Invest, not cut
Politicians from all persuasions are on a cutting binge – everyone is trying to out-cut the other as the deficit continues uninterrupted and the debt, spirals out of control. The infamous "credit rating agencies," - the same ones who found nothing wrong with companies who went bankrupt a few months later and rated worthless securities, investment grade - even downgraded the US debt recently. In the panic of debt reduction – some have also proposed a "debt ceiling," something akin to committing suicide when the debt hits an arbitrary preset threshold.
All of these are good theater – for politicians, credit rating agencies and the press. The press loves it as it allows them to take something that sounds simple such as "debt" and create public frenzy around it. "Ratings," after all is highly correlated with such magical analyses. For the politicians, it allows grand standing – in the chambers of the congress and the unemployment ravaged cities around the country. They want to reduce deficit at any cost and they sob at the lack of morals of the present generation, who robs from the next. They provide statistics – how much debt is already present for every individual in the country already and how much more is added every day, week and month. Cutting, is what everybody wants – some want to cut taxes and others spending. Some want to stop military spending and others research and development. Some want to stop "social programs" and others "secret programs." Whatever it is, cutting, appears to be the dominant policy tactic. Cutting is an easy exercise – it is easy to understand and we have already graduated many, who are extremely adept at this activity, from the world's greatest education institutions. However, no country, organization and company has become great by cutting. Reduction of debt can only be accomplished by investing into the future. Selecting, designing and managing investments optimally, however, is more difficult. Unlike hedge fund managers who go in and out of securities every minute or investment bankers with pocket calculators for M&A, these take different skills.
To make matters worse, there is also a question of who should invest on top of what to invest in. Governments have to invest into areas that will create discontinuous innovation – areas that cannot attract private capital due to market failures. These include energy, healthcare and education. Successful investments and resulting innovations in these areas can wipe out the debt in a few years. Governments, however, should step aside from any areas that is already attracting (or can attract) private capital, as such public investments crowd out private investing. Just as the financiers and accountants have led many successful industries to the brink of extinction by cutting costs and people, the debt hawks have sharpened their pencils to do the same to the country. Their fans in the press are fanning public opinion in this direction as well with disastrous consequences.
Today's policy makers and their handlers are ill-equipped to make policies for the future. It is time we replaced them with those from a relevant generation with appropriate education and skills.
