Debt: The Third Rail of Journalism

Last week, I published an essay in Time magazine about debt, arguing that our current preoccupation with the federal deficit and with debt in general is a dangerous distraction from the real issue (namely, our inability to invest and spend wisely to create the economy of the future). The problem isn't debt per se - after all, the U.S. government took on much more debt during and after World War II, and few would argue that was bad policy or led to disaster. The problem is that we aren't spending our debt productively; instead, we're frittering it away on consumption, tax rebates, military budgets to pay for Cold War-era weapons systems, pork projects, or other forms of spending that will not yield returns in the future.

The piece met with resounding, passionate anger. Writing about debt is a third rail topic on par with religion and sex. People don't see straight when discussing this issue. They react with disbelief, anger, insults, and even threats of physical harm. You'd think I'd advocated water-boarding given the vituperation. Instead, I'd suggested that our concern is misplaced and that all the fiscal austerity in the world wouldn't restore American dynamism, enhance our competitiveness, or create the innovative economy of the future to rival and surpass China, India, and whoever else has been on the same sort of upswing that once was the sole province of the United States.

It's now a cultural cliché to say that Americans have been living beyond their means, that the financial crisis was the great comeuppance, and that now the bill is coming due. But it isn't true. The fact is that more than a third of Americans own their homes outright - they weren't living beyond their means and they never had any mortgage debt or refinancing. Of those who do have mortgages, even at the worst of the foreclosures, about 90% of Americans are current on their payments, as are about 90% on their credit card bills. The fact is, therefore, that the vast majority of Americans have been living within their means. The financial crisis was a product of technology-fueled trading and leverage, astonishingly short-term greed by banks and real estate investors, and a world awash in capital. Government regulations and the lack thereof played a role, but while it's easy to say what might have prevented the crisis, it's hard to know what could actually have been done in the real and dysfunctional world of Washington politics.

Forward to today. Because the borrowing costs are so low at the federal level - 2.5% compared to 6.5% at the start of the millennium - the cost of servicing the debt is also not much different than it has been for much of the past 25 years.

The rejoinders are familiar - interest costs must go up; we are dangerously in hoc to China; only Democrats with their tax-and-spend views could defend debt. In fact, this last issue was the one that figured most prominently in the response to my piece: that I am a Democratic Party shill defending Obama and congressional reckless spending (and that is a much more polite way of putting it than what the piece generated). It's true that I have given to the Democratic Party and to various candidates. But the Republicans have certainly run up deficits (George Bush anyone?) and the hysteria over that was equally misplaced. This isn't a defense of Democratic policies. In fact, the way that spending is allocated reeks of ineffectiveness and at times veers towards the corrupt. But that's a crisis of how we are spending our debt, not that we using debt to fund spending. What's more, in a world that is seeing massive wealth creation outside of Europe and the US with the dollar still the world's reserve currency (for lack of viable alternative), it's not clear that interest rates must go up, and the past may be a poor guide to the future.

The larger issue may be that we lack the ability to argue these issues coherently. America has never been a genteel place of measured arguments, and today's blogosphere attacks and counterattacks would have been familiar to any pamphleteer in the 18th century and anyone standing on a soapbox at the end of the 19th. But our collective inability to get anything done and to act with urgency is paralyzing our ability to deal with the world today, and the tempests over debt are just one more example.