IBJOpinion

SKARBECK: U.S. will someday have to deal with debt

Ken Skarbeck
August 7, 2010
Back to TopCommentsE-mailPrintBookmark and Share

Ken Skarbeck InvestingAusterity versus stimulus is the great economic debate of the moment. The loudest voice for stimulus comes from Princeton University economist Paul Krugman, who believes deficits are not harmful in the early stages of recovery and that another jolt of government stimulus is needed to boost our economy.

His antithesis is Harvard’s Niall Ferguson, who claims further stimulus will cause the “bond vigilantes” to eventually sell their bonds and force interest rates higher on the prospects of a more monstrous government deficit.

After years of easy borrowing that helped boost economic growth, governments around the globe are dealing with evil twins—high levels of debt and shrinking revenue to repay. No public official wants to take the path of austerity, but at some point the market can force it upon you, as we have seen in Greece. Many U.S. states, by statute unable to run deficits, are left with the austere-like choices of raising taxes, and cutting programs and personnel.

Raising taxes and cutting costs to reduce debt aren’t the prescription for economic growth. These measures of austerity, if followed, form the outlook of below-trend growth in GDP, or the dire predictions of defaults that some tenured economists and respected investors believe lie ahead of us. Many suggest there is little choice—that the markets are finally imposing the medicine that years ago was predicted to eventually arrive. There have been too many legislative sessions of granting increased health care and pension benefits with no contributions to fund them, too many budgetary tricks that kicked the can on down the road, and too big a pile of debt to dig out from underneath.

Here’s a look at some of the unpalatable choices some states are making in dealing with their deficits. Last November, Jon Corzine, the ex-Goldman Sachs chairman and Democratic governor of New Jersey, was ousted after proposing to raise taxes and cut public worker pay to shrink a $7 billion budget gap. Newly elected Republican Governor Chris Christie—now dealing with a $10.5 billion deficit for 2012—has said he won’t raise taxes. He has instead opted to skip pension funding and cut education.

Illinois Comptroller Daniel Hynes said the state ended its 2010 budget year June 30 “in the worst fiscal position in its history.” The state has sunk by following a blue state policy in social safety nets and a red state aversion to taxes. As one former politician described it, Illinois has not been a tax-and-spend state; its motto has been to “spend and borrow.”

In Maine, state employees do not participate in the Social Security system and instead are vested solely in the state’s pension plan. Now, in an effort to address its ballooning pension costs, the state has prepared a plan to shift state employees into Social Security.

Perhaps the United States will see an outcome similar to Germany, which is experiencing a broad economic recovery. Five years ago, German unemployment was above 13 percent; today, it is down to 7.6 percent. Its export-driven economy is benefiting from Asian demand. German companies managed through their recession with a concept called “short work.” Government incentives allowed companies to reduce worker hours rather than lay off people, and employees were given partial compensation for lost wages. Some workers used their spare hours to increase their education and work skills.

Slower growth appears to be the course for our economy and time seems to be the prescription for a full recovery.•

__________

Skarbeck is managing partner of Indianapolis-based Aldebaran Capital LLC, a money management firm. His column appears every other week. Views expressed are his own. He can be reached at 818-7827 or ken@aldebarancapital.com.

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. Hello Dear Are you tired of Seeking Loans and Mortgages,have you Been Turned down constantly By your banks and Other Financial Institutions or Micro Finance scheme. This is let you know with 100% guarantee that we Offer loans ranging from $1,000 Minimum to $1,000,000.00 Maximum at 3% interest rate per Month. We give out LOANS for developing business. a competitive edge/business expansion. email address: michealscottloan124@gmail.com We offer the following kinds of loans and many more; * Personal Loans ( Unsecured Loan) * Business Loans ( Unsecured Loan) * Consolidation Loan * Combination Loan * Home Improvement * Xmas Loans for contact to seek for loan email this email address: michealscottloan124@gmail.com Thanks

  2. My name is Mr Henry Josh and i live in the USA California and life is worth living right now for me and my family and all this is because of one man sent by GOD to help me and my family, i once had a life filled with sorrow because my first SON needed a kidney transplant and all our savings were going towards his medications and this normally leaves us with no money to pay our bills or even put enough food on our table and our rent was due and no funds to pay these bills and life felt so unfair to me and every night my wife will cry herself to sleep every night until one day, i was browsing through yahoo answers and i saw a striking advert of a man that gives out personal loans and that the offer is opened to all and i have heard so many things about internet scams but at this point of my life, i was very desperate and ready to take any risk and at the end of the day, i applied for this loan and from one step to another, i got my loan within 12 hours through bank transfer and you know, it was all like a dream and i called Mr Daniel Jones A Man who is the GOD sent lender i found and said, i have received my loan and he smiled stating that to GOD be the glory and i was so shocked as i have never ever seen anyone with such a GOD fearing and kind heart and today, i am the happiest man on earth because by GOD’S grace, my SON kidney transplant was successful and today he is healthy, i and my family are living very comfortable and happy and if you are in my former situation or in serious and legitimate need of a loan, you can reach this GOD sent lender via fidelityloanfirm@outlook.com

  3. Greetings to everyone reading this comment!!! I am Greg William by name. I am out here to recommend the effort of Mark Oscar,I was in need of a consolidation loan amount of 50,000 and as soon as I got in contact with Mark Oscar Loan Firm on Wednesday last week and on Friday last week as well I receive an alert from my bank(Royal Bank of Scotland Group) that the fund was transferred,I want everybody on this site to contact Mark Oscar now via email on how to get a loan because I got my loan from them and I am very happy,so contact them now. Oscarloanfinance@hotmail.com Thanks!!!!!!

  4. Elected officials, like Mourdock, get vested in 8 years. It takes 10 years for all other public employees, most of whom make a lot less money. So much for the promise to finish out his term.

  5. Great state treasurer and a good man!! Just curious if the folks who didn't quite understand his quote would like to tell my daughter-in-law that God didn't intend her! Mourdock's comment was correct but twisted and the article didn't mention that his opponent and the press let the impression stand that Mourdock meant that the rape was intended. Stupid people!!

ADVERTISEMENT