Friday, May 02, 2008

Forgive Us Our Debts

Among the nation's many problems, the national debt is one of the easiest to ignore. The consequences, although severe, are many years away and the news, cultural business, and political cycles tend to work in three months (at most) increments. In Forgive Us Our Debts: The Intergenerational Dangers of Fiscal Irresponsibility, Andrew Yarrow argues that we need to start fixing the debt problem now to avoid bequeathing our children a badly hobbled economy and decline in living standards.

Yarrow begins the book by describing how the United States shifted from a frugal nation to a spendthrift one. While many would look to the New Deal, Yarrow points to the deficit spending of Kennedy and in particular Johnson as starting the debt accumulation train. And, with the brief Clinton exception, the debt has continued to pile up. Making matters worse, the per capita Social Security burden is increasing and Medicare costs are exploding. So why do we care?

As Yarrow notes, the debt payments suck capital out of the market that could be invested in new businesses, new technologies, new infrastructure and other means of improving the overall economy. It is also leads to lower priority government spending, like National Parks, to decline with all of the attendant negative effects. What's worse, the debt will grow faster with the rise of other costs leading to severely compromised future for the next generations.

Many would simply say, take money away from the Pentagon. Yes, defense spending is high, and should be cut, but even taking it to zero would not be anywhere near enough. Defense is discretionary, meaning the government chooses to spend it or not (although the latter is a rarity) while Medicare, Medicaid and Social Security are non-discretionary meaning they must be paid by statute. This chart shows that half of the spending by the government is non-discretionary and with a growing elderly population and with exploding health care costs, either the share is going to get bigger or taxes are going to go up.

Yarrow gives two alternatives: either the country wakes up now to make changes, or it will have to make emergency measures when the economy comes close to collapse. He lists a number of solutions, including tax reform, improved tax collection, heath care reform and political reform meant to lead to better budget decision-making. Given the scale of programs necessary to correct the problem, it seems more likely that the people and the leaders will react only when things get truly bad.

This book is a good starting point for understanding the problems at hand, while providing some potential solutions. The book is a concise survey, so it will not provide the final answer on how to fix health care, but it will educate the perplexed and help them to read further. The book will also force American readers to take a critical eye to our overwrought consumption and short term outlook.

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