When push comes to shove, the real discussion happening in Washington right now has very little to do with sequester, or with taxes, or with spending or with any of the other sound bites you are hearing about. Rather, there is a more meta conversation underway, out of public view, about the fundamental question of public debt. A lot of this conversation revolves around the Nobel prize winning economist, James M. Buchanan, who died last month, and who wrote broadly about public debt during his long and valued career. When a free lance speech writer like me is asked to start reading the 20 or so volumes of Buchanan’s works, its an indicator that you will probably be hearing a lot about Buchanan in the yeas ahead. Suffice to say, the underlying dispute that is going on in Washington is less about particular items and more about the sustainability of public debt, what public debt means, whether public debt is legal, whether public debt is constitutional and so forth. Buchanan was the economist who challenged what was once known as the New Orthodoxy, that public debt was fundamentally acceptable because, on a balance sheet, we were really borrowing money from ourselves, and our children owned not only the debt, but also the asset of that debt. Of course, this is a sharp contrast between debt we acquire internally, and the debt that we owe to foreign countries, which, of course, does not belong to our children.† This whole issue is materializing along with the notion that not only are baby boomers living longer, but also that they are living less healthy lives, even as baby boomers prepare to draw more from our federal treasury than their parents.† By most calculations, Social Security is now scheduled to become insolvent one month before I become eligible for social security, but the plan to bail out that nightmare, again, is based upon the false premise that our debt is internal, not external.
This would also be amusing and academic, except for one thing. The last group of individuals to obsess about Buchanan and the public debt debate was a man named Gorbachev and his circle of immediate advisors, all of whom were comfortably assured as late as 1987 that there was nothing to worry about, that the Soviet Union would exist as long as the sun and stars, that it was too big to fail, etc.
We have a problem, and its not sequester. Our problem is external public debt.† Our debt is, in large part, the by product of expanding national economies willing to buy our bonds. As those economies slow in growth, or begin to contract, they’re not going to want to wait for their money.† Unfortunately, the minutiae of this problem is less sexy than arguing about whether we solve our problems by taxing or cutting spending. What is the argument in DC really about? Its not about party, and its not about department. The argument is whether the iceberg looming on the horizon is blue green or green blue.