The Coming Economic Crisis

David M. Walker, the head of the government's General Accounting Office is touring the country warning that the nation is heading towards an economic meltdown.

I have heard rumors of the impending economic collapse since I was a child, and I have come to simply dismiss them. There are too many instances of people making these claims that have no idea what they are talking about. I tend to put them in the same category as I put claims about evidence that Earth has been visited by aliens from outer space, or that there is a mysterious supernatural force in the Burmuda Triangle sucking up ships and planes. In other words, it is just another popular myth.

At the same time, I believe in and advocate that individuals trust experts. When somebody complains to me about an ailment to discuss what it might me, I tell them that I am not a doctor and that they should consult a physician. I work in a law office, but I am not a lawyer, so the only legal advice I give to people who have a legal problem is to talk with a lawyer. If you want a bridge or a building designed so that it would hold up, then I recommend consulting an engineer.

I do, however, consider myself to be a sufficiently well trained expert to hand out moral advice, which I will get to shortly. One of those pieces of moral advice that I feel quite confident in is that, when one's actions pose a risk of harm to others, the thing to do is to consult an expert to determine the nature and magnitude of that risk, and to listen to what those experts say.

[This means NOT doing what is standard practice in the Bush Administration, which is deciding first what one wants to hear, and then to label somebody an 'expert' purely on the basis of whether they support the Administration's foregone conclusions.]

The head of the General Accounting Office is an expert on government's fiscal health. The fact that these warnings are coming from him and other chief economists suggests that this is not another piece of wild and misinformed speculation. There is real reason here to be concerned with the financial well-being of this country.

Another of those moral principles that I almost consider too obvious for words is that it is wrong to take money from another. It would be wrong, for example, to take somebody else's credit card, rack up a huge debt, and expect the person whose credit card you stole to pay the bill. That is fundamentally dishonest.

In this country, it is standard practice.

The government has a credit card in the name of future generations of workers. The government is using this credit card to run up around $500,000,000,000.00 in credit card debt every year. The credit card balance has now reached over $8 trillion dollars. The government fully expects future generations (the person whose card the government has taken and is using without their consent) to pay those bills.

And we are responsible for that government. I cannot avoid moral condemnation for stealing somebody else's credit card and using it for my benefit by giving the card to somebody else and telling them to do the buying for me. So, when the American people give the government their children's and grandchildren's credit card and say, "Use it to your heart's content - buy us as much stuff as you can off of this - and if you refuse we will fire you and replace you with somebody who will," they are making themselves morally blameworthy for those charges.

Our moral obligation is to make the government financially responsible for making sure that each generation pays its own bills. What we need is for voters to start telling politicians, "Quit using that credit card and stealing the future wages of my children and grandchildren. If you do not stop, we will remove you from office and replace you with somebody who is not such a thief."

Note: I know that there are some good reasons for the government to maintain some level of debt. Also, there is little reason to demand that current generations pay for projects that do not promise any benefit for years to come - it is more reasonable to borrow the money and let the future generations who will actually obtain the benefit to pay the bill. This posting should be read within the context of these facts.

On the issue of the government's fiscal health, I recently listened to a presentation from the head of the Federal Reserve Board, . He expressed the same concerns over the nation's financial health.

He actually offered a piece of practical advice on how we can avoid this outcome.

One option, of course, is a balanced federal budget (or, at least, a budget that is more balanced than the budget we have today). This means either more taxes, or less spending, or a combination of both. This suggests that the morally responsible among us should be looking for candidates who are promising to cut spending and increase taxes.

However, Fed. Chairman Ben S. Bernanke also spoke about the value of investing in capital improvements. If we invest in making future workers more producting, they will be able to do more with fwer resources. They can then use that surplus income to pay off some of that debt that we have forced on them.

Bernanke suggested that we should look at policies that increase the saving's rate.

They found that equal burden-sharing across generations could be achieved by an immediate reduction in per capita consumption on the order of 4 percent (or, since consumption is about two-thirds of output, by an increase in national saving of about 3 percentage points.) This case obviously involves greater sacrifice by the current generation, but the payoff is that all future generations enjoy per capita consumption that is only 4 percent, rather than 14 percent, below what it would have been in the absence of population aging. The large improvement in the estimated living standards of future generations arises because of the extra capital bequeathed to them by virtue of the current generation’s assumed higher rate of saving.

So, this is another suggestion. If you wish to look at your children, grandchildren, nieces, and nephews with the ability to look them straight in the eye and say, "I am not the one who stole your credit card and ran up all those charges," then I think you may have an obligation to make that four percent contribution to the saving's rate. Each year, on average, you should either save 3% of your income and/or use 3% of household annual savings to reduce debt. Then, you can tell the children of today that you did not steal from them - that you, instead, sought to pay your fair share, giving up some present consumption to give them the tools they needed to cover the debts your country (and mine) handed to them.