America has preferred debt to taxes

With the US debt currently standing at 16 billion dollars and the prospect of a fiscal cliff – slashed spending and higher taxes – is it sustainable to keep on borrowing money? Historically Americans have preferred debt to taxes – you could say that it all started with the Boston Tea Party where they disposed of tea in the harbour because of the tax policy of the British government and the East India Company that controlled all the tea imported into the colonies. The video clip below from PBS News has MIT economist Simon Johnson talking about his recent book “White House Burning” which discusses the history of US debt – 225 years of it. He states that if we want to keep Social Security and Medicare we need to think how you are going to pay for it. The answer is NOT selling more debt to the Chinese but to pay the taxes to support social insurance programmes. He also mentions that if you go over the fiscal cliff in a disorganised way, with significant political confrontation, it will be a disaster. Quite simply the US government needs to acquire more tax revenue and bring its spending under control.

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