Tuesday, December 22, 2009

3 Things Affect Your Life. You Can Change Any Two of Them.

In a previous life the Watchman worked as a technology consultant.  When a client would question the cost of a project, he would tell them that there are three parameters that define a project and the client is welcome to change any two of them.  The third one will then compute itself.
  • Cost
  • Scope of Work
  • Delivery Date
If the client wanted the project to cost less while still being done quickly, then he or she would have to accept  a reduction in the scope of work.  Want all the bells and whistles for a low price?  Then don't expect it to be finished quickly.  You can control any two, but not all three.

A similar triad exists in the public sector:
  • Personal Taxes (Cost)
  • Entitlements (Scope of Work)
  • Public Debt (Delivery Date)
The only difference is that in the private sector the third item refers to the delivery date of the work while in the public sector it refers to the delivery date of the bill.

For years -- decades actually -- Congress has been exercising control over the first two and allowing the third  to compute itself.  The result of this policy is shown below.

When this line gets high enough, life as you have known it will be over.  That's no exaggeration; it's the unvarnished truth.  And it will not happen slowly in the way that the debt was accumulated.  It will happen suddenly like any other 'run' on a bank does.

When will it happen?  Nobody can say for sure, but the current ratio of Gross Debt to Gross Domestic Product in 2009 is 90%, up from 70% last year and on it's way to 100% next year.  It can't continue much longer at this rate without causing a meltdown.  In 2006, Professor of Economics Laurence Kotlikoff, Boston University, argued the United States must eventually choose between "bankruptcy", raising taxes, or cutting payouts.

Do those options sound familiar?  They're the same triad as Taxes/Entitlements/Debt.  You can control any two of the three but the third one computes itself.

If we are to avoid national bankruptcy -- and we must avoid it -- we no longer have the option to control 2 out of 3.  Debt is now King and it must not be allowed to increase.  This is no longer a point for political debate.  Any politician who attempts to spin this should be publically rebuked, shunned, and then voted out of office at the next opportunity.

The people of the United States must immediately demand a constitutional amendment limiting the Gross Domestic Debt to a fixed percentage of the Gross Domestic Product.  We can debate what that percentage should be, how close to the edge we want to dance, but it can no longer be allowed to float.

For too many generations, Congress has run this country like a drunken frat house with the healthcare bill only the latest keger party. Sure it's all just innocent fun until somebody loses an eye -- or inflation reaches 10% per month and bundles of greenbacks are cheaper fuel for wood burning stoves than wood.

You know, I wish we could offer free health insurance to everyone in America too.  But we can't.  Maybe we could have before we squandered the fatted calf, but our reserves are gone.  We can't afford universal health care now nor in your lifetime or mine.  The CBO cost saving estimates are a frat boy's wet dream and just as much a fantasy.  Look at the numbers.  One generation partied and another has to face the hangover.  It's time for the nation to grow up, throw up, sober up, fess up, wise up, and then clean up this place before the Chinese cops break down the door and cart us off to economic jail.

When our head clears we'll see that the two options are really down to one.  Increasing debt is not an option and neither is increasing taxes.  We can't tax ourselves to prosperity.  If we try we'll end up with the perpetual slow growth of Europe or Japan.  Choke the American economic engine with taxes and the world will stall.  Slow growth will become no growth.  No growth will become a viscous deflationary spiral that will make the middle ages looks like the roaring 20's.

Heck of a party wasn't it?  Let's have another one next weekend!

It's time to grow up folks.  Irresponsible college living is over. It's time to put on a suit and get a job.  Mom, Dad and your Uncle Sam  are done funding your housing and three squares a day.  Not making enough money to continue living in the decadent life style you had in college.  Poor baby.  I guess you'll have to make some cuts, won't you?  Start here.

The next time a politician tries to draw you into his drug induced fantasy, you slap him silly and tell him to grow up.


  1. Great post! Economics 101. I'm gonna share this with my people if you don't mind.