[...]Earlier today, I was trying to explain the situation in terms appropriate to my son’s 13-year-old mind. I put it something like this…
Imagine if you made $12,000 a year working as a counter clerk at the local pizza parlor. Then imagine you had foolishly run up $12,000 in credit card debt, the proceeds of which you had frittered away on consumables that contribute in no substantive way to creating future wealth.
Now, imagine someone was foolish enough to continue lending you money, so that you were able to spend approximately 40% over the amount you earned – or $16,800 in total, some percentage of which was the interest you were paying on your overhanging credit card debt.
Given that set-up, I asked, how could you possibly pay off your debt?
“Get a better job?” He responded.
A good answer, I thought.
But stepping out of the metaphor to the actual players in this drama, the indebted nation-states, how do they get the equivalent of a “better job?” Which is to say, raise revenue?
Only one way, really. And that is to raise taxes. But taxes can only be raised so far before they hit a wall beyond which people simply won’t, or can’t, pay them. And raising taxes by a sufficient amount to count, in the teeth of an epic downturn, will only further hobble the economy.