Monday, December 13, 2010

Fiscal Responsibility in the Evolutionary World

The ongoing economic crisis has focused our attention on the consequences of fiscal irresponsibility on the part of the federal government and of nearly all major corporations. They were the ones that caused the current financial crisis. The principal causes were the Bush era tax cuts for the wealthy, and the war in Iraq. The war was sold to the American people as a great investment opportunity, by none other than Paul Wolfowitz who was later rewarded by being made president of the World Bank. First he predicted that it would cost almost nothing to invade and establish a government friendly to our interests; he famously said that the Iraqis would greet us with flowers. Second, he and others counted on oil revenues to pay for the war. But the government and corporations are blaming American citizens for it. For example (in the few remaining weeks before it became illegal) banks raised interest rates and minimum payments on credit accounts on which payments had never been missed.

The natural world is merciless about deficit spending. Plants, for example, never get away with it. They can grow new leaves, stems, or roots only if they have stored away enough molecules (such as starch and minerals) to pay for them. When a plant needs to produce new leaves, stems, and roots, and cannot, it dies. A polar bear must eat enough calories to allow it to produce body heat. Ice floes are merciless to deficit metabolic spending in polar bears. Natural selection does not permit deficit spending in most species.

In humans, the story is not quite so simple. We have invented something virtually unknown in other species: credit. Rather than being a bad thing, it can (within limits) be a good thing, allowing mortgages to buy houses, and other forms of investment. It is a form of social capital, made possible by our highly developed capacity for altruism. Plants can only invest what they have already saved; humans can invest what they are pretty sure they will obtain in the future. For our species, credit is a resource. Our current crisis has resulted from the abuse of this resource. But there is a proper use of the resource. One of them is to invest in health. It is the crushing costs of health care that drive thousands of people into bankruptcy. The enormous costs generated by uninsured people using the emergency room for preventable problems are causing everybodyĆ­s insurance premiums to increase much faster than the rate of inflation. Unlike the Iraq War and the tax cuts for the wealthy, health care is a good investment.

An earlier version of this essay appeared on my website on December 6, 2009.

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