The Debt Crisis

The United States and Greece are similar in that both countries face the possibility of default on their debt obligations in the relatively near term. They are different in that in the case of Greece a default would be caused by non Greeks deciding that future Greek income will not be sufficient to pay their debts, whereas in the case of the U.S. a default looms on Aug 2 entirely due to a choice by the U.S. Congress to default. A decision to not raise the limit on the national debt is a decision to default. At this time there is no threat of default due decisions by anyone else. The reason offered for maintaining the debt limit is that if we go on as we have been we are going to find ourselves in a debt crisis like Greece. In other words by not raising the debt limit we are choosing to be sure to default now in order to avoid the possibility of a default at some later time.

In my view it is only an irony that most of the present debt was created during the administrations of Reagan and Bush II. There were Democrats in control of one or the other legislative branches during these times. What everybody learned in the 20th century was that having government services and paying for them are two different things and given that knowledge we have collectively gone along with providing services while refusing to tax ourselves to pay for them. It may be that democracy does not work, because they can not make themselves be fiscally responsible. Where the Republicans are dangerous in these times is in their economic religion.

What the United States needs in order to balance its budget, is pretty full employment of its resources. It is indisputable that the first effect of cutting government expenditures is that people lose jobs. The Republican faith states that raising taxes results in loss of private sector jobs that would otherwise be created. This is not nearly as certain as the job loss from decreasing government expenditures. But Republican preference for small government dictates that while it is ok to cut expenditures we must not raise taxes. That is a very weird, lop sided and faith based approach to balancing the budget.