* This is my article for the November 2013 issue of Business 360, a monthly business magazine in Kathmandu, Nepal.
----------
The US federal government “shutdown” or more
appropriately “slim down” looks confusing for many people around the world. For
how can the biggest and richest economy in the world have its central government
“shutdown” for two weeks due mainly to financial constraints? A government that
can send tens of thousands of troops and heavy armaments in Afghanistan, Middle
East and other countries around the world, is shutting or slimming down because of lack of money?
Technically, not the entire federal government has shut
down as many functions – police, defense/military, airports, seaports, state
and foreign affairs, etc. – remain in operation. Only certain “non-essential”
functions were shut down. Besides,
states, cities and counties are operating as they have their own functions and
revenue sources. Thus, the appropriate term would be federal government “slim
down”.
Now, aside from the shutdown/slim down issue, the US
government is also facing a constant or perennial debt ceiling issue. The US
public debt is rising fast, the debt ceiling set by previous laws is being
breached and so they have to pass new laws raising the debt ceiling anew, so
that the government can borrow higher, mainly to pay back old debts and give out more
subsidies and welfare programs to its people, poor and non-poor alike.
The way the US government is borrowing endlessly and
irresponsibly, with budget deficit of about $1 trillion a year, federal
government alone, such practice must be controlled somehow. So the government "shutdown"
is an inevitable thing to happen. The average Americans cannot be happy that
their federal government has so much public debt, and ever-rising every year.
Figure 1. US Debt
Ceiling or Limit
See that, the debt ceiling or limit has been raised 13
times since 12 years ago. The debt curve is getting steeper upwards.
Debt Ceiling/Limit
There are many reasons or factors why the US federal
government’s spending and public debt is rising fast. This chart is too glaring
as one of those reasons and explanations: the number of Americans working and
paying more taxes is declining relatively while those receiving social security
disability insurance (SSDI) and subsidy is rising.
Figure 2. US
citizens working vs those receiving disability insurance.
Source: Cato Institute
The US politicians and government officials may be
thinking that that American taxpayers are endless ATM machines whom they can
fleece with more taxes to pay these uncontrolled spending.
Lessons for Asian
emerging and developing economies
Governments should not become debt addicts, they should
learn to live within their means. This is one of the more frank, more realistic
assessments of the US government experience. Debts are not grants, they should
be paid back in the future, not by current politicians and taxpayers, but by
future taxpayers.
Figure 3. Gross
Debt as Percent of GDP, Selected Asian Countries, 2000 and 2013
Country
|
2000
|
2012
|
India
|
74.0
|
66.7
|
Pakistan
|
77.0
|
63.8
|
Malaysia
|
35.3
|
55.5
|
Vietnam
|
n/a
|
51.3
|
Myanmar
|
146.3
|
48.0
|
Thailand
|
57.8
|
45.4
|
Philippines
|
58.8
|
41.9
|
Nepal
|
57.9
|
33.6
|
Cambodia
|
35.4
|
28.8
|
China
|
16.4
|
26.1
|
Indonesia
|
95.1
|
24.5
|
Source: IMF, World Economic Outlook 2013 Database
The above numbers show that there are more countries that
have significantly reduced their gross debt as share of GDP. This is positive
news.
Governments must resist populism and heavy welfarism,
giving away one subsidy after another, as if the average citizens are idiots or
lazy who must be given endless and forever subsidies and entitlements by the
government just to survive.
Governments instead, must allow more room for the free
market to fulfill certain social functions and expectations. Like job creation,
raising labor productivity and hence, raising wages and benefits for the
workers and their families. Producing more goods and services from the same
number of workers, entrepreneurs and
machines.
-----------See also:
Business 360 9: Free Trade and Economic Prosperity, July 03, 2013
Business 360 10: Foreign Aid as Band Aid Solution, August 11, 2013
Business 360 11: Avoiding Middle Income Trap, September 19, 2013
Business 360 12: Optimum Size of Government, October 13, 2013
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