July 14, 2006

WEEKEND SPECIAL: DENNY DIMWIT ON THE DEBT CRISIS


Goat Rope is pleased to feature another learned commentary by bantam rooster and noted free market economist Dr. Denton “Denny” Dimwit.

Dr. Dimwit is director of the Goat Rope Farm Entrepreneurship Center, which is one of the nation’s leading animal-led free market policy institutions and is second to none in its intellectual rigor and enthusiasm for BIG hens.

It is our profoundest hope that this sharing of divergent viewpoints will reduce the tragic polarization of our time and contribute to a climate of profound respect, deep listening, and civil discourse.

THE DIMWIT DISPATCH

Crudawackapotamus! The flapdoodles who put this blog out have been rolling around in the compost again.

What’s all this stupid stuff about debt cancellation? Debt is AWESOME! I say suck it up and pay it back. That’s what you get for not being a creditor.

I can prove it economostatisticaocalculatically. Let’s say you owe me something. Like a BIG hen. I WANT IT! Q.E.D.

And speaking of BIG hens, check out the picture. The little handsome guy is me. And see what’s beside me? That’s right, baby. That's what I'm talking about. And don't even think about it. She’s with me, Jack, got it? Yowza!

That’s the beauty of the market.

And that’s the truth. You bet your cloaca.


GOAT ROPE ADVISORY LEVEL: ELEVATED

FORGIVE US OUR DEBTS, PART V: US HOUSEHOLD DEBT


Caption: This butterfly would have a serious debt problem if he didn't have a good job.

This is the final post in a series exploring issues of debt at the international, national and household level.

While issues of debt are not as lethal to average Americans as they are to people living in places like Africa, the consumer debt situation in the United States isn't pretty.

According to the Economic Policy Institute:

*After adjusting for inflation, U.S. household indebtedness has risen by 42 percent in the last five years;

*The level of debt as a percentage of after tax income is at its highest recorded level, with mortgage and consumer debt standing at 120 percent of after-tax income. This is more than twice the level of 30 years ago;

*The percentage of after-tax income that goes to pay off debts is at an all time high; and

*The personal savings rate is negative for the first time since the Great Depression.

MSN Money reports that

About 43% of American families spend more than they earn each year.

Average households carry some $8,000 in credit card debt.

Personal bankruptcies have doubled in the past decade....

American consumers owed a grand total of $1.9773 trillion in October 2003, according to the latest statistics on consumer credit from the Federal Reserve. That's about $18,654 per household, a figure that doesn't include mortgage debt. The number is up more than 41% from the $1.3999 trillion consumers owed in 1998.



As the publication of the Annie E. Casey Foundation points out, debt strikes hardest at the poor, who are often cruelly exploited by predatory lending practices such as payday lending, rent-to-own schemes, and rapid income tax refund loans.

In the case of credit cards, the number of families with incomes of less than $10,000 a year that carry balances month to month increased by 72 percent between 1989 and 2001. In the same period, the average balance carried over increased by 184 percent. Between 1994 and 2004, average credit card late fees increased by 150 percent.

As the late great Appalachian radical poet Don West once said, "Poverty pays unless you're poor."

In many cases, issues related to health care can trigger a debt crisis. Medical costs are factors in about half of all bankruptcies. (And let's not forget that our congressional kleptocracy recently "reformed" bankruptcy laws to further stack the deck on behalf of creditors.)

Unquestionably some of America's debt problem is driven by questionable decisions, rampant consumerism, and a lack of financial literacy. But there's more to the story.

While incomes have risen dramatically for CEOs and the wealthy, the prosperity hasn't been shared across the population. Wages have been largely stagnant and the number both of people living in poverty and of uninsured Americans has increased yearly since 2000.

What to do? More efforts to promote financial literacy wouldn't hurt but aren't enough. For starters, America needs a raise, particularly the millions of minimum wage workers. The nation's health care crisis needs to be addressed not by "market based" health savings accounts but by moving towards universal care.

Programs like the Earned Income Tax Credit and asset-building Individual Development Accounts should be expanded, as should programs that promote home ownership.

Instead of hiking interest rates on higher education loans as congress recently did, we should be making college and vocational training more affordable. Sane federal budget priorities wouldn't hurt either.

In a word, we should try to ensure a degree of shared prosperity rather than a widening gap between the very wealthy and everyone else. To quote from the person who inspired the title of this series, "a house divided against itself cannot stand."

GOAT ROPE ADVISORY LEVEL: UNSPEAKABLE

July 12, 2006

FORGIVE US OUR DEBTS, PART IV: US PUBLIC DEBT


Caption: Lending to or borrowing from goats is generally a bad idea.

This is the fourth post in a series on issues of debt, including international, national, and personal. Today's post will look at US debt and deficit issues.

In the early days of the American republic, Alexander Hamilton said that "A national debt, if it is not excessive, will be to us a national blessing." Hamilton believed that a strong federal government was needed to promote economic growth and that the public debt would bind the interests of many people, particularly the wealthy, to the public interest.

While this idea was rank heresy to Jefferson and his allies, who viewed Hamilton and other federalists as monarchists in disguise, he was probably right if, as he said, "it is not excessive" and if the debt took the form of investments that strengthened the nation rather than enriched a faction.

It is likely, however, that even Hamilton--no enemy to the wealthy or to a reasonable amount of debt-- would be baffled by current US fiscal policy.

According to the Center on Budget and Policy Priorities,

Only a few years ago, we had large budget surpluses, not large deficits. In January 2001, the Congressional Budget Office projected that the federal government would amass $5.6 trillion in surpluses over the next ten years (2002-2011). CBO's most recent projections, issued in March 2006, indicate that the federal government will amass deficits of $3.4 trillion during the same 2002-2011 period, assuming that the Presdient's tax cuts (which are scheduled to expire by the end of 2010) are extended...In other words, there has been a negative swing of roughly $9 trillion for this ten-year period (or an average of roughly $900 billion per year)...


While right wing ideologues blame out of control social spending, the real reasons for the deficit have little to do with either mandatory (entitlement) or discretionary spending.

Of legislation adding to deficits since 2001, only 16 percent was due to domestic spending other than homeland security. Tax cuts, aimed particularly at the wealthy, account for fully 50 percent, while defense, security and international programs caused 33 percent of the increase.

The idea of cutting taxes during (an unnecessary) war is truly bizarre and makes about as much sense as taking the gas out of a car while on a long and dangerous trip.

Yet, as we saw with last year's congressional budget resolution, domestic programs are the first to be cut. The misnamed Deficit Reduction Act cut $40 billion from Medicaid, student loans, and other programs while actually increasing the deficit with $70 billion more in tax cuts.

Households with incomes over $1 million will get around $111,549 in tax reductions from cuts passed since 2001, while low income and working families bear the brunt of budget cuts.

While the Bush administration is now boasting that the current deficit is "only" $300 billion this year (after previously inflating deficit expectations), the long term and largely unproductive debt that younger Americans will face is staggering.

As Diane Lim Rogers of the Brookings Institution put it (see July 7 post titled "Taxing Subjects"), the administration and its allies in congress are actually imposing a "birth tax" on future generations of Americans.

Debts incurred during this administration due to the unnecessary war in Iraq and the tax cut mania will hinder the ability of Americans in the future to respond as needed to the challenges of the times.

So what's the solution? As the saying goes, if you find yourself in a hole (assuming you don't want to be there) the first thing to do is stop digging. The Center recommends a balanced approach to the budget which "would include revenue increases as well as spending cuts, especially since the recent tax cuts are a main reason we have deficits." Cuts in spending should not fall heavily on those least able to bear them.

El Cabrero thinks that if Jefferson and Hamilton were with us today, even they would agree on that.

GOAT ROPE ADVISORY LEVEL: ELEVATED

FORGIVE US OUR DEBTS, PART III, AFRICA



Caption: Speaking of debt, Ferdinand had to pawn his beautiful tail feathers to pay for the bill for mating season. Was it worth it?

This is the third in a series of posts about the issues of debt at an international, national, and personal level.

Of all the places in the world, debt cancellation is most urgently needed in sub-Saharan Africa, which is also the world's poorest region. According to the American Friends Service Committee's Life Over Debt Campaign, this region:

*carries a debt of $201 billion. The G8 debt cancellation agreement mentioned last time, while a welcome step, only cancels an estimated $33 billion. In spite of its poverty, Africa repaid more than 90 percent of the $294 billion received between 1970 and 2002;

*spends up to five times more on debt repayment per person than it spends on health care and education for its people; and

*paid back $1.51 in interest for every $1 received in aid grants in 1999.

The debt, much of which was incurred by authoritarian regimes in the context of Cold War politics as a reward for loyalty, now stands in the way of meeting urgent human needs.

For example, Sub-Saharan Africa accounts for around 64 percent of the world's HIV/AIDS cases, although only 10 percent of Africans have access to needed medicines. The death toll from this has been estimated to be 6,000 per day. Of the 13 million AIDS orphans in the world, 12 million are in Africa. By 2010, this figure is expected to increase to 20 million. Some 300 million people live on less than $1 a day and around 38 million are facing a hunger crisis.

As Jeffrey Sachs, author of The End of Poverty: Economic Possibilities for Our Time, convincingly argues, wiping out extreme poverty in Africa and elsewhere is easily within reach given the political will. Sachs maintains that debt cancellation is an essential component of a global strategy which also includes trade policy, the use of science in the service of development, and environmental stewardship.

Since misery loves company, a global anti-poverty strategy in which debt cancellation without harsh conditions is a component would be a prudent investment on the part of the world's richest nations.

Next time: a starting look at debt in the USA.

GOAT ROPE ADVISORY LEVEL: ELEVATED

July 11, 2006

FORGIVE US OUR DEBTS, PART II: JUBILEE


Caption: This man is a bad credit risk.

This is the second post in a series about issues related to international, national, and personal debt.

Debt relief, like justice for the poor and for those who labor, is a key theme of the Hebrew Bible. Essentially, it grows from the Exodus experience of the liberation of Hebrew slaves from bondage in Egypt.

The Torah, or first five books of the Bible which constitute the foundation of Jewish law, provides for periodic cancellation of debts every seventh year, which was a Sabbath Year (Deuteronomy 15). The intent clearly seems to be to prevent the formation and hardening of a permanent class system.

Every 50th year was to be a year of Jubilee in which slaves were to be freed, debts cancelled, the land was to lie fallow and the land was to be redistributed to its original holders.

As Leviticus puts it, "And ye shall hallow the fiftieth year, and proclaim liberty throughout all the land unto the inhabitants thereof; it shall be a jubilee unto you; and ye shall return every man unto his possession, and ye shall return every man unto his family." (25:10)

This ancient idea helped inspire what was previously called Jubilee 2000, one of the most successful social movements of recent years. This campaign and similar efforts called for the cancellation of the debts of the world's poorest nations.

Many of these countries, which suffered from the legacy of colonialism and sometimes of undemocratic and authoritarian governments, were pressured to borrow from wealthier nations and international financial institutions for development projects. These loans often profited elites in the borrowing and lending countries but brought little or no benefit--and sometimes great harm--to ordinary people.

As the debt mounted, countries would often have to keep borrowing to simply pay the interest on earlier loans. Institutions like the World Bank and International Monetary Fund then imposed harsh structural adjustment programs (SAPS) which forced austerity measures such as privatization and cuts to health, education, and social programs on people who were already desperately poor. For millions of the world's poor, there was no way out.

At the time the debt cancellation movement began in the 1990s, most people with an inclination to bet would have given pretty slim odds for any chance of success, but the movement has grown substantially and has impacted the policies of the world's wealthiest nations which comprise the G8, as well as the World Bank, the International Monetary Fund, and other international financial institutions.

In July 2005, the G8 agreed to 100 percent cancellation of the debt of 14 impoverished countries in Africa and four in Latin America (one, Mauritania, has since been dropped from the deal). While many in the debt cancellation movement were disappointed about the extent of the relief in light of the human crisis in highly indebted countries, it is highly unlikely that this step would have been taken without movement pressure.

Next time: a look at debt in Africa.

GOAT ROPE ADVISORY LEVEL: ELEVATED

July 10, 2006

FORGIVE US OUR DEBTS, PART I



Caption: Seamus McGoogle is so industrious that he would never fall into debt.

This is the first in a series of posts about the issues of debt, national, international, and personal.

The words of the prayer taught by Jesus in Matthew's Sermon on the Mount, popularly known as the Lord's Prayer, are familiar to millions of people. But most of us receive them from a translation of a translation across huge divides of time, class and culture. As a result, we may miss a lot of their original meaning.

The words were originally spoken to Galilean peasants living at the margins of survival. As is often the case in history, the peasants were an exploited class. Much of their surplus--and sometimes more--was taken from them by local and distant elites.

A bad harvest or other misfortune could mean falling into debt, which could lead to loss of land, the basis of economic security. Peasant families could be reduced to tenancy, slavery, or--what was often even worse in the ancient world--a descent into what sociologist Gerhard Lenski called "the expendable" classes of day laborers and beggars.

It could literally lead to a death spiral.

In that context, the words of the prayer which modern people often spiritualize had a concrete, even economic meaning.

"Thy kingdom come" meant the reign of compassion and justice for the poor, the sick and the outcast proclaimed and enacted by Jesus where the last would be first.

"Give us our daily bread" is a pretty concrete petition in a world where food security was not a given.

And while the phrase "Forgive us our debts" had and has a spiritual dimension, it also referred to an all too familiar and terrifying reality.

For too many people in the world today, that is still the case.

Next time: debt and forgiveness in the Hebrew Bible.

GOAT ROPE ADVISORY LEVEL: ELEVATED