downturn in their prosperity.  What does it mean when the standard of living declines, after so many years of improvement?  We'll find out soon it seems.

The very first savings investment I ever made was a US Savings Bond, "backed by the full faith and credit of the US Government."  When I asked an investment counselor if it was a good investment, he said "the yield is very low, but there is no safer investment in the world."  Then he added, "but it boils down to being a promise we have no choice in--because nothing else matters if our own government's money is no good.  It's not rocket science."

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