Tomorrow I will be debating Ben Bernanke about Fed policy since the Financial Crisis.(1) But I already know how this will go. We’ll all be very polite, very thoughtful, very respectful. Otherwise, we might be mistaken for The Donald. Some people will agree with me and some will agree with Ben. But even those who agree with me will say something like this: “But at least the Fed is trying to do something, which is a damn sight more than I can say for Congress!”

That view is so prominent that I’ve said it myself once or twice. But it’s not only wrong, it’s dangerously wrong. It means that we’re not prepared to entrust something really important – like the US economy – to the democratic process. Instead, dismayed at Congress’s inability to get anything done, we’ve been happy to turn the US economy over to a bunch of unelected economists, virtually none of whom have ever lived outside an ivory tower.

But there are at least three good reasons why Congress is stalemated. The first is simply that Congress is reflecting a broader discord in the US public. Americans may be furious with Congress, but notice that that anger breaks down along ideological lines:

* Voters on the right believe the Democrats have only one solution to every problem: spend, spend, spend.

* Voters on the left think the Republicans are callous, unintelligent twits who couldn’t care less about the struggles of the poor and marginalized.

* The non-ideological group in-between these two agree with both of them.

But one way to feel better about American democracy is to understand that this isn’t an American phenomenon, it’s a global phenomenon. Wherever people are allowed to express their opinions and vote their beliefs the same division exists. Let’s look at the EU, the world’s second largest economy (taken as a whole).

The nations of southern Europe have a simple solution to the region’s economic travails: spend, spend, spend. Never mind that that is precisely how they got themselves into this predicament in the first place, and never mind that nobody has any idea where all this spending money is going to come from. Hell, southern Europe has been living via magical thinking for nearly a century.

But matters are hardly better in northern Europe. Germany and its allies, all-too-aware of the profligacy of the south, have demanded austerity. That might have been a good idea to suggest 50 years ago, but today it’s hard to imagine how austerity is going to create jobs or grow moribund economies. The northerners are indulging in their own form of magical thinking.

This split in opinion has persisted for a very long time in the US and the EU because the problem is a very knotty one. Even your humble blogger, who can usually be counted on to propose insightful solutions to even the most intractable dilemmas, finds himself stumped on this one. On one hand, there is no doubt but that Congress needs to pass pro-growth legislation: tax reform, infrastructure improvements, immigration reform, lighter-touch regulation, etc. On the other hand, the single most important reason the US economy is sailing merrily along like a snail-at-anchor is because we are all – government, businesses, people – wallowing in so much debt we simply can’t spend any more. We built a roach motel and moved into it.

But since I brought it up, how about this insightful solution? Since our debt can’t possibly be repaid without rapid economic growth, and since our economy can’t possibly grow rapidly until our debt is repaid, the only solution seems to be debt repudiation. That, after all, is what happens in individual cases of over-indebtedness: the debt gets cast off or vastly reduced (via bankruptcy filings) and the business or person gets another shot at success. Repudiation may seem like an extreme remedy, but compared to what?(2) Decades of growth so slow it leads to the rise of fringe candidates who have to be taken seriously? We are only beginning to see the leading edge of this storm.

But there is also a second reason why legislatures remain stalemated: we have watched places like China do so well for so long that we have lost confidence in the superiority of representative democracy. I’ll take that up next week.

(1) At St. John’s College, with Ronald Fielding as interlocutor. I know you’re dying to attend, but it’s a small, invitation-only event. Oh – your invitation got lost in the mail? Write your Congressperson.

(2) After all, even serial debt repudiators, like Argentina, are always (eventually) able to find suckers to sell their debt to.

Next up: Why Are We Afraid of Democracy? Part 2

[To subscribe or unsubscribe, drop me a note at]

Please note that this post is intended to provide interested persons with an insight on the capital markets and is not intended to promote any manager or firm, nor does it intend to advertise their performance. All opinions expressed are those of Gregory Curtis and do not necessarily represent the views of Greycourt & Co., Inc., the wealth management firm with which he is associated. The information in this report is not intended to address the needs of any particular investor.

Visit the Greycourt website »