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How to explain the American budget crisis in 5 sentences

Illusio

Illusio

Golden Member
Pretty good analogy. That's why i didn't get why party leaders were getting excited from cutting a few billion from the budget. It's a good start, but that's about it.

In just five sentences, Philip Greenspun explains the American budget crisis more clearly and succinctly than I've seen it done anywhere else:

We have a family that is spending $38,200 per year. The family's income is $21,700 per year. The family adds $16,500 in credit card debt every year in order to pay its bills. After a long and difficult debate among family members, keeping in mind that it was not going to be possible to borrow $16,500 every year forever, the parents and children agreed that a $380/year premium cable subscription could be terminated. So now the family will have to borrow only $16,120 per year.

Philip points out that the entire matter is easily understood if you just take eight zeroes off of all the (otherwise unimaginably large) numbers. Read his whole post here.

Note that I'm not suggesting the solution to the crisis is simple. Just that before any solution can be found, people need to understand - and be willing to face up to - the problem at hand. A simple explanation is a great place to start.

P.S. On the subject of facing up to the problem, see this NYT profile of Pete Peterson (who has campaigned against rising debt for 30 years), or the Wikipedia entry on the National Debt Clock.
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Article Source
 
Some people think we should wait for our bosses to give us a raise, and that will solve the problem.

Others think we should stop spending more than our bosses are paying us.
 
That is a terrible analogy, but one that is pervasive.

Family debt and government debt are not the same thing, or even remotely the same thing.
 
eskimospy said:
That is a terrible analogy, but one that is pervasive.

Family debt and government debt are not the same thing, or even remotely the same thing.
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If you are going to make that kind of statement, some explanation would be helpful.
 
Illusio said:
If you are going to make that kind of statement, some explanation would be helpful.
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Families do not take out debt in currency that they can print. It would be like me owing you a trillion eskimospybucks as opposed to a trillion dollars.

Depending on how interested I am in people continuing to take eskimospybucks in the future both are a problem, but any reasonable person can see that one is a much larger problem than the other.
 
eskimospy said:
Families do not take out debt in currency that they can print. It would be like me owing you a trillion eskimospybucks as opposed to a trillion dollars.

Depending on how interested I am in people continuing to take eskimospybucks in the future both are a problem, but any reasonable person can see that one is a much larger problem than the other.
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How much is one Schrute buck worth?
 
eskimospy said:
Families do not take out debt in currency that they can print. It would be like me owing you a trillion eskimospybucks as opposed to a trillion dollars.

Depending on how interested I am in people continuing to take eskimospybucks in the future both are a problem, but any reasonable person can see that one is a much larger problem than the other.
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Yep. All we have to do is print enough money so that we can inflate our way out of debt. I think I'll go into the wheelbarrow business.
 
eskimospy said:
That is a terrible analogy, but one that is pervasive.

Family debt and government debt are not the same thing, or even remotely the same thing.
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There's a difference between a family debt and government debt, but at it's core it's a good representation of the situation we find ourselves in. Yes, we can always print more dollars, but there are consequences to that.

As with the family budget, if you're spending $100 more than you make per year, it's pretty easy to cut $100 of waste somewhere. When the family makes $50k and spends $75k, it's not so easy. Just cutting the cable bill and buying fewer blu-rays isn't gonna cut it. That's where we are, and yet nobody wants to own up to that reality, so the downward spiral continues while the idiots in DC wrangle over whether the family should buy one fewer stamp this month.
 
FerrelGeek said:
Yep. All we have to do is print enough money so that we can inflate our way out of debt. I think I'll go into the wheelbarrow business.
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😀 +1

Humorous and unarguable in two sentences, congrats. I suppose the real winners of our budget crisis will be the Chinese, since they manufacture all our wheelbarrows.

BTW, nice article OP.
 
werepossum said:
😀 +1

Humorous and unarguable in two sentences, congrats. I suppose the real winners of our budget crisis will be the Chinese, since they manufacture all our wheelbarrows.

BTW, nice article OP.
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No, it's a dumb argument. No one is advocating mass inflation to pay off our debt. Regardless of that, debt that you can pay off through inflation is superior to that which you cannot pay off at all, if for one among many reasons that it allows you greatly increased flexibility in how you deal with it. This should be obvious.
 
eskimospy said:
No, it's a dumb argument. No one is advocating mass inflation to pay off our debt. Regardless of that, debt that you can pay off through inflation is superior to that which you cannot pay off at all, if for one among many reasons that it allows you greatly increased flexibility in how you deal with it. This should be obvious.
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Yes, there is flexibility in how to deal with it, just like a family has some flexibility (getting a second job, planting a garden), but the core issue is exactly the same. Politicians don't want people to understand that because it would be apparent how badly they've mismanaged the country. They want to use smoke and mirrors to make the whole issue seem super complicated so they can say "we'll fix it for you".
 
We have a family that is spending $38,200 per year. The family's income is $21,700 per year. The family adds $16,500 in credit card debt every year in order to pay its bills. After a long and difficult debate among family members, keeping in mind that it was not going to be possible to borrow $16,500 every year forever, the parents and children agreed that a $380/year premium cable subscription could be terminated. So now the family will have to borrow only $16,120 per year.
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Keep in mind for the most part we are only paying the interest on the debt.
 
PokerGuy said:
Yes, there is flexibility in how to deal with it, just like a family has some flexibility (getting a second job, planting a garden), but the core issue is exactly the same. Politicians don't want people to understand that because it would be apparent how badly they've mismanaged the country. They want to use smoke and mirrors to make the whole issue seem super complicated so they can say "we'll fix it for you".
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Uhmm, planting a garden on a family scale is not really at all the same as the flexibility given by debt in a sovereign currency. (particularly when that debt is mostly owed internally to other members of the United States).

Our debt is coming (and will increasingly come in the future) as a result of other systemic problems that we need to fix. Even if we made the catastrophic mistake of implementing Ryan's fantasy budget, it wouldn't actually fix the problems that the US health care system has for example, which is a primary driver of future debt. The real solutions come from bringing our expenses on that in line with other OECD nations.

Funny thing is that those who are really concerned about the debt should strongly consider a single payer health care system, examples the world over show it is vastly superior at cost containment while offering comparable care. Something tells me they aren't going to do that though.
 
eskimospy said:
No, it's a dumb argument. No one is advocating mass inflation to pay off our debt. Regardless of that, debt that you can pay off through inflation is superior to that which you cannot pay off at all, if for one among many reasons that it allows you greatly increased flexibility in how you deal with it. This should be obvious.
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Government debt is virtually equal to GDP. How much of that debt can we realistically print away without massive, unknowable effects?
 
eskimospy said:
No, it's a dumb argument. No one is advocating mass inflation to pay off our debt. Regardless of that, debt that you can pay off through inflation is superior to that which you cannot pay off at all, if for one among many reasons that it allows you greatly increased flexibility in how you deal with it. This should be obvious.
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I agree that debt you can pay off through intentional inflation of currency is in theory mildly superior to debt you cannot pay off thusly, but that only holds true if you are willing to accept FerrelGeek's implication of the Weimar Republic revisited. If it is true that "No one is advocating mass inflation to pay off our debt" then you lose that mild superiority. In that case our debt becomes actually worse than the family's in Illusio's original article. That family is presumably not under the illusion that they can somehow inflate their way out of debt whereas in America we have people like you insisting that even though no one is considering doing so, we COULD inflate our way out of it, thus the debt isn't really a problem. Can't have it both ways, either minimizing the debt through inflation is a viable solution or it is not.

Note also that this is truly the nuclear option, a real one-trick pony. Once we inflate our currency even to the point of keeping our heads above water, then our debt is unmarketable at least if paid in dollars; we'll no longer be able to borrow real wealth to be paid back in dollars. If not paid in dollars, then we can no longer inflate our way out of debt. Therefore the only way currency devaluation is a viable solution is in one massive step, combined with either suddenly taxing twice as much or spending half as much. Either way we'd have massive societal disruptions and a worthless dollar. Taking wheelbarrows of cash to the grocery store would be only one of the symptoms.

Incidentally this concept is nothing new. Rulers at least as far back as the Middle Ages were paying their debts by calling in existing currency and striking new currency with a higher base metal percentage. It didn't work well then, and it won't work well now. People aren't stupid. If you merely change the money to pay back loans with less true wealth, then sophisticated lenders will require terms to protect themselves, whether it be insisting on repayment in pure metal or insisting on repayment in yen. There are no free rides.
 
eskimospy said:
Are you asking me what the preconditions for an unknowable effect are?
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You're touting a plan with unknowable effects. You state that an exit strategy is to print an amount of currency similar to the national GDP (which happens to be on the order of the world GDP). I'm asking you why you think that's a good idea.
 
eskimospy said:
Our debt is coming (and will increasingly come in the future) as a result of other systemic problems that we need to fix. Even if we made the catastrophic mistake of implementing Ryan's fantasy budget, it wouldn't actually fix the problems that the US health care system has for example, which is a primary driver of future debt. The real solutions come from bringing our expenses on that in line with other OECD nations.
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I've said nothing about Ryan's budget, or that it would fix anything. Sure the systemic things need to be dealt with, but first, you have to stop the denial. Accept the problem, own it, and start figuring out how to deal with it. We're still quibbling over a pittance when we need to slash spending on everything, including entitlements and military.

Funny thing is that those who are really concerned about the debt should strongly consider a single payer health care system, examples the world over show it is vastly superior at cost containment while offering comparable care. Something tells me they aren't going to do that though.
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Funny, we managed to survive just fine for centuries without it, but now all of a sudden it's the only thing that can save us? Suuuuuuuuure thing. Of course it also happily coincides with the idiotic notion that a nanny state government running everything is a good thing.
 
werepossum said:
I agree that debt you can pay off through intentional inflation of currency is in theory mildly superior to debt you cannot pay off thusly, but that only holds true if you are willing to accept FerrelGeek's implication of the Weimar Republic revisited. If it is true that "No one is advocating mass inflation to pay off our debt" then you lose that mild superiority. In that case our debt becomes actually worse than the family's in Illusio's original article. That family is presumably not under the illusion that they can somehow inflate their way out of debt whereas in America we have people like you insisting that even though no one is considering doing so, we COULD inflate our way out of it, thus the debt isn't really a problem. Can't have it both ways, either minimizing the debt through inflation is a viable solution or it is not.

Note also that this is truly the nuclear option, a real one-trick pony. Once we inflate our currency even to the point of keeping our heads above water, then our debt is unmarketable at least if paid in dollars; we'll no longer be able to borrow real wealth to be paid back in dollars. If not paid in dollars, then we can no longer inflate our way out of debt. Therefore the only way currency devaluation is a viable solution is in one massive step, combined with either suddenly taxing twice as much or spending half as much. Either way we'd have massive societal disruptions and a worthless dollar. Taking wheelbarrows of cash to the grocery store would be only one of the symptoms.

Incidentally this concept is nothing new. Rulers at least as far back as the Middle Ages were paying their debts by calling in existing currency and striking new currency with a higher base metal percentage. It didn't work well then, and it won't work well now. People aren't stupid. If you merely change the money to pay back loans with less true wealth, then sophisticated lenders will require terms to protect themselves, whether it be insisting on repayment in pure metal or insisting on repayment in yen. There are no free rides.
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Uhmm, you don't either have to mass inflate to pay off all debt or do nothing. You can do anything and everything in between, which is where the flexibility comes from.
 
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