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*Way* Too Big To Fail

The recent GAO report listing duplicity and waste in the U.S. government has both sides of the aisle scrambling over each other to take credit for reducing the deficit and eliminating waste, but maybe we shouldn’t be so hasty to act. The U.S. has recently been running massive deficits: $1.4T, $1.3T, and $1.5 T (est.) for 2009, 2010, and 2011. Everyone is quick to point out that we can’t continue at this pace forever, and that we are saddling the next generation with a massive debt that will eventually suck down the majority of our GDP and lead to the impoverishment of all. But ignoring tomorrow for now, where does that deficit spending go? Into the economy of course (its not like Obama is stashing it somewhere). This means that excessive government spending is actually helping the economy today; it is growing jobs today.

Eliminating waste means putting people out of work; it means taking cash out of the economy; it means risking another recession. Of course there is no free lunch, and this will all come back to haunt us later; or so the budget hawks and tea partier’s keep reminding us. It sounds logical, but is it? Maybe we’re just thinking too small. Maybe we can take a page from the Wall Street fat cats and bankers playbook: they took excessive risks because they understood that the government was actually an implicit underwriter. What will the rest of the world do if the U.S. becomes insolvent? The U.S. is the largest economy on the planet. We are three times larger than second place China. Every significant market or economy on earth is fully invested in the U.S. not failing – they are all implicit underwriters!  But we have to fail big time to avoid painful indebtedness. This is no place for timidity or half measures. There is really no point to $33B in reductions (from Obama’s 2012 budget), $61B proposed by the Republicans, or the $100B to $200B that might be saved by eliminating duplicity across agencies. They are all just drops in the bucket. Either we completely balance the budget, or we just shoot for the stars. Who knows, maybe you can have your cake and eat it too.

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