Our collective attention spans are short. Public enemies are forgotten or ignored, and we move on to our next societal nemesis. In the 1980s, it was the war on drugs and communism. In the 1990s, it was AIDS and holes in the ozone. In the 2000s, it was terrorism. Most recently, it was global warming. But now we have a new enemy: government debt.
Not a single issue on this list has really been solved (well, communism’s threat has waned, but don’t tell North Korea). Yet, judging from the U.S. debt-ceiling crisis – and the unsatisfying deal that only papers over the problem – government addiction to borrowing has landed in the world’s lap as the new crisis du jour. Debt is the new carbon.
Environmentalists won’t be happy with this because nothing has really been achieved on the climate-change front, at least not in North America. A few U.S. states have some sensible policies in place, as do a couple of provinces. But Washington’s attention has turned to other priorities, and the environment isn’t one of them. It’s not to say climate change should fall off the agenda. But it will.
There are some striking similarities between the old enemy (carbon) and the new one (government debt).
First, like the proliferation of carbon in the atmosphere, government debt has skyrocketed in the U.S., Europe and other G20 countries. Indeed, most economists urged governments to take on more debt to stimulate their economies during the credit crisis in 2009. From Washington to Athens, and London to Ottawa, spend, baby, spend! was the rally cry. This has led to a shocking run-up in the level of total government debt.
But also like the carbon debate, no one can agree on how serious the debt problem is. With the fervour of alarmist environmental groups, some suggest the debt crisis will hasten the end of Western civilization. Europe will disintegrate, the U.S. dollar will be toppled as the international reserve currency, and China will rule all. But, as with the climate debate, there are deniers, too. They say this is more of a rough patch than the end of the world. Debt levels will come down gradually, and all will be fine.
Finally, the debt issue mirrors the carbon issue because no one can agree on a solution. Slash spending? Raise taxes? No one wants any of that talk. The Achilles heel that could deny Barack Obama a second term is debt. Tea Partiers insist the only way to tame the debt is through constitutionally mandated balanced budgets. This is equivalent to an overweight person amputating his legs so he can’t get to the fridge. Some Democrats, on the other hand, believe four scoops of ice cream instead of five is a legitimate weight-loss program. Clearly, neither is the way to lose weight or deal with government debt.
Canada is in much better shape than most and, for that, we should congratulate ourselves – a bit. On the debt story, we can say: “Been there, done that.” In the 90s, we were the G7 bad boy of public debt; today, we’re the best of the best. Provincially, though, our biggest provinces have serious deficit and debt problems. And while Ottawa’s on track to balancing the budget, any major tremors south of the border could derail that. Economic growth is slowing, and a U.S. double-dip recession is looking more likely by the minute.
Sorry, carbon, you’ve been replaced. We hope you’ll keep in touch since we haven’t really solved you as a problem. But we trust you’ll understand. We only have so much attention to go around.
Todd Hirsch is a Calgary-based senior economist at ATB Financial. The opinions expressed are the author’s own.