US Debt Bomb II : Who remembers Simpson-Bowles ?

I took very seriously the Simpson-Bowles report and its proposals when they first appeared.

They were the first bipartisan -or even non-partisan- serious study and proposal I have read so far on the matter of long-term (50 years) financial management of our country.

Unfortunately, after more than 15 years of being issued, presented and discarded, Simpson-Bowles remains the only serious and comprehensive proposal for fiscal reform. In the intervening years, the 2001 deficit has ballooned from the 5.4 trillion legacy that George W Bush received to the 19 trillion that welcomed Donald J Trump in 2016. 

Moreover, measured as a percentage of GDP -as experts Kenneth Roggoff and Carmen Reinhardt found the 90 % debt/GDP as the tipping point at which debt becomes unpayable- is represents a jump from under 60 % to over 100 %, a level that in any other country would put US interest payments in the double-digit ballpark.

Rogoff seems to be more optimistic about the short-term levels of growth that Trump's economy can achieve.

Having said that, the Harvard economist cautions about the challenges ahead if for some of several reasons, trust on the dollar strenght -and the toying with defaulting our sovereign debt (something explicitly banned in our Constitution) instead of doing a harder adjustment on government spending.

Trump -a businessman who called himself "the king of debt"- has flirted with the idea of indirectly defaulting the 19 trillion debt he inherited by repurchasing bonds at a lower price -thereby stiffing bondholders- if necessary.

Trump has not come back to such suggestions, but his seems to be a "supply-side" approach to debt that can leave a serious bubble burst like the one that exploded in 2007-2008.

The fact that dealing with such levels of mounting debt was ignored for such long period of time without any cry for action is just another example of the dangerous disregard for unpopular facts that characterizes populism and partisan thinking.

An over 100 % debt/GDP ratio (still growing) should raise a red flag for anybody holding US dollars or T bonds and Simpson-Bowles should be revisited. But that is, of course, assuming that hard choices are something that partisans want to discuss in an "election year" (code word for "ever", since all years are election years). 

Although Alan Simpson remains one of the most straight-talking, knowledgeable and respected speakers today, his candor, bipartisanship and expertise is not enough to recapture the attention of the majority of voters distracted by 24/7 multimedia partisan networks, droning surrogate talking heads and tweeter name-calling wars. They remain unaware about the growing quicksand where their finances and those of their children and grandchildren are gradually sinking.

A national debt over 100 % of our GDP is the real "swamp" in Washington, a bipartisan 19 trillion dollar-black hole punched by each new administration.

Given the precipitous growth of fiscal deficits (through either spending or tax cuts) Bowles-Simpson should be a starting point to propose an equally fact-based and professionally elaborated long term proposal.

Here is the access to the full Simpson-Bowles report.

Peter Pan Politics

While the country experiences once again the closing of its own government because its two parties play "chicken" withholding funds to pay for the functions they were entrusted to oversee, it's hard not to see government institutions operating as high-school playgrounds.

With a President that communicates by tweets and brags about himself as an old adolescent and public officers and CEOs turning their offices in frat houses and having public temper tantrums, it is not illogical to think that power turns Americans into versions of Peter Pan -that eternal child invested with magic powers that refused to grow-. 

Or perhaps it's the other way around, and Americans vote for Peter Pans that promise to take them away from hard choices in magic trips to Neverland: MAGA, the Great Society, and so on.

In the meantime, back into reality, things don't change. They only get worse.

Government shutdowns are a perfect example of what happens when bad behavior isn't punished. 

There are no punishments for this obvious dereliction of duty. Nobody gets fired, sued or  goes to jail. Government is allowed to stop working without penalties but the governed keep being fined or even serve jail sentences for not paying the taxes. And our soldiers can face court martial for not showing up, even if their paycheck is retained.

Sooner or later, of course, the consequences of not keeping the basic services will come back to affect us and then, adult behavior will return briefly to clean the mess left behind. Moreover, it will be adult behavior what will keep basic services running on the backs of unpaid public servants.

Psychologist Erik Erikson defined adulthood as the sixth and seventh of eight stages in the life cycle. Unlike children, adults' focus is on providing care to others, taking responsibility for those who can't provide for themselves -the too young and the too old-.

Psychoanalist Eric Berne added an interesting explanation: adult behavior is defined as negotiating between our "wants" or impulses and our duties dealing with the constraints of reality.

We would love to double our spending, but we can't do it unless we increase our income before. We cannot hold a debt that exceeds our possibilities of repaying and making a living at the same time. We can't stop eating for too long, and our creditors can't keep loaning additional money to us  indefinitely.

We know we cannot lose our control with our neighbors in ways that will generate retaliation and turn our daily life in constant confrontation and stress.

As adults, we know all that, but as partisan voters we seem to prefer Peter Pan and pipe dreams such as self-paying tax cuts or entitlements. Even more:both parties in the United States now support both options at once: tax cuts AND increased spending.

All of course, will be solved by issuing IOUs  and passing them to the next government  each four years arguing that "growth" or "well-being" fairies will take care of reducing it.

What we did as a society with our last budget surplus speaks volumes. Paying up the debt? Well, not. Neither what Milton Friedman recommended at the time (2000). Friedman considered debt relief politically unfeasible (he knew Americans better) but economically correct, but thought that individual Americans would know better how to allocate the surplus than the Peter Pan government. 

Friedman was half-right and half-wrong. American voters decided for giving themselves a "tax cut" but authorized their government  -POTUS and COTUS- to balloon the spending with a 2 trillion dollar debt war of choice in Iraq for the following 8 years. 

The newly added debt established the foundations for the current 19-trillion-dollar debt.

Winston Churchill's comment on American's behavior seems to describe also that of a Peter Pan:

Americans can always be counted on to do the right thing…after they have exhausted all other possibilities.

Partisan voters are played by their faction leaders into Peter Pan politics merry-go-rounds.

The last time adults were asked to take the floor was, arguably, when the Bowles-Simpson Debt Commission issued its report (2001). 

With Peter Pan politics and politicians in full swing, it's good and sobering giving them the last word to remind reader that reality hasn't changed but in size -quite like tall adolescents-: