Wednesday, May 11, 2011

How to solve US deficit spending problem, once and for all?


The US has a deficit spending problem (DS). DS at an individual – personal or collective – national level is when: “The amount by which a government, company, or individual's spending exceeds its income over a particular period of time.” Many people have debated over the wisdom of DS, chief of which is between Adam Smith (balanced budget for household at all times) vs. John Maynard Keynes (DS for government in economic depression) schools of economics, (“The Macroeconomic Effects of Deficit Spending: A Review” (


There is now a fiscal – cultural war (see SOLUTION below) going on in the Congress over the size of US debt ceiling. Currently (September 3, 2010), the total federal debt outstanding is $13.435 trillion.

On May 9, 2011, the House Speaker John Boehner, R-Ohio, says the GOP will not approve of any increase in debt ceiling until there are huge spending cuts:

"Without significant spending cuts and changes to the way we spend the American people's money, there will be no debt limit increase, … And cuts should be greater than the accompanying increase in debt authority the president is given."

The GOP finally get it right but for the wrong motive. (Note: President Bush, with GOP support, including Boehner, turned Clinton’s substantial surplus into a huge debit. “The books are closed on fiscal 2008. The surplus the current President Bush inherited has turned into a record deficit: $455 billion.” Much of that goes to war efforts in Iraq, Afghanistan and war on terror. The Iraq war alone costs US between 600 billions to 1 trillion In the long perhaps 3 trillions, or more.)


In 1917 the Congress passed the Second Liberty Bond Act, which sets limits to the national debate. In 1940, the debt ceiling of the U.S. Treasury was $49 Billion, with a population of 132 million. That amounted to $370 per person. In 1999 the nation’s debate is at $5,950 Billion. With a population (1996 est.) of 265 million, that is $22,450 per person. (The Debt Limit: History and Recent Increases (*.pdf)

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The solution to US DS problem is not to be found in the US, nor it is a economic theory problem to be solved by an Adam Smith here or John Maynard Keynes there. Just as it is far fetched to rely on the people who are responsible for the world’s biggest sub-prime crisis to solve the problem, we need to radically change our thinking, habits and conduct. (Bush – Henry Merritt 'Hank' Paulson, Jr. (Goldman Sachs) Paulson and Obama - Timothy Franz Geithner (president of the Federal Reserve Bank of New York).

In essence, DS is an American cultural problem, not a technical supply - demand economic issue.

We cannot keep consuming without investing - it is that simple!

In order to stop DS, we need to do the following:

(1) DO AWAY WITH CONSUMERISM. In the US, we are taught that consumption (for the present) is good and saving (for the future) is bad. But why? There is much evidence that consumption is bad for society, if we are wasting and not producing.

(1.1) MBA – marketing driven consumption makes capitalists rich, common people poor. (We do not go as far as Marx) “Today’s consumption is undermining the environmental resource base. It is exacerbating inequalities. And the dynamics of the consumption-poverty-inequality-environment nexus are accelerating. If the trends continue without change — not redistributing from high-income to low-income consumers, not shifting from polluting to cleaner goods and production technologies, not promoting goods that empower poor producers, not shifting priority from consumption for conspicuous display to meeting basic needs — today’s problems of consumption and human development will worsen.… The real issue is not consumption itself but its patterns and effects.… Inequalities in consumption are stark. Globally, the 20% of the world’s people in the highest-income countries account for 86% of total private consumption expenditures — the poorest 20% a minuscule 1.3%. More specifically, the richest fifth:
-- Consume 45% of all meat and fish, the poorest fifth 5%
-- Consume 58% of total energy, the poorest fifth less than 4%
-- Have 74% of all telephone lines, the poorest fifth 1.5%
-- Consume 84% of all paper, the poorest fifth 1.1%
---Own 87% of the world’s vehicle fleet, the poorest fifth less than 1%”

(1.2) More fundamentally, everyone knows that more material goods, beyond those necessary in meeting our basic needs, generate waste, not utility, still less happiness. Rhetorically, how many (big, fancy) car do we need to get from point A to point B? How much food can be consume at the $20 buffet? (When is the last time you clean up your house (divorce?) or find new areas of for your new toys?)

(1.3) There is no reason to believe that (excessive and conspicuous) consumption by the rich creates more net worth for the society and improve the overall welfare of the people. (“Paris Hilton’s $3,000 cake stolen from birthday party,” Feb. 19, 2011). If this should be true, the US would be getting stronger and stronger because since WWII, we remain to be the richness nation on earth, and consume a large portion of the goods and services the world produces. In the end, we cannot out perform China, Japan, or Germany in economic growth!

(1.4) Reasoning from 1.3, it is thus not consumption per se that increases the "wealth of nation" (alternative makes for DS), but how we spend our limited resources to increase utility and happiness. In the US, we spend trillions on wars of all kinds (war on drugs, war on crime, cold war, terror war, cultural war.) Yet we find no money to invest in science (we rely on foreign doctoral students to teach and research), technology (we piggy back on Russian space ships) , education (we we not pay our teachers well), and roads (we have no cross country bullet train). Make it simply, and as an example, in terms of consumption, we spend much, much more on guns than books.

(2) DO AWAY WITH MATERIALISM. Consumption is made worse by materialism. In the US, we worship MATERIALISM - big house, fast car and huge diamond. We believe material goods bring happiness, at least they can prevent unhappiness. But there are other lessons our parents taught us about the relationship between material goods and happiness, if only we listen:"Man do not live by bread alone." Rich people are not the most happy. Poor people are not the most unhappy. What counts for happiness is not what we keep in the bank, but what we have in our heart. Spirituality, not materialism, counts for more when it comes to personal fulfillment and enrichment of life.

(3) DO AWAY WITH INDIVIDUALISM. Individualism means that people are taught to pursue self-interests (Adam Smith). Individualism, the brainchild of neo-classical economist, preached a beggar thy neighbor’s approach to every day life. Again, to what end and at what costs?

(3.1) Accepting individualism as the basic premises, it is easy to see why the current generation is not saving/investing for the next generation – there is no incentive to do so:

. President Bush fought a war by borrowing, thus the current generation has no reason to complain, and did not.

. People choose to have abortion or not to have babies because the financial, physical and emotional costs of having a baby are not worth the pain and suffering.

. Parents are not willing or able to support their children through college, the college bound students have to assume more and more student loan. The message here is clear, the next generation needs to take care of themselves, without help (much) from this generation.

. Finally, what about divorce. The US has the highest divorce rates in the world. When people get divorce, they are making a choice; their present happiness over the future suffering of their kids. Divorce parents are fond of saying: "I am doing it all for my kids." Unhappy marriage rarely creates happy kids. There is some logic to this statement. But this is only a rationalization for divorce parents to shun their responsibility. If the divorcing parents are really thinking about their kids, not themselves, they will work hard and sacrifice more to accommodate each other and preserve the marriage, at all costs. After all, they are the one who can make happiness for their kids. In the end, it is easier to say no to the kids (future) than no to themselves.

If this is true, the US DS is not an accident. There is a structural problem with our democratic governing structure and process, that allow the present generation to trump the future generation. The present generation has all the say. The future generation has no say.

(3.2) If individualism is viewed as a democracy problem, this means chronic DS (present enjoyment, future payment), then we need to rewrite the “social control” for check and balance to work against present generation in favor of the next. The US Constitution should have a clause against DS, except when such DS benefits the next generation.

(3.3) How to give voice to the next generation, or realize future democracy, since there is an inter-generation distributive justice (here manifested as DS) problem? To this question Rawls suggested a “veil of ignorance” approach, i.e., asking people to design a society not knowing who they would become and where they would be situated. Kant has suggested the imposition of golden rule – “categorical imperative” (“"Act only according to that maxim whereby you can, at the same time, will that it should become a universal law." Both of these formulations ask people to expand their individualistic mindset to think about others, with us standing in their shoes. But this calculative approach is not enough. At the end of the day, it sill favors the current generation over the next, present over future. Why? Because the present – actual is real, and the future – speculative is contingent. (People go to Las Vega or Macau knowing they will lose money!)

(3.4) To protect the interest of the future generation over the current generation, we need an OFFICE OF FUTURE, to act as trustee for the future generation. The future generation trustee needs to be independent of the influence of the current generation, with the future on their mind.

(3.5) The Western idea and ideal of individualism is articulated in Hobbes’ rendition of “social contract” theory in Leviathan or The Matter, Forme and Power of a Common Wealth Ecclesiastical and Civil (1651) (other renditions include: Thomas Hobbes (1651), John Locke (1689), and Jean-Jacques Rousseau (1762), where he portrait life in the natural world as: “the life of man, solitary, poor, nasty, brutish, and short. (Chap. 13, para. 9), and every one on to his own: “every man has a right to every thing, even to one another's body.” That is where individualism as a concept is grounded – a world as imagined, not real!

(3.6) Individualism is a political – social construction. (Later, people embrace and promote it because it serves their purpose and interests, such as capitalists.) It is a myth. It has no basis in reality. If truth be known, people are all born into a family who support them in every way – physically, emotionally and materially, often at great sacrifice. As to why our family (collective) supports us, it is NOT because of our conjured individualistic disposition (as Hobbes wrongly surmised) but because of our natural collective instincts (as every parents, East or West, know). More simply people feel they have the DUTY of care to others, than RIGHT to be concern of self. This DUTY to others and RIGHT to self is what separates the EAST from the WEST, and now come to haunt the later.

(3.7) The solution against individualism is to adopt the oriental way of collectivism. The oriental approach – from China to Hong Kong to Japan to Singapore - is to accept the premises that we are not born as individuals, separate from and independent of the whole - group but as a member of an indivisible whole - collective, in fresh, blood and spirit.

(4) THINK ABOUT THE FUTURE NOT THE PRESENT. The US culture is a present oriented culture. People want immediate gratification, instead of deferred enjoyment. That is what credit card is all about. This habit must stop. Thus this recommendation: No DS except for investment in the future, such as education or renovation. Not even in emergencies.


Changing cultural thinking and with it behaving is difficult, in US as around the world. But if the US does not change its thinking over consumerism, individualism, immediate gratification and rights, I do not see how DS can come to past.

The future prospect of US, as an economy as a nation, is written all over the wall: bankruptcy (in financial and moral terms) awaits!!!!!!

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