Summary: Our slow recovery, especially compared to Japan and Europe, has boosted America’s sense of exceptionality and general awesomeness. So our Presidential candidates speak of new foreign wars (lots of potential in Africa and the Middle East), new domestic programs, and tax cuts — plus vague assurances that the deficit can also be cut. Today we see the one graph that destroys those illusions.
This is the first in a series. Other posts are:
(2) Prof Black blasts back at yesterday’s post about the US debt, 11 October 2012
(3) Ed Dolan talks to us about modern monetary theory. Can it save us?, 12 October 2012
(4) Ed Dolan Asks What Does it Mean for Fiscal Policy to be “Sustainable”? MMT and Other Perspectives, 30 November 2012
A fundamental measure of a nation’s financial condition is the structural primary budget balance. AKA the cyclically adjusted budget balance. As in this graph from “By One Key Budget Indicator, the Structural Primary Balance, Even Greece Is Doing Better Than the United States. Why That Should Worry Us.“, Ed Dolan (bio here), Roubini’s Economonitor, 8 October 2012. For an explanation read his article, which is important, clear and detailed.
What does this chart tell us?
The message is clear: our recovery results from government borrowing on a scale other nations either cannot or choose not to do. Our structural deficit (before interest cost) is deep into the danger zone, and has been for four years. We are borrowing and in effect burning the money, leaving behind little but a rotting infrastructure and memories of better days.
Obama has a program for slight reductions in the borrowing, contingent on dreams of a quick recovery. Romney offers madness: he promises a lower deficit through large tax cuts, unspecified spending cuts, an expensive military build-up — and a bellicose foreign policy that risks even more foreign wars.
Meanwhile the deficit-fueled slow growth since 2009 removes any public pressure for reform. That’s unfortunate, since we have less debt and superior demographics vs. most of our peers. Our most serious structural problem is our dysfunctional, ruinously expensive health care system — and our peers have tested and perfected many successful alternatives (see here for details).
We should be on top of the world. Instead we’re sliding because of our broken political machinery. We all see the problem. It’s endlessly discussed. But nothing changes, as we saw after the deficit-obsessed 2010 campaign.
Our politics appears locked, polarized. That might be an illusion; if not — and if it continues — then the consequences could be severe. We can learn how this works from the classic example of avoidable and painful political failure is the English Civil War (1642–1651; see Wikipedia).
In this respect we are like the other major developed nations (perhaps China, also). The US, Japan, and EU all suffer from dysfunctional policies that will bring certain ruin if not changed. All suffer from political paralysis. Only a change of mind by their ruling elites or mass protests by their peoples will avoid very hard times. This is the The unseen but perhaps decisive grand alignment of the nations, the major geopolitical factor of our time.
None can say with certainty how this will all end.
For More Information
- A certain casualty of the recession: the US Government’s solvency, 25 November 2008
- Everything you need to know about government stimulus programs (read this – it’s about your money), 30 January 2009
- Government economic stimulus is financial heroin, 28 December 2009
- The limit to America’s power is our ability to pay for it, 18 April 2011
- About America’s economic recovery: the good news and the bad, 1 May 2012
- The Titanic’s lessons for us about the coming economic crisis, 4 June 2012
- America is rich and powerful because we can borrow. Will this debt build a stronger America?, 5 June 2012
- US economic update. Everything that follows is a result of what you see here., 8 June 2012
- The important but unmentioned thing you must know about today’s jobs report, 5 October 2012
What lies ahead:
- A warning about what is about to happen, 9 August 2011
- Is there a dark swan event ahead for the American economy?, 16 May 2012