Friday, August 22, 2008
An inconvenient financial truth exposed in Agora's "I.O.U.S.A."
Roadside Attractions (and Agora Entertainment) has us stopping along the movie interstate again with another “inconvenient truth” style documentary, directed by Patrick Creadon, “I.O.U.S.A.”. Agora's website for the film is here.
Let’s start with the moral premise of the movie: it’s just plain wrong for us to spend more than we consumer, and create debts for our children and descendants to pay. It’s just mean, the film says. One observation the film doesn’t make directly is the way this problem is accumulating with long term care resulting from suddenly longer life spans and often fewer children.
The viewpoint of the film is that we have four kinds of deficits: budget, savings, trade, and leadership. They’re all interrelated. We paid down our debt from the Revolutionary War in the 1820s, and then incurred another one with the War Between the States. That got paid down in Reconstruction (or perhaps by it), and the cycle would repeat with World War I. With the Depression and New Deal, followed by World War II, the cycle really got going, although we generally raised taxes then. We had the stagflation of the 1970s after Vietnam and the oil shocks, and then the exploding deficits of the Reagan years (“morning in America”) with the misguided “supply side economics” and Loeffler curve. The Clinton administration would balance the budget, with a surplus in 1998. With Bush, however, the greatest fiscal irresponsibility ever seen would take hold. Part of the problem might have been the “disaster capitalism” cult that took over the administration after 9/11.
In any case, the derivative of our total “hock” is growing. Now, we owe the world 53 trillion dollars, or about $175000 per citizen. Imagine garnishing that. We are prosperous in the short term because, with interest rate cuts, we can consume more than we produce. We depend on China to go along, and depend on its authoritarian, Confucian culture to support our freer lifestyles. This is getting a lot of attention during the Beijing Olympics. The social security surplus has cushioned the blow, but that will go away. In the future, we face much higher taxes, or entitlement means-testing, and much delayed retirements, that could break promises made to people already retired. The film says that we treat public financing in a way that would not be tolerated in private matters, but that it is not quite true: look at how the current working generation is personally affected by escalating needs for personal eldercare.
The movie explains the difference between “fiscal policy” (Congress) and “monetary policy” (the Federal Reserve). But it is the former that our elected representatives can do the most about.
The film often features Robert Bixby, Executive Director of the Concord Coalition. It shows him testifying, and even shows his office, that looks a bit like my past apartments! (There is one shot of his official desk clutter followed by the Potomac River area from Arlington Cemetery, but that is probably not its location.) The film draws a comparison between the United States and the Roman Republic, which also failed to provide for economic sustainability.