Saturday, October 16, 2010

Living Beyond Our Means

Even though the world economy has been in a two year slump, I don't think people really understand what a precipice we are on. For the most part we all live as though everything is fine and will continue to be so indefinitely. I'd love to think that's true but I don't. If wealthy countries don't start making better decisions, the world economy could truly bomb out - resulting in another great depression - or even worse.

We are living beyond our means at every level - individual, corporate, and governmental. I'll just use my home country for example. The average American household is big time in debt - people drive cars they can't afford to houses they can't afford that are full of junk they can't afford. Our businesses are up to their ears in debt (even though large amounts of corporate debt have become government debt through the Bush/Obama bailouts, corporate debt is still huge). And the US government has been in a debt spiral for the past 30 years (Regan through Obama) - over 13 trillion dollars now. How much money is that? If you started paying it back at a million dollars a day, it would take you 35,620 years to pay it back. No, I'm not joking, and that's not a typo - and that's without any interest (in case you're wondering, the U.S. paid 228 billion in interest last year).

And it's not just America. Here's a list that shows the amount of debt for some of the richest countries in the world in relation to their GDP (the amount of money the countries actually make). Notice a trend from 2007 to 2011?

Gross debt as percentage of GDP
20072011 Forecast
United Kingdom47%94%
United States62%100%

So what this means is that Japan, for example, in 2011 is projected to have debt that is approximately double what they actually make - almost makes the U.S. 100% mark look small. So Japan's situation would be the equivalent of an individual who made $50,000 a year being $100,000 in debt.

Now, if you had a friend that was in that situation (and you probably do) what would you tell them? I imagine it would be something along the lines of "Get rid of all the crap you can't afford, cut up your credit cards, and get yourself on a budget that requires you spend less than you make." Here's the problem - at a national level this is darn near impossible. It's hard for governments to cut spending because they are beholden to so many interest - both corporate and individual - and no one wants to give up their piece of the pie. Most of us are happy to have somebody else give up their piece, but not ours. If you work in health care, a cut to the defense budget is probably no big deal, but if you work for the defense department you're going to be ticked off. Which is understandable. Who wants to lose money or benefits? If you're a farmer, do you want to give up your government subsidies? If you're an auto worker do you want to give up your government bailout?  If you're disabled do you want to give up your disability check? If you're 75, do you want to give up your pension and go back to work? Of course not. No one does.

And that's the pickle politicians find themselves in - and this is true no matter what the party affiliation. Don't let the rhetoric of smaller government coming from some politicians fool you - they have just as many spending programs as anyone else. In fact, those politicians put themselves in a bind more often than the openly big spenders because they create the expectation of spending cuts without actually having the ability to do so. The end result usually means the only cuts that end up being made, if at all, are in sectors of society that have very little political strength (i.e. the poor)...but that's another post for another day. What happens more often than not is they target some program that is not tied to their voting district, only to have the cut blocked by the politician from that district. So nothing really happens, but they can create the appearance of trying. I'm sure there are a few exceptions to that rule, but broadly speaking that's how things really work.

The only way that spending cuts could be made that would be both fair and make a legitimate impact would be across the board reduction - everybody gets a percentage cut - whatever it is, it would have to be the same for everyone. But that will never happen because the vast majority of politicians want to be reelected, and the second someone realizes that their piece of the pie is 10% smaller they're going to cry bloody murder. And to expect people to take a cut from their government benefits (direct or indirect) and also reduce their personal consumption, and manage their businesses more responsibly...well, all I can say is don't hold your breath.

The bottom line is we've dug ourselves into a pretty deep hole. And I'm skeptical that we have enough self control (or self sacrifice) to make the changes necessary to get ourselves out of it. By the way, that chart above is just for government debt. When you include individual and corporate debt...oh 2008 the total debt of the U.S. (private, corporate, and governmental) was 360% of GDP.

I'm no economist, but I think we're in deep doo-doo...

Saturday, October 2, 2010

The Condition of Humility and Reverence

"We have lived by the assumption that what was good for us would be good for the world. And this has been based on the even flimsier assumption that we could know with any certainty what was good even for us. We have fulfilled the danger of this by making our personal pride and greed the standard of our behavior toward the world – to the incalculable disadvantage of the world and every living thing in it. And now, perhaps very close to too late, our great error has become clear. It is not only our own creativity – our own capacity for life – that is stifled by our arrogant assumption; the creation itself is stifled.
We have been wrong. We must change our lives, so that it will be possible to live by the contrary assumption that what is good for the world will be good for us. And that requires that we make the effort to know the world and to learn what is good for it. We must learn to cooperate in its processes, and to yield to its limits. But even more important, we must learn to acknowledge that the creation is full of mystery; we will never entirely understand it. We must abandon arrogance and stand in awe. We must recover the sense of majesty of creation, and the ability to be worshipful in its presence. For I do not doubt that it is only on the condition of humility and reverence before the world that our species will be able to remain in it."
- Wendell Berry, Kentucky farmer