Reason and Our Debt

I just got through reading a couple articles posted on the libertarian website Reason.com. The United States is now at a point (unfortunately) where we have crises brewing that all of us should be aware of.

The crisis I'm talking about here is our nation's debt. Ben Bernanke, Chairman of the Federal Reserve spoke to that last month:

The arithmetic is, unfortunately, quite clear. To avoid large and unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above.

We've already been hearing lots of people complaining (generally speaking, conservatives will complain about taxes and liberals will complain about budget cuts) and we can expect more complaints from more people in the coming years.

Matt Welch, Editor-in-Chief of Reason Magazine
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However, there may be another possibility of dealing with our debt that Mr. Bernanke did not mention: Historically, countries have eased their debts by inflating their currencies. It is true that inflation creates its own problems, but the time may come where encouraging inflation is our best alternative. Bernanke certainly knows this, but as an overseer of interest rates he avoids mentioning inflation because doing so might cause a panic on Wall Street.

Matt Welch's article "We Are Out of Money," being written for a libertarian audience took it for granted that the best way to deal with our debt crisis is to cut the pensions and wages of public employees such as policemen, firefighters and teachers. As a public employee myself, I don't warm to that idea, but the pain will have to be felt somewhere, if not everywhere. At the very least, people like Welch deserve credit for addressing the problem proactively.

Here's a graphic that came from the article "Our Unsustainable Debt: America is on the Verge of Financial Disaster" by Veronique de Rugy:

Clearly, our nation's debt - measured as a percentage of our Gross Domestic Product (GDP) and shown as the green-shaded area in the graph - is projected to exceed the costs of Social Security and Medicare (denoted by the black and blue lines) in roughly twenty years.