Cliff? What Cliff?

I have a mortgage. It is not under water, but it is much larger than I could pay off in a single bite. Every month, when I get the bill from the bank, I take note of how much will go for the principal and how much for interest. The two numbers are uncomfortably close and will be for many years.

I am also very aware every time I send in a payment that the money going for interest is unavailable to be spent on other things. Like all average citizens, my wife and I have to balance the family books and that means prioritizing what we buy and what we forego.

But we are told that this logic does not apply to the federal government. If it spends more than it has, increased economic activity and therefore increased revenues will compensate for this. In the end, it cannot go broke because it is the banker of last resort.

This is elementary Keynesianism. The government borrows, and spends, and thereby “primes the pump.” Then when the water begins gushing forth, everyone is wealthier than they had been before. Likewise, if the government does not do its part by spending wildly, we will all suffer unremitting poverty.

The trouble with this theory is that it has been tried and does not work. It did not work for Franklin D. Roosevelt who employed it for almost a decade. It has not worked for Barack Obama who has resorted to it for four years and now plans to use it for another four.

Economists tell us that the economy should continue to grow, but at an anemic rate—not even enough to create jobs for everyone seeking them. But this is okay because we can continue to borrow and to prime the pump.

Barack Obama is currently telling us that there is no impending debt crisis. He says that we can keep going for at least another decade with no adverse effects. Greece may have gone broke, yet as the world’s reserve currency we can keep borrowing for as long as it takes to turn the corner.

But can we? The president and his minions assert that there is no debt cliff. It is only a bunch of Republican alarmists who think so. Just four short years ago Obama himself was warning that Bush was stealing from our children; nevertheless that danger no longer applies because Democrats are now in charge.

In truth, the borrowing cannot last forever, because the federal government also pays interest on what it borrows. So far, this administration has been lucky in that interests rates have been extremely low. What with the Fed charging banks almost no interest and other governments in more trouble than we are, investors have been willing to accept paltry returns.

That, however, cannot go on indefinitely. With more and more money being pumped into an economy that is not increasing its production of goods to match, eventually prices must go up. We may not know when this inflation will hit, but when it does the consequences will be dire.

As has happened in the past, interest rates will skyrocket, which means that what the government has to pay to attract lenders will as well. Then, to paraphrase Obama, simple math tells us that the dollars going out to pay for the interest will not be available for other things.

Nevertheless, this is in the future. Today we may be feeling uncomfortable, but we are not in agony. People, like me, warn about the impending cliff, yet we have not, to date, gone over it. We have certainly not bottomed out and so it seems to many that all is well.

Still, there is a debt cliff coming, and those who are asking “what cliff” will be hurt just as badly as those warning of it. The question is, will we do anything before it is too late? The doubts grow.

Melvyn L. Fein, Ph.D.

Professor of Sociology

Kennesaw State University