Vital lesson for us in America's plight

By James Penn

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Just after surviving what was dubbed the end of the world as predicted by the Mayan people, we have this week seen media coverage of another crisis which one could be forgiven for thinking was indeed the new doomsday prediction. This meeting with destiny, at least for the American people, is the crisis of the fiscal cliff.

One problem with such terminology is that it has enabled coverage of the crisis to be confined largely to soundbites and snappy headlines, at the expense of a proper analysis of the crisis.

Here in New Zealand, few of us are actually given a full understanding of the nature of the crisis; the fact that it stems from an inability of the Republican-held House of Representatives and Democrat-held Senate to agree on a mutually amicable programme of tax rises and spending cuts to address America's astronomical debt levels.

Many people hear the term "fiscal cliff" and look no further. However, the crisis has many lessons for us here in New Zealand.

It demonstrates the way debt can climb out of control and is self-perpetuating. Now over US$16 trillion ($19.4 trillion), the US level of debt is almost incomprehensible. That is larger than the national debt of China, the UK and Australia combined.

This debt seems largely unassailable without massive reductions in the welfare that millions of Americans rely upon. The debt itself creates a cost in the form of interest. For the US, in the 2012 fiscal year, close to US$360 billion was paid in interest on current outstanding debt. That contributes to the debt problem itself; it's self-perpetuating and dangerous.

Running a surplus now seems almost impossible for the US Government, without having to massively reduce the quality of life of millions of their citizens.

This is where we can learn some lessons in New Zealand. Yes, we should have welfare programmes; yes, we should redistribute some of society's wealth from rich to poor; but we should always be ensuring that these programmes do not create mass dependency.

By doing so, we prevent ourselves from getting into such dire situations in the first place, and we also ensure that our programmes are flexible and can be expanded or shrunk, depending upon the face of the economy and the necessity in terms of the Government's deficit.

On a local level, this is equally important. Perhaps it is more important in a relative sense, in so far as we consistently see debt levels of our council rising, but because of the local nature such concerns are virtually never voiced on the national stage. While national debt is regularly examined in the spotlight of national media, local debt is not.

It is seldom discussed that the Wanganui District Council holds over $90 million in secured debt (loans) and spent over $6 million on interest in the 2012 financial year alone. This means that the Wanganui District Council holds around $2000 of debt for each citizen. For a family of four, there is around $8000 of debt held by our council. While not crisis time, it is important that we prevent our local government from coming to a point where sharp cuts to spending are needed in a short space of time.

Even though our public debt in New Zealand and Wanganui specifically is not nearly of the scale of America's, we should still draw lessons from it. We should realise that allowing debt to perpetually rise and build upon itself leads to situations of urgency and the nature of politics can create gridlock which prevents quick action to solve such situations.

And even if it doesn't, those solutions will become pernicious if made in such an urgent manner. It is positive that political measures such as the Local Government Act 2002 Amendment Bill will require regulations that set benchmark standards for debt levels for councils in New Zealand.

We should use the fiscal debt crisis in the US as a warning sign of a possibility and a concern that is almost universal, and certainly conceivable in our own country.

James Penn was deputy head boy at Wanganui High School in 2012 and captain of the New Zealand secondary schools debating team.

- Wanganui Chronicle

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