Pop that Bubble for Uncle Sam

Deleveraging is the act of reducing the amount of debt you owe. In a word, it is austere.

When the economy is good, people are working and borrowing money with the intention of buying bigger, better products. In America we frequently use credit to buy what we want. Little thought is given as to if it will be paid back because incomes aren't scarce. But when the economy slips into recession, the medicine comes next in the form of austere deleveraging, paying back debt to quell further losses. If the situation is bad enough, this austerity can be excruciating.

No one in U.S. politics wants to even think about formulating a deleveraging plan. It's an election year, and talk of saving money, tightening belts and eating our peas makes voters look to the other guy. So the bureaucrats are procrastinating until after November. But by then it'll be too late to make any meaningful, long-term policy stick. Already we've seen the housing bubble burst, which ushered in the Great Recession and left us with recalcitrant unemployment. It's past time to deleverage and pursue austerity. Isn't watching Athens burn proof positive that another advanced nation like America (or Spain or Portugal) could face the same outcome unless we get control of our borrowing?



Athens, Greece riots, 2012




Yesterday, Twitter told me (via @MsGypsy_Jones) that we're facing another asset bubble. Mass media reports that the cost of a college education is overvalued, and I believe it. Students invest upwards of $100,000 into four years of school without guarantee of a job that will provide a rate of return that makes attending an accredited college worthwhile. With an unemployment rate of 8.1%, that situation's not improving anytime soon. Instead of pushing more students into desks, we ought to control the bubble now and seek alternatives: unaccredited programs, vocational training, community colleges and entrepreneurship basics for children. This way we can head off the inevitable bubble burst at the pass. Remember that economics is about information and weighing the benefits of any choice against the costs. Ultimately we save on the time it takes to get qualified graduates into compaable jobs, the money we lose from overinvesting in education and the economic consequences of postponing debt reduction.


So go'head. Pop that bubble for Uncle Sam. It'll only be worse if we wait.



Prosperity,


@RogueEconomista