During this the 100th anniversary of the sinking of the Titanic it is worth remembering the technological marvel she was for her time. Whether apocryphal or not she was believed to be unsinkable. Of course she did sink and in the process became an enduring metaphor for all matters of seemingly impossible disasters.
The reason the metaphor is so powerful is that it so perfectly captures the arrogance of human nature. Surely people would believe that any ship with a large enough hole in it would sink.
The state of the U.S. Economy has dangerous parallels to the Titanic. Like her, America’s economy is a technological wonder and like the Titanic there is only so much water she can take on.
The Titanic was designed to have four or five flood compartments completely full of water and still stay afloat. If more compartments were flooded then she was certainly capable of sinking.
America’s economy currently has four of it’s “flood” compartments at maximum. Like the Titanic many are ignoring the obvious: only so much debt can be sustained. At some point the interest payments consume funds for necessary government services and choke off economic development in the private sector.
Historically, a government is in jeopardy of becoming unstable financially when:
- 51% pay no income tax.
- 51% of the public receives their primary source of income from the government.
- The contribution by the federal government to the average citizen’s disposable income exceeds 20%.
- The government spends more than 20% of the country’s GDP
- Debt to GDP exceeds 70%
What is the status of these measure in America today?
Counting Social Security, the percent of the population receiving their primary source of income from the government is approximately 52%. Currently only 50% of the population pays federal income tax. By some analysis, it is as low as 43%. The federal government is spending, in taxes and borrowed money, 28% of the GDP. Even worse, 42% of every dollar spent by the federal government is borrowed. Adding in state and local governments, the government spending level exceeds 40%. State-by-state, the average contribution of the federal government to the public’s disposable income is 30%. In some states, it is as high as 40%.
To make matters worse all of the above treads are increasing negatively. America’s fifth economic flood compartment is about to be breached.