America's Fiscal Tsunami

It wasn't that long ago that our own Stephen Harper mocked Canada as a backward nation where taxes were higher and yet the standard of living was decidedly lower than in our next door neighbour, the United States.

Yes, our taxes were higher - back then. What we didn't realize was that much of the discrepancy was due to where our respective governments secured their revenues. We taxed our population, our businesses. Americans, by contrast, kept taxes artificially low by making up the difference in enormous sums of money borrowed from foreign lenders.

American governments - municipal, state and federal - kept taxes low by pledging the good credit of generations of wage-earners not yet born. Why? How could they do something so dastardly? Easy. To cite Clinton, they did it because they could. They did it because foreign lenders were willing to throw cash their way.

The other trick they pulled to keep taxes artificially low was to curb infrastructure spending. The superhighways and turnpikes, the overpasses and bridges of which Americans were so proud in the 50's were no longer recognized as keys to their country's economic prowess and were allowed to fall into decay. America's very future was discarded and left to rot - but, my goodness, taxes were really low.

The key to this low-tax, high-debt fiscal madness has always been to keep the focus short. Feel good today, forget about who will pay for it later. Enjoy. For those of you who still believe that Ronald Reagan and the Reaganites who followed were the best thing that ever happened to America, I'll reproduce my favourite chart below. The red lines are the feel good today, forget about the future presidencies.



This sort of malpractice resembles an unnoticed tsunami. It spends most of its time crossing the sea where it's a barely noticeable swell. It's only at the last minute as it approaches the coast that the shallow waters transform it into an enormous wave of astonishing destruction.

The United States is about to be visited with the tsunami of its own making, the self-devastation people like Stephen Harper so openly admired. One sign of this apocalypse is found in America's skyrocketing costs for higher education. The New York Times reports that a study by the National Center for Public Policy and Higher Education shows that rising costs are putting higher education out of reach for most Americans:

Over all, the report found, published college tuition and fees increased 439 percent from 1982 to 2007, adjusted for inflation, while median family income rose 147 percent. Student borrowing has more than doubled in the last decade, and students from lower-income families, on average, get smaller grants from the colleges they attend than students from more affluent families.

“When we come out of the recession,” [Center President Patrick M.] Callan added, “we’re really going to be in jeopardy, because the educational gap between our work force and the rest of the world will make it very hard to be competitive. Already, we’re one of the few countries where 25- to 34-year-olds are less educated than older workers.”

Of course the easy answer is to start throwing tax dollars at the problem, right? Perhaps, except that the cupboard is bare thanks to borrowings, tax cuts for the rich and military adventurism abroad. Everyone, from big business, to state and municipal governments are scrambling for federal bailouts. To make those bailouts, the feds are going to have to borrow the funds from foreign lenders.

While college is becoming unaffordable for an increasing number of
Americans, India is opening 29-new technical universities every year while China turns out high-quality engineers on a scale that utterly dwarfs America's performance. This is a critical problem for a self-described, "knowledge based" economy.

Reagan and Mulroney probably didn't understand the Pandora's Box they were opening when they championed free trade and globalization. Yes, it did generate real, tangible benefits in the short term but at a real cost that would have to be paid just a few decades later. Their vision failed to recognize the tsunami effect of using a powerful, affluent nation's wealth to grow the economies of its rivals.

To condemn globalization is to be branded apostate, even today. And yet its devastation has arrived on our shores in an unstoppable wave in less than three decades.

During the late 40's, America's economic dominance was complete. North America held something in the order of 70% of the world's manufacturing capacity - all those spanking new plants and equipment established to build tanks and guns and airplanes for the war - while everyone else's plants were either antiquated or reduced to rubble. If you were in a distant country and you needed a truck, chances were you would be getting something built by Ford or Chevrolet or Dodge.

It's bad enough that the shoe's now on the other foot but did we have to put it there?