Debt and the Peter Pan principle

I just spent a week in the UK, and was amazed by what I saw on my hotel TV.  Every day I was there, David Cameron, the new prime minister, seemed to deliver another speech about the government’s need to impose radical spending cuts.  I don’t know much about David Cameron, or British politics; so maybe it was all talk.  But the talk was ferocious, and it was all about cutting the size of the government’s debt.

I also watched the heads of the big labor conglomerates in Spain threaten what sounded, under the circumstances, quaintly old fashioned:  a general strike.  Why?  Because the socialist government of Jose Luis Zapatero looks to implement drastic cuts in the government’s budget, which means the binge is over for Spain’s pampered and overpaid public employees.

Zapatero is not ferocious about his cuts, but he has no choice in the matter.  His country stands on the edge of the cliff of sovereign debt down which Greece has already fallen.  A weak and foolish man, he would still rather face the wrath of the labor unions, pillars of the Socialist Party, than go tumbling into the void.

The story of Greece hovered like a ghost over the news in my hotel TV.  That government, also socialist, was forced by a fiscal catastrophe into wrenching cutbacks in spending.  Government employees – the Greek privileged class – rioted in the streets, set banks on fire, burned alive those inside.  No matter.  The Greek government must shrink its budget, if only to please the Germans who are bailing them out.

The German story also hovered in the background.  Germany never attempted a “stimulus” of the economy.  Their government refused to borrow billions to be repaid by the next generation because, in Germany, the next generation will be a paltry remnant of the last.  Germans expect to pay their debts now, and insist that the Greeks, if they want German money, begin to do the same.

Europeans are proud of their “social model,” based on government control over large chunks of the economy.  Yet everyone is retrenching, even in the face of pain and protest.  Everyone is terrified by the disaster of unredeemable debt.  The postmodern dream of a European Union – blurring together cats and dogs, wealthy and poor, Germans and Greeks – has shattered on the rock of national indebtedness.

I returned home to find our own government obsessed with the oil spill in the Gulf of Mexico.  President Obama wrung his hands, threatened to kick BP’s ass, and was careful to be photographed picking bits of tar in the disaster area.  Little of a practical nature has been achieved – other than tick off the Brits, whose retirement pensions are massively invested in BP stock.  Oil continues to spill.

Insofar as the President has given a thought to his government’s debt, it’s to increase it.  He has just requested a $50 billion bailout of the states.  That’s $50 billion.  On top of the $1 trillion “stimulus.”  On top of the God-knows-what-cost federalized health care program.  Apparently, no level of debt is too appalling for President Obama.

Instead of fighting debt, he wants to avoid “massive layoffs of teachers, police and firefighters” – the same public employees who, in Europe, are being told to wear sackcloth and ashes, and be happy with less.  Here’s how WaPo reports the presidential request for higher debt:

In a letter to congressional leaders, Obama defended last year’s huge economic stimulus package, saying it helped break the economy’s free fall, but argued that more spending is urgent and unavoidable. “We must take these emergency measures,” he wrote in an appeal aimed primarily at members of his own party.

The Europeans, despite their love of the social model, are engaged in painful cutbacks in government spending.  With varying degrees of resignation, they have faced reality.  They at least talk like responsible adults.  If one spends what one doesn’t have, the bill still has to be paid somehow.  The idea that continued spending, based on continued borrowing, can increase one’s wealth or pay one’s debt is hallucinatory, and has been rejected by governments as weak and postmodern as that of Zapatero’s.

The US government, seen from abroad, appears to be operating on the Peter Pan principle:  “I won’t grow up, I don’t want to go to school.”  We continue to spend like lost children, adding a few billion here and a few billion there to the growing mountain of debt.

But the debt itself, and the difficult measures needed to pay it down, are unlikely to be the subject of conversation in Never Never Land:  “I don’t want to go to school.”

Denial is possible only until reality intrudes violently enough.  The Europeans learned this the hard way.  They went to school on the Greek debt implosion, and are now feverishly working to avoid a generalized continental crisis – one that would involve Spain, Ireland, Italy, and possibly Britain as well.

The chart below, from the Cato Institute, shows US government debt swallowing US GDP – our wealth, our production – within a few years.  We are departing Never Never Land.  We are bound for the edge of that cliff, violent reality to follow.  There won’t be any Germans to pull us back, either.  We’ll be alone in our predicament.

The decision is still ours to make:  moral adulthood or the Peter Pan principle.  Severe problems will arrive either way – our past irresponsibility must be paid for – but as adults we’ll at least have a say in the solutions.

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One Response to Debt and the Peter Pan principle

  1. tehag says:

    If British pensions are heavily invested in BP, I suggest they sell immediately and seek more profitable investments. BP cannot escape paying for its error by asserting that justice will hurt widows, orphans, and the aged.

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