A crying shame

Perhaps reflecting a Scottish heritage, and/or a Calvinist heritage, and/or a family culture, or perhaps simply a personal character trait, I abhor debt. Not as a sin in itself but as a temptation.

It can be, and often is, used for wonderful purposes to smooth out risk and achieve greater long term productivity. But it can also be used to postpone hard decisions and pull in consumption from the future to be achieved today, often in hope that someone else will end up paying.

It is bad enough at the personal level when you choose the appearance of an affluent lifestyle through leasing and zero-down mortgages with balloon payments, hoping, Micawber-like that something will turn up in the future to make the impossible equations work.

It is a national catastrophe when the debt is public because the mob has little self-control and is happy to be the beneficiary of a Wimpy deal, "I'll gladly pay you Tuesday for a hamburger today." Everyone hopes that they can kick the can far enough down the road so that they are not around when the debt comes due. All our politicians do it and voters support them in doing so by never holding them accountable. The closest we came was during the Tea Party movement. A movement so dangerous that the establishment parties, government, media and academia turned their collective fire on the people's movement and drove it underground.

One of the most insidious forms of public debt are unfunded pension obligations. Insidious because they tend to be easy to hide but even more so because they distort the employment market, entail functional corruption, because they abrogate the compact between citizen and state, and because they represent a breach of trust. Government insiders conspire against the tax-paying public so that employees of the state live better than the tax-paying public.

It never ends well. As James Carville, adviser to President Bill Clinton, once said, were he to be reincarnated, he would choose to return as the bond market: he could then intimidate anyone.

The US is not in as bad a shape as many of our OECD colleagues but we are in bad shape. Debt servicing now outstrips the amount we spend on the military. And for all the good promises about investing in the future, the great majority of public spending is consumption, not services or investments.

The states tend to be a little better than the federal government, most of them having balanced-budge constitutions, but there is still a lot of smoke and mirrors and there are some hard falls to come in California, Rhode Island, Illinois, Oregon, Michigan, Missouri, etc. States which have buried evidence of vast unfunded pension obligations crowding out all the necessary services which citizens expect from their government - education, policing, road maintenance, etc.

The New York Times has a decent overview - A $76,000 Monthly Pension: Why States and Cities Are Short on Cash by Mary Williams Walsh. Rife with examples where citizens are expected to sacrifice everything for public sector employees.