debt ceiling talks are just a sideshow

The debate about raising the national debt ceiling is a political sideshow. We will pay our bills. That's not the problem, at least for now.

Besides, the $14 trillion we admit to owing as a nation is dwarfed by ~$100 trillion in additional unfunded medicare and social security promises. Although this ~$100 trillion unfunded entitlement obligation makes the $14 trillion appear to be insignificant, medicare and social security aren't being given much attention in the political debate now taking place. Charles Ponzi of Ponzi scheme fame comes to mind.

Other than the unfunded entitlement debt obligations, the continuing weak economy and high unemployment levels are quite troublesome, too . Although we're now two years into the economic "recovery", a relatively weak economy accompanied by high unemployment are likely to remain big problems for years to come.

The central issue which needs a solution is not our existing debt levels but what to do about our ongoing annual deficits and growing unfunded entitlement burden for future generations. We must address how we can achieve a resumption of healthy economic growth, which in turn will bring down the rate of unemployment.

In sum, it's not the debt that is causing our problems now. Debt is the result and not the cause of what we're doing. Accordingly, achieving meaningful and sustainable economic growth is the single biggest issue facing Americans today and will be for the foreseeable future, too.

For a sobering analysis of why we must cease emulating Europe's welfare state, The Disappearing Recovery is worthwhile reading. It makes a persuasive argument that by emulating Europe on labor costs, taxes and entitlements, we have seriously restricted our prospects for resuming necessary and historical economic growth levels of ~3% over time.

In sum, the tradeoff between economic growth and government mandated entitlements is the most difficult problem facing America. And that's why the debt ceiling talks are a sideshow.

Republicans, led by the sentiments of tea partiers, want no tax increases and less government spending. That's fine as far as it goes, but they don't want to talk about a substantial reduction in future medicare and social security benefits. Something has to give.

Meanwhile, the Democrats say that social security and medicare cuts are largely off the table as well, but they want the wealthy, defined by them as the top 2% of earners, to pay more taxes. That tax the 2% approach wouldn't seriously address the debt issue, but it likely would inhibit growth. Something has to give here, too.

As defined by Democrats, those below the top 2% of earners are members of the protected middle class. If that's the case, by using a normal distribution curve we must also conclude that only the bottom 2% of earners are poor. According to this twisted logic, albeit perhaps politically ingenious, that leaves ~96% or so belonging to the "middle class", or almost all of the voting public.

So both parties want to take special care of the "middle class", the elderly and students. Yet neither party wishes either to pay for the entitlements or, in the alternative, reduce them to a financially responsible level.

A realistic look at the many longer term financial and political issues facing Americans is the subject of Budget Solution: Squeeze the Middle. Therein the top earners are categorized as the 10% of households earning more than $163,200 annually. The middle class grouping consists of the next 50% who earn between $33,500 and $163,200 annually, and the remaining 40% are those lower income households that earn below $33,500. That 40% group pays less than 3% of the federal income taxes. Guess who pays the other 97%.

No matter how the politicians try to spin it, in the end we'll all pay the tab. And one way or another, the now "politically protected" middle class will be among those paying. To paraphrase what Willie Sutton said when asked why he robbed banks, the 60% falling in the top and middle earner categories are where the money is. That's why the middle class, along with everybody else, including those at the top and bottom, will pay more, too.

So why are the politicians not telling the truth or addressing the real issues in a forthright manner? Well, for now let's just say that they either don't understand the basic problem or don't want to deal with it. Either way, we're in for lots of interesting times in the months and years ahead.

For certain it's all a bit nauseating. But the debt ceiling talks are still a sideshow. The real show is ahead of us. All of us.

Thanks. Bob.