The U.S. Government’s Debt: Federalism Unbalanced

On May 5, 2025, the debt of the U.S. Government stood at $36.21 trillion, $28.9 trillion being held by the public and $7.31 trillion being intragovernmental. That total is $1.66 trillion more than the total federal public debt on May 5, 2024. Projected interest payments of $952 billion in fiscal year 2025 would be 8 percent higher than the interest payments made in 2024. By comparison, the U.S. budget for national defense in fiscal year 2025 totaled $892.6 billion. Whether going to investors of treasury bonds or defense contractors and other corporations, the combined $1.85 trillion for fiscal 2025 represents a transfer payment to the wealthy from American taxpayers rich, middle-class, and poor. Meanwhile, Republican lawmakers in the U.S. House of Representatives passed a bill in May, 2025 that would subject Medicaid and food assistance to significantly less money and subject the States with having to spend more on the administration of those programs. Principles of political ideology reside just below the surface. My task here is to flush them out and relate them to each other, rather than to impose my own ideology.

Fresh out of the Trump Administration, billionaire Elon Musk called the tax and spending bill a “disgusting abomination.”[1] Presumably this condemnation has to do with the “multi-trillion tax breaks” and the raising of the debt ceiling an additional $4 trillion, but the CEO of SpaceX would hardly object to the increase for defense.[2] Musk wrote that the “outrageous, pork-filled” bill would “massively increase the already gigantic budget deficit to $2.5 trillion” in spite of the cuts to healthcare and food for the poor that Musk supported.[3] U.S. Sen. Rand Paul promised to vote against the bill unless the debt ceiling would not be raised.

As of early June, 2025, who could say whether Republican opposition in the U.S. Senate would actually materialize beyond the rhetoric designed to give an impression of objection to voters back home. The Republican lawmakers in the House had quickly closed ranks to pass the House bill. Behind the numbers are values and ideological principles that can be difficult to see. Cutting federal programs that help the poor with subsistence living, such as with food and healthcare, can be said to imply a lack of compassion, especially if defense contractors would be getting more business from the federal government, but two political principles are also in play.

One is the belief that the role of government should not include providing even the basics to people; charities and families should supply basic needs to the poor. Overlaid with that principle is one concerning American federalism, wherein the federal government was originally intended to have very limited powers, and one way of limiting them was to make regulating interstate commerce and providing a common defense primary, with other domains of power being handled by the States. This principle is in accord with the differences between States in an empire-scale federal union of states because the state governments can more tightly match social programs with the political ideology of a majority of the voters in a state than can be done by Congress.

These two principles—the first being more general and the second more particular to the American federal philosophy—are not fully consistent, for according to the federal principle, Congress should take care that the state governments are not crowded out in taxing more so as to take on more in domestic programs—domestic being here within a given state. Whereas the view that the proper roles of government do not include making goods and services available to citizens applies to the States too, the principle of federalism favors expanding the taxing and spending abilities of the States according to how much of an entitlement-providing responsibility each state government wants, as per the relevant political ideology of the majority of the citizens of a state.

Re-balancing American federalism so the States regain some of authority that they once had should include managing the transition especially concerning programs relied on by the poor because they are vulnerable to suffering and even dying by slipping between the cracks. Relatedly, because in at least some of the several States, the majority of people believe that government should supply the poor with necessities, the more general political principle that government itself should not supply goods and services to individual citizens should give way to the second, federal principle. Put another way, were Congress to vote to restrict government itself, then more expansive ideologies in at least some States would be choked off. The general government principle should be decided therefore on the state level rather than by Congress.

Taking a page from the E.U., the U.S. member-states could conceivably be given more responsibility in funding defense beyond just militias, which are armies that the U.S. President can borrow. Not that the head of state of California should step over the federal president on defense policy as Macron of the E.U. state of France did in trying to head the E.U.’s defense policy against Russia in 2025. The defense budget of the U.S. Government could be reduced and the states could do more without the latter superseding the former. Together with transferring more non-interstate-commerce domestic programs to the states, the federal deficits could be reduced. President Reagan failed to rebalance American federalism because he favored the more general restrictive-government-role principle and thus did not facilitate states making up for federal cuts in domestic spending. To be sure, the state governments would have done so to various extents, given their distinct political climates.

Restoring power to the member-states heeds the fact that over a continent and beyond, one size (of public policy) does not fit all (States). Curtailing both federal defense and domestic spending while reducing federal taxation by less than the combined cuts but enough that state taxing abilities would no longer be crowded out from expanding to meet the incoming transfer of programs would put the federal government on the road to fiscal responsibility—meaning being able at some point to pay off its debt—while giving the state governments back more of the authority they had when the federal system was designed and put into operation. The horrendous fiscal imbalance of the U.S. (federal) Government can be interpreted as pointing, in effect, to how imbalanced the federal system itself has become. No one at the U.S. Constitutional Convention envisioned the federal level as handling everything of substance while the state governments become like municipal governments, so it should be no surprise that such a lack of fit would be reflected in a massive fiscal imbalance on the federal level.

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1. Bernd Debusmann, “Musk Calls Trump’s Tax Bill a ‘Disgusting Abomination’,” BBC.com, June 3, 2025.
2. Ibid.
3. Ibid.

On the U.S. Government’s Budget Deficits and Debt: American Democracy Unhinged

It is true that a government’s budget can be read as a blueprint of priorities in terms of what is valued, and what is not so highly valued. The blueprint itself, as a whole, also evinces a priority in terms of values. As the big-ticket items, such as large spending categories and massive tax-cuts, get the most attention, whether a budget is in balance can go by the wayside, and what that says about the electorate (and thus the state of democracy) can easily be missed. Ultimately, public policy and even the votes of the elected representatives point back to the popular sovereign, the People—more specifically, the electorate, and its values. By 2024, the deficit and accumulated debt of the U.S. Government had reached such gigantic numbers that something could be said to be amiss concerning those values. The underlying culprit, which can be said to be an illness that is human, all too human, had by then infected American democracy beyond the wherewithal of virtually any elected federal representative to enunciate well enough that the electorate could look clearly at itself, and thus size itself up beyond the partial diagnoses that can be found in partisan attacks.

In late June, 2024, the (nonpartisan) Congressional Budget Office forecasted a $2 trillion deficit for the year, up from an earlier estimate of $1.6 trillion.[1] At the time, the federal accumulated debt stood at $34 trillion. Whereas in the 1970s, the debt as a percent of GNP was in the low 30s, the percentage for 2023 stood at just over 120 percent. Clearly, the trajectory of deficits and debt was disproportionate even on a percentage basis. Furthermore, interest payments made by the U.S. Government, which the CBO director said were “large by historical standards,”[2] were poised to exceed the entire defense budget in 2024; and that recipients of interest-bearing bonds tend to be on the wealthy side, whereas the poor and middle-class pay taxes, the ballooning debt could be viewed as an engine of wealth-transfer from the poor to the rich via the U.S. Government, hence increasing economic inequality as an indirect effect of fiscal public policy. In short, something systemic was out of balance, with ethical implications.

Blaming large ticket items (i.e., federal spending) provides us with an easy target but only gets at a symptom. Regarding the 2024 fiscal year, the Congressional Budget Office pointed to the $145 billion cost of the President’s changes to student loans and the $95 billion foreign aid for Ukraine, Israel, and Taiwan enacted in April as the two largest factors.[3] Almost a trillion dollars for three countries. Healthcare costs came in third.

To be sure, the changes in student-loan policy under President Biden were in large part due to the spurious vocational claims of for-profit “universities and feckless accrediting agencies, with unemployed former students as the victims. The foreign-aid spending was associated with foreign policy objectives—holding back Russia and sending a message that military aggression (by Russia) is no longer acceptable in the 21^st century being foremost. In short, both deficit-growing factors were oriented to protecting victims, and thus could be justified ethically. Increased public health-insurance costs too can be justified ethically, given the value of health irrespective of income and wealth.

Even lofty goals come with costs, however, which may not be affordable. A sovereign government with the authority to “print money” need not be constrained by what it can afford, absent constitutional language mandating a balanced budget. Of course, spending is only half of the deficit equation; taxation being the other. That spending had been outstripping revenue since the Clinton administration can be traced back to the Reagan tax cuts. Regarding the deficit in 2024, the Trump tax cuts should also be remembered. Moreover, the refusal of Congresses and presidents to raise taxes to cover increases in spending when the economy is fine or (especially) good is also a factor in how the U.S. Government’s debt got to $34 trillion.

Both the proclivity to increase government spending and the reluctance to increase taxes (or defeat tax-cut proposals) leads us directly “under the hood” to popular sovereignty: Government by the People. That is to say, the American electorate is ultimately to blame for not electing representatives, senators, and presidents who resist the twin temptations. To be sure, differing political ideologies on the proper size of government, and, more specifically, the federal government, are also legitimate in voting decisions.

A believer in a small federal government, harkening back to Thomas Jefferson, might vote for candidates in favor of tax cuts in order to “starve” the federal government. But this strategy ignores the unlimited ability of that government to enact spending bills. A “small government” ideology should go after spending and taxes with enough tax revenue over spending in the out years to pay off the accumulated debt.

A believer in a large federal government (in absolute terms and relative to those of the states) has no problem resisting tax-cut proposals; it is the notion that a government can or should grow by increased spending, especially without increased taxation to cover both the additional spending and to pay off the accumulated debt, that is problematic.

In the 1980s and early 1990s, the U.S. deficits (and debt) were significant in political discourse. David Stockton, President Reagan’s head of the OMB (Office of Management and Budget), wrote The Triumph of Politics to explain why Reagan failed to bring down the deficit numbers. The imbalance was in the public’s aversion to cutting domestic spending, Reagan’s increase in defense spending, and the president’s tax-cuts. In terms of the American electorate, the desire for immediate consumption, which includes tax-cuts, combined with the lack of responsibility can be cited as the ultimate source of the imbalance that may be inherent in democracy itself.

It is significant that Thomas Jefferson and John Adams agreed long after they were out of the political arena that a viable republic requires an educated and virtuous citizenry. Put another way, self-government requires a sense of responsibility in terms of fiscal governance. That the debt of the U.S. Government had been allowed to reach $34 trillion by 2024 can be interpreted as a verdict, or an x-ray, on just how fit the American electorate had been to govern itself through its chosen representatives. The real threat to American democracy lies within. The threat, in fact, by 2024 may have become much more serious than even that of unbalanced fiscal policy.  For the proverbial invisible “elephant in the room” may no longer have merely been the failure of the American electorate to exercise its popular sovereignty with fiscal responsibility on governmental taxation and spending: the rising unexamined question may ironically have already relegated fiscal responsibility altogether in silently asking whether $34 trillion ever gets paid off. Like an insect whose legs are still twitching even though it is already dead, the U.S. Government may have already been effectively bankrupt without anyone realizing it. If this was already de facto the case by 2024, then the damning verdict, not seen yet in plain sight, would be on another level entirely. 

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1. Jennifer Scholtes, “$2T in Red Ink: Foreign Aid, Biden’s Student Loan Policies Hike U.S. Deficit Forecast,” Politico, June 18, 2024 (accessed June 22, 2024).
2. Ibid.
3. Ibid.

The European Union at Risk: The German High Court Undercut the European Court of Justice on the Role of the European Central Bank

If a dispute between an E.U. state and the European Central Bank (ECB) on one of its programmes could come to challenge the European Court of Justice (ECJ) itself and the very sustainability of the E.U.’s federal system, then that system itself could be said to be severely impaired, and thus facing a high risk of being destroyed.  Yet in the Judgment of the Second Senate of May 5, 2020, the constitutional court of Germany did exactly that in throwing out an earlier ruling of the E.U.’s supreme court (ECJ) on the legality under E.U. law of an ECB programme.[1]

The primary objective of the  European System of Central Banks, which includes the European Central Bank and those of the States using the euro currency, to be the maintenance of price stability. In 2015, the ESCB “adopted a programme for the purchase of government bonds on secondary markets . . . , with the aim of returning inflation rates to levels below, but close to, 2%.”[2] According to the European Court of Justice, the E.U.’s supreme court within the federal judiciary (CJEU), the ECB’s rationale was that the large-scale purchase of government bonds—90% of which by the state banks—would facilitate “access to the financing that is conducive to boosting economic activity, by promoting a reduction in real interest rates and encouraging commercial banks to provide more credit.”[3] With the supply of goods and services fixed in the short-term, the increased lending by banks due to the lower interest rates would mean more euros relative to the E.U. goods and services, and thus an increase in inflation. However, the ECB’s stated purpose for the program was primarily to boost economic activity by means of lowering interest rates. Yet price stability was the ECB’s objective, hence not to be a byproduct of the pursuit of another objective.

(Source: Trading Economics)

To be sure, the central bank’s mission was an inflation rate to levels below, but close to 2 percent, and the inflation rate in the “euro area” was .24% in 2015, with a period of deflation.[4] By 2019, the inflation rate stood at 1.76 percent, which was within the ECB’s objective. The programme had worked. Whether it should of worked—whether money supply should be increased to increase inflation—is debatable, for deflation and inflation should arguably be determined by relationship of GDP to the money supply. Otherwise, a pro-inflation mandate would mean that prices would continue to increase rather than reflect the market relationship of money and GDP. After a sustained period of inflation, balance would dictate a corrective period of deflation.

Answering questions submitted by the state of Germany’s top court, the European Court of Justice issued a press release in 2018 stating that the “purpose of the PSPP programme is to encourage a return of inflation rates to levels below, but close to, 2% over the medium term.”[5] Yet, as stated above, the ECB’s own stated reason for its programme was to boost economic activity (by decreasing interest rates). The ECJ states that “a monetary policy [i.e., decreasing interest rates to increase inflation] cannot be treated as equivalent to an economic [i.e., fiscal] policy [e.g. for boosting economic activity] for the sole reason that it may have indirect effects that can also be sought in the context of economic policy.”[6] In plain English, increasing or decreasing money supply is not an equivalent option to fiscal policy in boosting economic activity just because this is an indirect effect of the monetary policy. Therefore, even if boosting economic activity were an indirect effect, or byproduct, of the ECB’s primary intent to increase inflation, the ECB could not justify its programme on the basis of its indirect fiscal effect. Yet the ECB’s stated objective of the programme was to boost economic activity! The E.U. should have used a fiscal rather than a monetary policy if the primary aim, as the ECB stated, was to boost economic activity. The groups in Germany that had instigated the German court’s questions to the ECJ had a good argument that the ECB had been acting beyond its mandate in this narrow sense. However, that the ECB had achieved its inflation target by means of the programme suggests that the central bank could be viewed as having acted within its mandate. The question is perhaps whether the ECB pursued its program even after the inflation target had been achieved. That the rate in 2018 was still below 2% suggests that this was not the case. The problem, therefore, was that the ECB stated boosting economic activity as its primary objective, with lower interest rates serving only as a means.

Unfortunately, the constitutional court of the state of Germany took its objection too far. Even though groups that had brought constitutional objections to the Bundesverfassungsgericht (the German constitutional court) had claimed that because the PSPP programme exceeded the ECB’s mandate, the E.U. failed “to observe the division of competencies” between the E.U. and its states, the German court violated the supremacy of the ECJ, the federal supreme court of the E.U., over the state courts by directing the state’s central bank not to comply with the ECB’s programme by buying back German bonds. Such a long sentence, by the way, is in keeping with German, though my words do not reach such a length.

The Nullification Crisis in U.S. history can provide us with a context. In November, 1832, the South Carolina Government passed a law declaring the U.S. tariffs laws of 1828 and 1832 null and void in South Carolina. The underlying problem was “the constitutional theory that upheld the right of states to nullify federal acts within their boundaries.”[7] Had the member states still been sovereign, as they had been from 1776 to 1789 (including under the Articles of Confederation), the doctrine would have had a solid basis (i.e., the full sovereignty of the new republics within the U.S.). However, once the U.S. itself (i.e., the federal level) had been delegated some governmental sovereignty, the doctrine would have eviscerated that sovereignty. States would have been able to pick which federal law to recognize, hence any federal law could easily have been vitiated or compromised. The states would have been able to trample on the federal sovereignty with impunity and the federal system itself would have lost coherence, and thus the ability to function viably.

On May 5, 2020, the constitutional court of the state of Germany ruled against the legality of the ECB’s programme within the state, much as South Carolina’s legislature had voted against the legality of the tariff laws. It was a direct challenge to the E.U.’s central bank and supreme court (ECJ). Were the ECJ to let the state court’s ruling stand, other states would surely follow in opting out of whatever federal laws they do not like. The Government of Germany had been against the bond buy-backs in the euro area because of the shared losses. In short, the powerful northern state didn’t want to pay for the losses of poorer southern states through the programme. Likewise, the matter of shared state debt had been a hot topic during the Washington administration in the 1790s in the United States. There too, the state governments who had incurred less debt in fighting the Revolutionary War did not want the higher debts of other states to be pooled through the federal government.

The resistance in Germany since the European debt crisis during and after the financial crisis of 2008 to covering the massive debts of Greece, Spain, and Italy found a footing in the German court even though the ruling meant the possible vitiation (i.e. end) of the E.U’s competencies (i.e., governmental sovereignty), and thus of the federal system itself.  “Given the influence Germany wields as the largest [State in the euro area of the E.U.], the [ECB] can’t afford to ignore the [German] court’s decision, in part because it would be all but impossible for” the programme to continue without the participation of Germany’s central bank.[8] Moreover, other state governments (and courts), such as in Poland and the Czech Republic, would likely follow in challenging the E.U. unilaterally.

The German chancellorin (prime minister), Angela Merkel, had been urging a stronger E.U. after the secession of euro-skeptic (anti-federalist) Britain, yet her state’s interest in staving off shared debt through the ECB resulted in her state’s high court throwing an arrow directly at the core of the E.U.’s federal system (of dual or divided sovereignty). “At a time of growing tension in the EU over German reluctance to embrace ambitious plans to resuscitate southern European economies hit hardest by the coronavirus by issuing mutualized debt, known colloquially as corona bonds,” the German court’s ruling added fuel to the argument that the E.U. itself was being compromised by the power of its largest state in pursuing its own interests at the expense of the common good, or general welfare, in the Union as a whole.[9] Abstractly stated, no part should have sufficient power over the whole that the latter’s power is eviscerated because it is a mere reflection of  the interests of the part operating at the expense of the whole.

(Source: Politico)

As for the ruling of the Bundesverfassungsgericht (the German constitutional court), Justice Andreas Vosskuhle said that the ECJ had approved the programme that “was obviously not covered” by the ECB’s mandate.”[10] The ruling did not apply to the corona bonds during the pandemic in 2020. Nor was the ECB’s purchasing of state debt (i.e. quantitative easing) during the financial crisis. Even though the court did not find enough evidence to rule that the programme amounted to monetary financing (i.e., the ECB funding state budgets), the court did decide that the ECB had overstepped its inflation-objective mission.[11] The German government had been against pooling money through the ECB to fund the government budgets by pooling the debt of the more indebted states going back to the financial crisis of 2008. Regarding the programme at issue here, the German court’s claim that the ECB had overstepped its mandate does not succeed because the programme did not push inflation above 2% in trying to boost economic activity. In other words, the ECB had not over-shot its inflation target, even if the bank erroneously was primarily oriented to increase GNP. Inflation was so low in 2015 that an inflation rationale was justified. 

 

The impact of the Bundesverfassungsgericht’s ruling went beyond the ECB itself. The viability of the ECJ and the federal system itself was suddenly under threat. Dismissing a 2018 ECJ decision to allow bond buy-backs, the state court “ordered the ECB to provide Germany with adequate justification for the program within the next three months. Should it fail to do so, the Bundesbank [the state’s central bank] would no longer be permitted to participate in the program.”[12] The ECB was at the time “an independent EU institution [that] does not have to take orders from the German court, and the government in Berlin.”[13] In reply, the ECB told the German court that the ECJ had already determined the legality of [the programme]. In dismissing the ECJ’s earlier conclusions, the German court, by a 7-1 majority, declared the reasoning by the ECJ to be “not comprehensible” and “objectively arbitrary” and the decision itself to be untra vires (i.e., beyond the court’s authority).[14] Yet the German court presumed itself to have the authority to overrule the federal supreme court!

Even were the ECJ to deliver a bad ruling, or one injurious to a particular state’s policy, the ECJ would be protected by the precedent of its superiority over state supreme courts. The ECJ had ruled in Costa v ENEL (1964) that the states had transferred sovereign rights to the ECJ on E.U. law and furthermore that such law could not be overridden by state law. The ECB being a federal institution, the matter of whether the programme breached the central bank’s mandate was within the purview of the federal supreme court, the ECJ, rather than any state court. In stating that the gravity of the question at hand merited going up against the ECJ ruling and the ECJ itself, the German court had, I contend, lost perspective. Buying back bonds through a federal program, unlike something infringing on basic human rights, for example, does not have sufficient weight to justify imperiling the federal system itself. It is ironic that just months after the state of Britain seceded in part out of dislike for the extant governmental sovereignty of the E.U. in relation to that of the state governments, the German state court threw a bomb from within.

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1. BVerfG, Judgment of the Second Senate of 05 May 2020 – 2 BvR 859/15-, paras. (1-237).

2. Court of Justice of the European Union, Press Release No 192/18, December 11, 2018.

3. Ibid.

4. Statistica.com (accessed May 10, 2020).

5. Court of Justice of the European Union, Press Release No 192/18.

6. Ibid.

7.  The Nullification Crisis, Britannica.com (accessed May 10, 2020).

8. Matthew Karnitschnig, “German Court Lays Down Law in Defiance of European Union,” Politico, May 5, 2020 (accessed May 10, 2020).

9. Ibid.

10. Ibid.

11. Ibid.

12. Ibid.

13. Ibid.

14. Ibid.

On the Role of Socialism in American Political Polarization

In a stunning upset in the 2012 Republican U.S. Senate primary in Indiana, Indiana's Treasurer, Richard Mourdock, beat incumbant veteran Richard Lugar by 22 percent (61-39%). Even though Lugar's 36 years of experience in the Senate had seasoned him into a statesman in foreign policy, the Tea-Party-backed Mourdock was able to portray the aged senator as out of touch and too willing to compromise with Democrats. Mourdock had no intention of extending any hand across the aisle. Is such polarization worth the loss of experience in international relations? Moreover, what is the role of socialism in the political polarization? 

"While Lugar advised in his concession speech . . . that Mourdock would need to work together with lawmakers in the Senate, the new nominee stuck to the belligerent tone he [had] maintained in the campaign, warning that Democrats and socialists were destroying the nation."[1]  Even if Democrats were for government ownership of the means of production (i.e., companies), which is socialism, it does not follow that those Democrats were also attempting to sabatage the U.S. in its foreign relations. Especially given Lugar's expertise in that area, working across the iasle would only make sense. Nevertheless, Mourdock saw a link. 
"Today," he said, "we see the Obama White House and we see a Senate chaired by Harry Reid that's doing everything it can -- though perhaps not intentionally -- to turn our dreams, to turn our great national hope and our dream into the nightmare of ever-growing government, to make us that … western European-style nation,’ Mourdock said. ‘Just yesterday, France elected a socialist,’ he continued. ‘There are those I'm sure in the administration and in the left side of the Democratic Party that were cheering for that. But we're not going to stand for that in Indiana because the supporters of Barack Obama are not going to win!”[2] In other words, Mourdock expected the Democrats to cheer on and perhaps even aid "socialist" governments around the world, the spread of which could isolate the U.S. and the related interests of private property. In 2019, for example, the World Trade Court ruled against the E.U. for having unduly (i.e., unfairly, in terms of free trade) subsidized Airbus. The government ownership of a company goes beyond such subsidization of a corporation like Airbus, which, as of 2019, was owned by EADS, which in turn was owned by a mix of private companies and a few E.U. states. 

What about those supposed socialist countries? To be sure, Francois Hollande ran under the Socialist Party banner. However, the “socialist” policies that he had campaigned on were redistributionist. He did not advocate that the state own more of the means of production. Hollande was redistributionist in that he suggested that la dette (government debt) that Sarkozy had doubled should not be cut only by austerity (i.e., budget-cuts), which hurt the poor disproportionately; rather, the rich should be taxed what they had been taxed before the top tax rate was lowered. 
In fact, Hollande was in a position fresh from his victory to push for federal (i.e., E.U.) economic stimulus spending to complement the federal austerity programs in debt-ridden states, including Greece, Spain, Portugal and Ireland. Using tax increases and budget cuts to reduce government debt is hardly socialism. 
So, Mourdock's lack of knowledge on socialism as an economic system as well as on European governments, combined with his refusal to reach across the aisle, were misplaced, and thus not worth the loss of Lugar's expertise in foreign policy. 

1, Michael McAuliff, “Dick LugarLoses to Tea Party’s Richard Mourdock in Indiana Republican Senate Primary,” The Huffington Post, May 9, 2012. 
2. Ibid.

The Payroll Tax Cut: A Luxury?

As U.S. deficits and thus the federal government's debt had been increasing since the Clinton Administration in the late 1990s, proposals for a payroll tax-cut entailed risking the financial condition of the U.S. Government. To be sure, increasing government spending above inflation was risky too. Here, though, tax policy as it relates to deficits, and thus debt, is analyzed. 

During the summer of 2011, Rep. Eric Cantor (R-Va), the U.S. House's Majority Leader, opposed continuing a tax cut. It was not the tax cut that had been enacted under George W. Bush that disproportionately benefitted the top brackets. That tax cut was sold to the American public as good under the supposition that the growth of jobs would result. The tax cut opposed by the Majority Leader in 2011 pertained to the payroll tax. Workers’ contributions to social security were to be cut from 6.2% to 4.2% until the end of 2011. A spokesman for the Majority Leader argued that if “the goal is job creation, Leader Cantor has long believed that there are better ways to grow the economy and create jobs than temporary payroll tax relief.”[1] However, it could be argued that whereas the tax cuts at the upper-income brackets tend to be saved because the wealthy already have the means to purchase what they want, workers tend to spend any extra disposable income precisely because they don’t have the means to buy even all that they need, particularly in the case of families. Moreover, workers would feel the end of a tax cut more than a rich person would.

It does appear that the Republican party’s support of tax cuts hinged on the financial interest of the rich—tax cuts are not created equal. This asymmetry eclipses the party’s ideological goal of smaller government, for otherwise any tax cut would be sought because it would mean less government taking as well as the possibility of starving government spending. Furthermore, the asymmetry trumped a priority on reducing a deficit that had been over $1 trillion in 2010. A deficit is the annual addition to the U.S. Government’s debt, which was around $14 trillion at the start of 2011. On the heels of S&P downgrading that debt to AA, continuing any tax-cut, even to prop up the economy, can be reckoned as foolhardy unless the money that taxpayers would otherwise pay in taxes is spent or invested sufficiently to boost the economy enough that the government would take in more tax revenue than the amount lost due to the tax-cut.

It is possible that Freddie Mac and Fannie Mae could have done more for the economy by allowing homeowners in trouble to refinance to the lower interest rates in 2010 and 2011 than would have been lost from ending the tax cuts. If so, it could be that we could do better in lowering deficits while stimulating the economy. Even with some drag on the economy, the numbers on the baby boomers retiring suggests that the social security fund could not afford the payroll tax cut in 2012. In fact, it could be that the fiscal impacts of government policy are less significant on the overall economy than on the deficits and debt, which are more immediate to the government's financial position. Debating whether to continue tax cuts with respect to economic growth (and even jobs) may reveal a lack of attention on reducing public debt as a priority if the tax revenue given up by the Internal Revenue Service is more than additional tax revenue to be obtained from the added economic growth from the tax-cuts. Indeed, analysis of the Bush tax cuts had shown that the tax revenue given up was more than the induced take. In technical language, the Laffer Curve had already been discredited by 2011. Therefore, ignoring the cost of a tax cut in terms of tax revenue, and thus higher deficits, is negligent and irresponsible, whether by Congress, the media, or the citizenry itself.

1. Jennifer Steinhauer, “For Some in G.O.P., a Tax Cut Not Worth Embracing,” The New York Times, August 26, 2011.

The Debt-Ceiling Disaster Flick, Hollywood-Style

During the last two weeks of July 2011, the American media was focused on the debt-ceiling negotiations. In the midst of a summer with plenty of natural distractions, an increasing number of Americans were cluing in to find their federal government at a stalemate as the clock ticked to a possible economic catastrophe said to begin on 12:01am on August 3, 2011. The U.S. Treasury department had estimated that it would run out of ways to make up for the lack of additional borrowing authority on August 2^nd.  To the media, that meant a clock ticking down to 12 midnight. In actuality, tax revenues were up so the actual date was said to be around August 10^th. In any case, the U.S. would not implode at precisely 12:01am on August 3^rd by any account, yet that made better drama, which in turn increased viewership.

I contend that the American people were, by in large, taken for a ride by the media and members of Congress who tacitly worked to build suspense toward a precise crisis-point in order to gain the attention of the people. Never mind that the possible crisis was self-inflicted; the media companies would have higher viewership numbers and the elected representatives would be at the center of attention. To deflect blame, the politicians used their press conferences to take partisan shots at the other party. The idea was basically this: I get the attention and you get the blame. Meanwhile, msnbc.com assures its viewers that it would be covering the crisis all weekend.

I suspect that the suspense was faked. The Congressional leaders quietly admitted that they would not allow the U.S. Government to default. Few viewers apparently picked up on that; nor did it stop the news networks from continuing with their ticking clocks and instilling still more fear of a financial collapse. Put another way, were the politicians really as worried as they said they were, they would not have been spending their press conferences to bash the other guy. Were an asteroid rapidly hurling toward Earth, members of Congress would really be too scared to be concerned that the other party had gotten a good shot in and therefore should be countered. The officials would not even think of partisanship if there were a real danger of collapse. Nor would they allow themselves to get distracted by bringing in other obfuscating priorities. Instead, they would be concentrating on coming up with a plan to blow up the rock.

It is interesting, by the way, that in spite of such sustained and constant news coverage of the "crisis" over weeks, an intensely concentrated or focused public analysis did not ensue. Rather, there was merely more time for "talking heads" to pontificate and argue over the partisan shots and distracting other priorities that kept attention from being focused on the debt-ceiling question itself. In other words, even saturated coverage by the news media did not proffer a better public discourse on the topic. Is there perhaps a limit to how well public discourse can function in a union of republics or countries (i.e., on the scale of empire)? Even if so, the conduct of the representatives in the representative democracy does not give one more confidence.

For example, neither the media nor the public had an accurate understanding of default. Rather than happening at 12:01am on August 3rd without a raise in the debt-ceiling, it would not have happened until or unless the Treasury department missed interest and principal payments on Treasury bonds. Going on a cash basis and even closing some government agencies do not signify default, which pertains only to servicing existing debt. To the extent that the final agreement was accepted under the assumption that default would ensue in a day or two, the various errors concerning the nature of the doomsday contributed to the problem.

What most concerns me, however, is that the actual behavior of the members of Congress may have belied their attention-grabbing scare tactics. Sadly, I think the American people were taken in by the disaster-film narrative; we gave the news media and the politicians the attention they craved and we let them convince us that it was do or die on August 2, 2011. We bought into the notion that the world as we know it would end abruptly at 12:01am on August 3^rd.  Consistent with the Congressional leaders’ quiet admission that not raising the debt-ceiling was “off the table,” a compromise arrived just in time, like a vintage ending of a Hollywood script--arriving just in the nick of time. The suspense was pushed just to the brink (defined as 12:01am on August 3^rd), then the quick climax, just as in a standard screenplay. No more than ten or fifteen pages are allowed after the critical event when everything comes to a head.

I contend that the powers in Congress and the White House were quietly managing this drama, and that it ended just as they sought (i.e., maximizing the dramatic element, and thus the attention). Compromise did not have to come at the eleventh hour; the agreement was reached because it had been agreed that it would be. In other words, the politicians were not primarily oriented to averting "crisis"; they allowed their other agendas to intercede and we enabled this by giving the attention they craved. In other words, we rewarded the very behavior that belied the representatives' own claims, and we did so by tacitly agreeing to sit through the self-inflicted (by us and them) drama.

If I am correct, the problem involves a conflict of interest wherein the news media and politicians had as much or more of an interest in the attention that goes with even a self-inflicted crisis than in solving the immediate problem itself (i.e., deciding whether to raise the debt-ceiling). To the Americans who thought the Russian roulette was for real—that the politicians would actually permit default—the attention-grubbing plot was undoubtedly not appreciated.  Nor was it in the interest of the United States. It is as though the politicians in front of the microphones were indifferent to the stress being put on people already stressed out over a languid jobless “recovery.” But the politicians came out as screwed up, you retort. Yes, and Congress itself has an even worse reputation than it had before the "crisis."

It should be remembered, however, that politicians (and journalists) yearn for attention for its own sake, and they will do their utmost to shovel the blame on the other politician's sidewalk so to get both the attention and the credit for averting the crisis the very possibility of which they themselves created. If this doesn't sound rational, it is because it isn't. The politician's desire for attention can be intoxicating and even self-destructive. In the case of the debt "crisis" orchestrated drama, simply for us all to go through it was destructive. We were so oriented to the clocks ticking down to doomsday that we missed the real destructiveness going on in our being taken in by the ruse itself. Put still another way, if the members of Congress really thought the U.S. could be facing economic catastrophe, engaging partisan shots would be beyond reckless, given the pivotal role of the members in "saving" the country. Their own partisanship and other intervening priorities belied their claims of the magnitude of the risk of default. At the very least, something was amiss in how the politicians were presenting the drama itself, given their conduct. Sadly, we, the American people, were taken in by the torrid narrative itself, and therein resides the true destructiveness of the drama.

A Self-Inflicted Compromise on the Debt-Ceiling in the U.S.

On August 1, 2011, the Republican and Democratic Congressional leaders and the Democratic President came to an agreement--a compromise of sorts--on raising the debt-ceiling and spending. According to the deal, cuts of roughly $920 billion over ten years would be followed either by adopting a twelve-member Congressional committee's recommendations (including possible cuts and revenue increases) or watching another round of automatic across-the-board spending cuts. Structurally, this arrangement is unbalanced with respect to the nature of compromise between the two parties. In short, it proffers a relatively easy out for the Republicans.

Specifically, the "enforcement mechanism" that would automatically activate should the "super" committee's recommendations not be voted and signed into law contains only cuts even though the Democratic position is for a mix of cuts and revenue. In other words, the mechanism itself is biased to the default of one of the parties. The only incentive the Republican party would have to accept the committee's recommendation would be to avoid the military cuts in the automatic cuts. To obviate any revenue increases, even if only for the wealthy, the Republicans in Congress need only scuttle the committee's work or vote it down. The mechanism being counted on as "teeth" for the committee's work to be adopted should have included both across the board cuts AND revenue increases (including on the very rich). The incentive would have been on BOTH parties to work something out in committee.

Therefore, if I am correct, the structure, or arrangement, of the compromise is itself unbalanced, at least from the standpoint of incentives. It would seem that even with the possible cuts to defense, the compromise itself is a win for the Republicans. Once again, Democrats can be left wondering why their representatives gave up the store, or at least kept the door unlocked. In terms of the public option in the health-insurance reform, the matter of breaking up the biggest banks (too big to fail), and finally in permitting a spending-cuts-only outcome to the debt problem, Democrats, it seems to me, have real cause in withholding their votes from "their" man in the White House in 2012. Yet they have no practical alternative absent a primary challenger. They may be in a very tight box in "staying the course," lest they want to risk seeing the keys of the White House store formally change hands to the other party.

In Defense of the Tea Party

In the wake of the U.S. House’s “Tea Party” caucus in the Republican caucus on July 28, 2011, which effectively delayed the Speaker’s bill for raising the debt ceiling, it might be useful to row against the current for a moment if only to present a defense of the Tea Party’s agenda. To be sure, problems exist in it, but a defense can be made. I submit that the media has not been particularly accurate, or fair, concerning the movement or its involvement in the U.S. Government.

Most notably (but not obviously), Tea Party representatives are correct that August 2^nd does not necessarily bring with it default, for that refers only to the Treasury department not making the required interest and principal payments on the debt. That some government agencies have to shut down does not constitute default, for the latter pertains ONLY to serving debt. Indications are that the U.S Government could service its debt August from incoming tax revenue. If so, default would only be voluntary—if the Treasury should decide to use the tax revenue for other uses.

It is more accurate to say that delaying raising the debt-ceiling would increase the likelihood that the U.S. Government’s credit rating will be lowered to AA from AAA. On this front, the refusal to compromise can be excoriated. For its part, the Tea Party might say that it is worth risking if a structural re-alignment could occur.

What does the Tea Party really want: a reduction in government or a reduction in the federal government? Or both? Other things equal, I suspect that the party would prefer a given domestic program to be at the state level, but even there the spending (and taxing) would receive some ire. If the goal is primarily to restore federalism, the Tea Party is on firmer ground. Since the CSA-USA war (1861-1865), the United States has been trending toward political consolidation at the expense of the innate diversity coming with an empire-scale. Nothing—not even Ronald Reagan and his Supreme Court—could turn the tide. One could not blame the Tea Party for saying: if not now, when? Indeed, the existence of a $14.3 trillion U.S. Government debt—roughly the amount of the annual GNP—can be viewed as a manifestation, or symptom, of the imbalance.

So it makes sense to pick the debt-ceiling as the matter on which structural adjustments can be made. However, what if the majority of the people, or branches, prefer consolidation to federalism in any meaningful sense? Is it fair to foist a structural shift on the majority? Would not it be fairer to promote a constitutional amendment directed on the question of federalism?

Of course, the Tea Party representatives could simply be opposed to the debt, and therefore of increasing it. If it is unsustainable already, then raising the debt ceiling might make matters worse even if it assuages short-term difficulties. If the leverage possible in a debt-ceiling decision is given up, there might not be another chance to stop the trend of more and more debt being added to what is already unsustainable. Rather than force massive short-term spending cuts in federal programs and agencies, however, the leverage could be used to agree to longer-term cuts, say over ten years. This is what the Tea Party has been for, though at the risk of short-term shock.

However, it could be countered that were the Tea Party really focused on reducing the debt, the objection to increasing tax revenue, especially for the rich whose effective rate is eighteen percent, would not exist. That is to say, even if citizens and residents are being taxed too much, it is not too much relative to the debt (past spending that was borrowed). This is different than saying that spending should be cut, for that applies to current and future deficits. An enhanced Tea Party position would be to come down hard on the debt (and further deficits), and thus be for both spending and revenue means of closing the gap. Even combined, it will be difficult to pay off the $14.3 trillion.  From this perspective the spending/revenue debate is premised on a false dichotomy wherein one or the other is assumed to be sufficient. The magnitude of the debt relative to GNP—the highest since the end of WWII in the twentieth century—suggests that the Tea Party is not radical enough.

Presiding over a Debt Precipice: President Obama of the U.S.

In the context of a rapidly approaching deadline on increasing the ceiling on U.S. Government debt, Barak Obama found himself rebuffing pressure from anti-tax “Tea Party” Republicans in the U.S. House while needing enough non-partisan credibility for his warning of an impending economic catastrophe to be believed by the citizenry and Congress. That is to say, Obama’s failure to stand back as the Democrats and Republicans in Congress duked it out on spending cuts and tax increases mitigated his stature or credibility as Presider in Chief. An editorial in the New York Times refers to this role of the president as "the utimate guardian of the constitutional order."[1] To preside is to be oriented to the viability of the whole. This means stepping in when the system itself is at risk. Partisan involvement compromises the ability to function in a failsafe capacity, as the "ultimate guardian."

Concretely, as the deadline on raising the debt-ceiling approached, someone with credibility was needed to stand up and get the attention of the partisans to say: We are running out of time. You need to come to an agreement. Taking and advancing one of the sides of the dispute detracted from Barak Obama’s ability to act as the party oriented to the deadline itself. It left the deadline itself vulnerable because the role designed to protect it was also interested in advancing a certain agreement (and killing another). I contend, therefore, that Obama’s priorities were at odds with that of how his office is designed to function in the system. The system itself is left vulnerable.

By analogy, a fire inspector is hired to sit in a crowded theatre to keep an eye on the building in case one of the special effects of the play causes a fire. Keeping an eye on the theatre itself, including backstage and the balcony, is less interesting than watching the plot unfold on stage. Taking the side of the protagonist, the inspector is diverted from noticing the smoke at the back of the balcony. The theatre, and its occupants, are at risk because the inspector does not reach the stage in time. To be sure, watching a play is more interesting, but the inspector role is designed to look out for the people as a whole—indeed, the theatre itself. Now, say the theatre is host to a debate, and that the inspector steps on stage to take part in it. Not only is he or she distracted from keeping an eye out for sabotage, people in the audience favoring the other side on the debate might not believe the inspector’s eventual announcement that they must leave the building.

In 2010, Barak Obama had remarked to the press after a partisan meeting with Congressional leaders, “Being bipartisan cannot mean that Democrats give up everything they believe in, find the handful of things that Republicans have been advocating for, and we do those things, and then we have bipartisanship.”[2] Even as his statement sounds fair, to make it from a partisan position from the presidential podium undercuts the presiding nature of the Presidency. How might Republicans have reacted to the President had he then announced an emergency and indicated what needed to be done to avert disaster? While his detractors would probably not doubt his veracity, in the face of an impending disaster every bit of credibility that the Presidency itself is capable of is necessary.

In the context of the debt-ceiling showdown in July 2011, the president’s pushback against the House Republicans compromised his warning that “we are now in the eleventh hour; we don’t have time for smoke and mirrors.”[3] Whereas the warning is oriented to the deadline, the pushback was partisan in nature. What would prevent Republicans from assuming that the “smoke and mirrors” comment was just as partisan (and thus could be safely relegated or dismissed)? The president would have been better advised to let the Democrats in the U.S. Senate fight the partisan battle with the Republicans in the House while he, the presider in chief, saved his political and reputational capital to act as an alarm clock, for there is no other than the president. In effect, wanting it both ways (pushing one of two sides and sounding the alarm) is like putting a pillow over the clock. In the case of the debt ceiling, America could not afford sleeping in. In allowing our presidents to be so partisan, We the People rack up tremendous systemic risk without realizing it. It is as though we have forgotten the old question, Who is watching the store? We simply assume the status quo, wherein the store's very existence is not in question.

1, Eric A. Posner and Adrian Vermeule, "Obama Should Raise the Debt Ceiling on His Own," New York Times (July 22, 2011). 
2. Helene Cooper and Carl Hulse, “Two Parties Join Together, Then Resume Divided Ways,” New York Times, February 9, 2010. 
3. Eric A. Posner and Adrian Vermeule, "Obama Should Raise the Debt Ceiling on His Own," New York Times (July 22, 2011). 

Risking Default of the U.S. Government: Other Priorities

In mid July 2011, as several of the American states were in the midst of a heat-wave, the showdown on the debt-ceiling was becoming hot in Washington, D.C. The “heat index” on default was steadily rising with no end in sight. The refusal of republican representatives in the U.S. House to automatically increase the debt-ceiling had prompted unprecedented attention on what had been treated hitherto as a “housekeeping matter” of the U.S. Government. The attention can be referred to as a “fiscal moment.” Whereas a “constitutional moment” is one in which a citizenry’s attention is momentarily galvanized on a particular constitutional question, a “fiscal moment” is a window wherein heightened popular attention of the citizenry enables a societal recognition of what had been vaguely understood and recognized as a long-standing fiscal tendency or pattern.

The prospect of default by the U.S. Government was dire indeed. Talking to U.S. Senate leaders, Secretary of the Treasury Geithner said, as later recounted by Sen. Reid, “default would result in a complete ‘loss of capacity to function as a government.’ If this country defaults on its obligations, it will be ‘much worse than the Great Depression, and it would make the massive financial crisis of 2008 look mild. It will make what we just went through look like a quaint little crisis.’”[1] Sen. Reid concluded from the Secretary’s remarks, "Those who say this crisis would be a blip on the radar are wrong. Default would be a plague that would haunt our nation for years to come. Our credit rating would take years to rebuild. The country would never be the same."[2] In the context of this awareness of an impending yet self-inflicted catastrophe, the failure of the “players” in the Congress and Obama administration to mitigate rather than exacerbate real differences of opinion within the citizenry was apparent.

Perhaps not coincidentally, the attention of a crisis announced and solved at the last minute would serve the interests of, and be practically irresistible to a politician. Add to the mix a perplexing tendency to acknowledge what the catastrophe would bring and yet assert other priorities—of value to be sure—over that of extending the debt ceiling. Allowing other priorities to get in the way of an agreement oriented principally to obviating default is so perplexing that it raises the question of societal dysfunction and compromised representative democracy. That is to say, are We the People mature enough to self-govern when so much is at stake?

An accumulated public debt of over $14 trillion (plus $68 billion among the states) points to a basic imbalance, ultimately of values and rooted in psychology and its related culture. External discipline, while a tacit admission of self-government, is necessary where such an imbalance is countenanced, and perhaps not even recognized at large until a jolting fiscal moment of self-serving attention. One means of external discipline is a balanced budget amendment. To better understand, the rationale for this crutch, I discuss the ailment that is compromising our self-governance. The sickness is most apparent where incredulous claims are represented as taken-for-granted facts of reason.

Even in the context of a U.S. debt of over $14 trillion, and especially when an upcoming solvency deadline was looming, the question of whether the rich should contribute more in taxes was being allowed—incredibly—to prevent an agreement that would obviate default. Rationally speaking, it does not make sense to believe that default would be catastrophic while objecting to a solution because those who can pay more would face higher taxes. If something is crucial, it does not make sense to hold up because someone who can do something refuses because it is not convenient. At the very least, this evinces a problem of priorities, if not garden-variety selfishness at the expense of the public weal.

Put differently, if averting catastrophe is not enough of an incentive for people who can afford higher taxes to let an agreement go through with revenue increases as well as spending cuts, then closing the budget gap can be expected to be nearly impossible politically. “We have a terrible track record, Republicans and Democrats alike, of promising to get our spending under control and never doing it,” Senator Coburn (R-Okla) said on July 17, 2011.[3]  He could have added that the politicians do no better at getting their revenue in line with what they have decided to spend.

During the Bush administration (2001-2009), for example, the federal debt went from $5 trillion to $10.5 trillion because neither the Iraq and Afghanistan wars nor the prescription-drug benefit program were “paid for,” while tax cuts reduced federal tax revenue. This disconnect between spending and revenue, as well as the convenient decisions to spend borrowed funds, suggests that some form of external fiscal discipline. President Obama’s disclaimer that no such discipline, such as in the form of a balanced budget amendment to the U.S. constitution, is needed rings hollow. Even beyond the fiscal policies of the Bush administration, the pattern of debt-ceiling increases belies Obama’s claim.

We as a people, and our elected representatives, do not have sufficient discipline (and priorities) on our own. A balanced budget amendment, with a two-thirds majority in both bodies of Congress and a presidential signature necessary to go into debt (e.g. for an emergency such as to fight an invasion), ought not be so dismissed out of hand by such a people just because it would require us to confront our long-standing habit of living beyond our means governmentally.

The denial concerning the need for imposed or external fiscal discipline is itself indicative of the psychology sustaining the budgetary problem. It is to be expected that those used to spending beyond revenue levels would object to external discipline, but for officials to claim that such discipline is not necessary borders on recklessness. To be sure, a few years of preparation and adjustment would be needed for the Congress and president to get the U.S. Government’s spending and tax levels closer into line, and it is unlikely that such a task would be accomplished. The likely refusal to close the gap even to forestall a jarring adjustment is itself a testament to the need for the amendment. Even then, I predict that we would allow other priorities, such as the interests of the wealthy as well as debates on the size of government, to get in the way.

In other words, we, the American people, are not even close to a mentality capable of suitably managing our Union’s fiscal matters. We are like a bike tire out of balance and yet we seem to refuse even to recognize it. If there is to be recovery from our comfortable brain-sickness, a jolt, such as that which a balanced budget amendment could proffer, may be necessary.

Barak Obama’s claim that external fiscal discipline is not necessary and the republican decision to put the Bush tax cuts for the rich, a desire for a smaller government, and the (putatively tax-cut-related) priority on economic growth above an August 2, 2011 deadline on the debt-ceiling BOTH point to a serious underlying psychological (or, at the very least, political) problem inhibiting our collective ability to get the fiscal house of our Union in order. Given the magnitude of the problem, our distractedness and denial says a lot finally about us as a people and whether we are adequate to self-governing. If our representatives were inventing a crisis in order to be viewed in the end as the saviors after having stirred up attention on themselves, We the People could perhaps do much better; we might reconsider how we approach our exercise of popular sovereignty on election day. We blame one party or the other at our own peril, as we are the sovereign and are ultimately responsible as one people. Are we something more than distracted, blaming, angry, and selfish? 

1. Michael McAuliff, “Tim Geithner: U.S. Debt Default Means ‘Lights Out’ and a New Depression, Treasury Secretary Warns,” [sic] The Huffington Post, July 18, 2011.
2. Ibid.
3. Eric Lipton, “Both Sides Confident on Deficit Talks Despite Impasse,” New York Times (July 17, 2011).

Amid Record Bonuses Goldman Sachs Enabled Greek Debt

The person who has the gold makes the rules.  I suspect this is the operating mantra at Goldman Sachs even after the bank’s near-death experience (when Solomon Bros stock was taking a hit, Blankfein knew his bank could be next).  As it turns out, the bank was involved in enabling Greece to stealthily spend beyond its means. Just after Greece had been admitted to Europe’s monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means. Additionally, in late November, 2009— three months before Athens became the epicenter of global financial anxiety — a team from Goldman Sachs arrived in Athens with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting. The bankers, led by Goldman’s president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece’s health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.[1]

The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.  

1. Louise Story, Landon Thomas, Jr., and Nelson D. Schartz, “Wall St. Helped to Mask Debt Fueling Europe’s Crisis,” The New York Times, February 13, 2010.