This diary takes its title from an opinion piece by columnist Jeffrey Simpson of the largest Canadian newspaper The Globe and Mail . I'm betting 98%+ of you have never heard of him, but in Canadian circles he is one of the most respected and coherent commentators out there. What he says usually makes sense, and he is not an ideologue.
Link: http://www.theglobeandmail.com/...
Simpson's message is clear and it echoes to some degree the comments of Jeffrey Sachs this past week. In simple terms America is dreaming about its future, and this dream is divorced from reality. As usual I recommend reading the whole article.
Our southern friends are living the American dream these days, a dream that’s removing them from reality. Their federal legislators, including the President, are imagining a brilliant future that cannot be. None of them, it would appear, wants to awaken Americans from this dream.
The dream? Economic recovery followed by the return of prosperity, built on borrowed money. And not just some borrowed money, but trillions and trillions of borrowed money.
Any competent first year economics student could tell you that the US is on an unsustainable path. Any first year political science student could tell you that all the options for exiting the crisis are political suicide. So as a result we see everyone fawning over the Emperor's (the recovery's) new clothes.
Two bipartisan non-governmental commissions have instructed the country in simple arithmetic: namely, that the budget can’t be restored to sanity without cuts to discretionary spending and entitlement programs, and tax increases. In the dreamland of U.S. discourse, however, no one wants to talk about cuts to entitlement programs or tax increases. Worse, just before Christmas, Congress and the President forged a deal that continued the fiscally ruinous tax cuts of George W. Bush, the ones so tilted toward the already wealthy, and pumped even more discretionary spending into the U.S. economy.
The fact that the recovery is anemic at best, despite record federal stimulus, record low interest rates, lower taxes, and astounding money printing should indicate to most rational observers that something more than a minor tuneup is required for the American economic engine. What is needed is in fact a major overhaul.
(As an aside, to highlight the scale of the problem consider the following - think of everything that WalMart sells every day - about $1 billion a day in the US. Now multiply by 5. Yup that's how much stimulus the federal government is supplying to the economy every day. The "so called recovery" is nowhere close to self sustaining. It is sustained only by daily adding more and more debt).
Simpson has been a columnist for a long time. He saw Canada go through its own version of the American dream (in the late 1980's). Canada was running out of control deficits to fund social programs, then it hit the debt wall and foreigners threatened to stop funding the deficits. Forced to reform Canada went through a very painful recession. Ultimately the governments of the time cut spending and increased taxes, including implementing a hated GST (value added tax). These measures eventually meant that Canada got back on the road to fiscal sanity and in fact ran federal government surpluses for about 15 years straight (until the most recent US caused recession).
Of course for now the US can put off any crisis by printing money (by virtue of having the world's reserve currency. But even that is not an open ended solution. We already see spiraling oil and food prices, and inflation taking hold in developing nations (which will feed into the US economy). A crisis is coming and maybe that is what is required - and the sooner the better, because the longer the dream goes on the more expensive it will be to exit it.
Simpson ends with a recommendation sure to be rejected for now ... but ultimately one which will probably eventually be enacted (after the crisis).
With a 5-per-cent national sales tax, of the kind every other industrial country has implemented, the U.S. would be halfway home to budgetary solvency. In dreamland, however, such a dose of reality is unthinkable.
For some additional insight I would recommend watching the Jeffrey Sachs interview from this week on Bloomberg. He too points out how both parties have been bought out by big business and how real issues no longer get addressed in the American political environment.
http://www.youtube.com/...