Sunday, November 26, 2006

The Great Rip-off

For the last six years our national government has been engaged in the biggest credit-card binge that could possibly be imagined. Even if we end the Iraq war in six months or so, the bills must eventually be paid. And those costs are only a portion of the deficit spending that the Bush administration and the Republican Conghress has been engaged in.

A major element has been the almost incredible increase in "earmarking" (pork) in Congress. A story in the New York Times this morning indicates that this orgy of "delivering dollars to constituents" (only well-healed ones, in actually) will continue apace under the Democrats.

Why is this happening? The answer, I think, is that hard times are coming. Already the foreign-exchange markets are nervous that out Chinese creditors will pull the plug, as of course one day they must. The only question is the timing, as our Asian friends want to crack down in such a way as to minimize their own loss.

I am reminded of the following situation. When I started graduate school at New York University in 1956 the college had two campuses: the historic location around Washington Square in Greenwich Village and an uptown campus in the Bronx. The latter was a beautiful Beaux-Arts design, rivalling the Columbia Campus. It became clear, though, that one of the campuses had to go.

It was decided to sacrifice the uptown campus. As the rumors circulated, people who worked there began to privatize--small pieces of office furniture, books, electronic equipment, and so forth. By the time that New York State took over in 1973 there wasn't much left.

Is this is what is happening to America now?


Anonymous Anonymous said...

$300 billion for Iraq seems awfully expensive for nothing. The Pork is lamentable, but is actually relatively cheap (and actually not a bad thing, since it usually gets something for the money it spends). But even it pales by comparison to our entitlements. Social Security Retirement was badly structured at the outset, now on one has the balls to correct it. It and Medicare will bankrupt the nation before Iraq or Pork.

Deficit-financing is always a bad idea for more than a couple of years, even according to Keynes. Except for Clinton's years, it's all been deficit-financing. China has been the lender, and China is finding our profligacy too much of a liability, since the idea of debt is to repay it. With what, they are asking?

Lastly, and perhaps more importantly, a country can only generate wealth with capital assets, but we've sold most of ours. Yes, foreign owners still employ us, but they take their profits out of our system, and build new infrastructures elsewhere. Capital investment in the U.S. is almost neglibible, and the capital assets that persist are mostly foreign owned. So what are Americans going to use to generate revenue and wealth, so that the government can tax it to repay its debts? Even "communist" China knows enough economics to know that cannot happen. The U.S. economy is literally a "shadow" economy, and shadows are ephemeral and passing.

So the biggest problem, the most pressing problem, is not just the increasing mountain of debt, it's the lack of capital assets to generate domestic revenue and wealth. If we had those assets, we could repay our debts (over an increasingly length of time). Without them, we're merely a passing shadow, and shadows don't have any substance to generate revenue for governments to tax and repay debt.

Even if China sees this, our people don't.

1:36 PM  

Post a Comment

<< Home