Debt Is Rising All ‘Round The World

By John Lumbard.

Populism sounds like such a friendly and democratic word.  Only the grumpiest blogger would complain about politicians doing things that make them popular ….  Unhappily, the word “populist” has come to mean a politician who promises cash, services, or benefits to voters.  He doesn’t offer to pay for these things with cash from his own pockets—that would be outrageous!—but instead offers to pay with borrowed money, or with cash taken from taxpayers.

These charismatic and compassionate leaders never propose broad-based taxes, such as a higher gasoline tax, because that would anger a large number of voters.  Transferring cash from a small number of people to a large number allows you to buy a lot of votes and lose only a few.  Just as effective is a scheme that takes the money from future voters who don’t really know what’s happening to them.

The widely-scorned “Bush Tax Cuts” were made permanent for 99% of the population and 99% of the voters, because allowing the Bush Tax Cuts to expire would have increased taxes on everybody.  Meanwhile, taxes were increased on a small number of voters;  first with the expiration of the Bush cuts, again with increased capital gains taxes, and then again with two new Affordable Care Act taxes.

It’s hard to balance the budget when you raise spending on the many and raise taxes on the few, but very few voters get upset about borrowing.  The burden will fall on voters under the age of 40, and they rarely pay attention.  So, 6 years after the end of the 2007-2009 recession, our debt is still growing.  It’s now over 100% of GDP, up from 63% in 2007.  And debt is still growing in developed countries all around the world!

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Debt slowly builds, a society’s work ethic slowly decays, and options slowly narrow.  It’s not just Greece, and it’s not just Greece-Venezuela-Portugal-and-Argentina.  Economists have long said that debt begins to harm a nation’s growth when it reaches 90% of GDP …. America’s debt really has crossed the $18 trillion mark, and proper accounting would put it much higher.

John Lumbard, CFA

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