Wednesday, May 18, 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 time) vs. John Maynard Keynes (DS for government with economic downturn) 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 US Congress over the size of US debt ceiling, and with it the ultimate sustainability of DS. 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 debt is at $5,950 Billion. With a population (1996 est.) of 265 million, that is translated into $22,450 per person. (The Debt Limit: History and Recent Increases (*.pdf)

Read more:


The solution to US DS problem is not to be found in the US, with 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 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 order to stop DS, we need to do the following:

(1) DO AWAY WITH CONSUMERISM. We are taught that consumption is good and saving is bad. But why? There is much evidence that consumption is bad for society and lead to waste:

(1.1) MBA – marketing driven consumption makes capitalists rich, common people poor. (We do not need to go as far as Marx to suggest that capitalists should be eliminate altogether, only that the people should be prudent with their spending; consume for real needs, not inflated desire.)

“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 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 or conspicuous) consumption by the rich is good for the society; in creating a more productive society, except in make work. (“Paris Hilton’s $3,000 cake stolen from birthday party,” Feb. 19, 2011) For example, US, until recently, is the richness nation on earth. But where do we spend all our wealth? We spend it in making more bombs and consuming more drugs, not building faster train or investing in better schools! In national debate over butter and guns, US prefer to buy more and bigger guns, not butter.

(2) DO AWAY WITH MATERIALISM. Consumerism is not the only problem. Consumerism join hands with materialism, bankrupts US. When people say money cannot buy happiness or man do not live by bread alone, they really mean that material goods (bigger house, faster car, fancier computer) do not by themselves create happiness. As human beings we need to be happy with who we are as person and people, in spirituality (faith in God, at one with Islam) or morality (avoid torture of people, promote honesty in government). More simply, richness in heart, not richness with possessions.

(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 premise, it is easy to see why the current generation is not saving for the next generation – there is no incentive to do so.

President Bush fought a war by borrowing (against future generation's income stream), thus the current generation has no reason to complain, and did not.

People choose to have abortion or having no baby altogether because the financial, physical and emotional costs of having a baby are not worth the pain and suffering.

The increase student loan burden on our kids means that the present generation of parents are either unwilling or unable to pay, or both, for their kids future.

The government in not funding universities through general tax revenues are doing the same.

The message is clear, as parents we rather spend money on our own well being than on the kids future.

For the government we rather spent trillions to invade counties and kill people here and now than to educate, enrich and prepare our kids for tomorrow.

If anyone needs more proof, one needs only to look at our nation's divorce rate. The US boast the highest divorce rate in the word. The decision to divorce is a choice of ones own present happiness at the expense of our children's present and future welfare. We rationalize it by saying, if we ("I" and the family) are not happy, the kids likewise would suffer. But note, this line of justification for divorce misses the whole point. Why do we (individually) not work at oue marriage to make it better? Alternative why do we look for another partner to improve our lot? The answer is: because we deserve better. More bluntly, because we can!! Such endless pursuit of happiness of self, at the expense of our kids, is what I meant by excessive "individualism." (By saying this, I am conceding that in every decision we make, there is a certain amount of individualism involved, if only because we know best. The retort here is, because we know ourself too much, we need to get to know other more, such that our decision is well informed, and not one-sided, or lob-sided.)

If this line of individualistic thinking is true, the US DS is not an accident, but a structural problem of how democracy, as currently conceived really work in practice - those who has a vote, decide. Present spending, not future investment is the de fault rule. (Compare with other countries, esp. Asia, we save the least and borrow the most.)

(3.2) If individualism in a structural problem of democracy, this means that we are now faced with a chronic DS (present enjoyment, future payment) problem. It also means that setting artificial deficit ceiling, while helpful in the short term, is not going to make much of a different in the long term. (We can still spent what limited money we have in ingratiating ourselves rather than enriching or enlightening our young ones.

As a solution, we need to rewrite the “social control” to have a build in check and balance system to hold the present generation accountable for the welfare of the next generation. The US Constitution should have a clause against DS, except when such DS benefits the next generation. The logic is we can only spent the money we made, not those of our kids. Hopefully, we also has the wisdom spent our money for a better tomorrow. (We have yet to discuss how the present generation spent the hard earn savings of the last generation. Part of DS is bankrupting the social security of the past generation.)

(3.3) How to give voice to the next generation, or realize future democracy, since there is an inter-generation distributive (in)justice (here manifested as DS) problem? To this question Rawls suggested a “veil of ignorance” approach, i.e., asking current people to design a future 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 and gamble 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 a trustee for the future generation. The future generation trustee needs to be independent of the influence of the current generation, with the future on his/her mind.

(3.5) The Western idea and ideal of individualism is articulated and justified 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!!!!!!

No comments: