As the Gregorian Year 2012 closes, I have had many opportunities to muse over what has been one of the strangest and most unsettling years of my life. And I will no doubt have much cause to muse about this tomorrow when I do my more official year-end posts. For my nation as well, the end of 2012 has proven to be quite a difficult one, as there is the need to make a budget compromise to avoid massive and painful cuts that will harm many people, ranging from ordinary people facing tax increases to draconian cuts in our defense establishment. That said, I find it hard to be panicky about the fiscal cliff, as it is called, in light of the larger structural problems that we face as a nation that have not received a great deal of attention.

We have to face up to the truth that our nation cannot fund the obligations it has made to provide for old age care and health care for all. Nor can we fund the obligations we have taken to defend the whole world and make it safe for stalled democracy. Despite the fact that we do not have the means of fulfilling these obligations, we have nonetheless allowed ourselves to be tied into obligations where our honor is tied up in fulfilling a debt that we are hopeless to repay given the resources that we possess. I know about this problem from painful and embarrassing personal experience. The total amount of money I made all year (including my time in Thailand) is somewhat less than 1% of the debts that I currently owe (without acquiring any new ones). I do not point any fingers at my nation’s leaders (and the leaders of other nations) that I do not point at myself for my own folly. We are all in the same boat, seeking the resources to pay off the debts of honor that we have foolishly acquired.

There are really two fundamental ways for these obligations to be dealt with. On the one hand we look for greater resources to pay our obligations, and we also look to reduce the burden of those obligations. For a person, greater resources means more income. For a nation, it means greater taxation. Nations, and people, will generally seek greater resources first to the greatest extent possible before they are willing to deal with cutting obligations by other means. We can expect any fiscal deal, therefore, to include an increase in taxation on those who are best able to pay it, not least because neither side wants to increase taxes on the great mass of people who are not particularly well off and who would be expected to respond with a great deal of anger and willingness to throw the bums out of office who increased their own burden. Just as people seek that second part-time job (or a well-paying first job) to pay for their obligations, nations seek greater taxes in order to meet theirs. It should be noted that taxes are not the only way, though, that nations seek to increase their resources. Often nations (and states) will try to float bonds, even if these increase their total load of indebtedness in order to pay for current obligations. In addition, the mass printing of money and the resulting inflation, can also be seen as a way to increase resources to pay debt even if it harms those who are on fixed incomes and wipes out savings. More ominously, given the behavior of states in having their fiscal burdens so closely related with pension issues, it seems likely that states (and the federal government) will not only have to drastically slash their own public employee pensions but also face the easy temptation to raid the pensions of those who have sought to use insurance as a way of providing tax-advantaged retirement planning. Those who are staunchest against increased taxation generally do not like these other means of increasing resources either.

The other way that someone (whether a person, an institution, or a political entity) deals with obligations is to attempt to lower those obligations. Whether this involves some sort of formal default or bankruptcy, getting one’s bloodsucking creditors to take a haircut in lieu of defaulting the whole debt by renegotiating terms, or some other means, this is frequently done with a threat, as a way of forcing creditors to share the pain of the debtor in order to make them more reasonable. We have to remember that in terms of the benefits and entitlements that we receive from governments, that we ourselves are the creditors of governments (even as in other areas, like student loans, we may be the debtors of government). Life is strange and complicated. State and federal governments that face an inability in paying their obligations of health care and old age care will be expected to reduce their obligations if they cannot acquire enough resources through taxation. There are a variety of tried and true mechanisms of lowering these obligations, and they include raising eligibility requirements (means testing benefits, increasing the age of retirement), rationing care (increasing wait times for scarce medical resources), lowering benefits (especially for more expensive medicines and tests), and other similar techniques. In the same way, a person who has to lower his or her standard of living is going to make pretty consistent choices, like going out to eat less and spending less money on extras in order to tighten the belt and survive. Thus we see the same techniques over and over again.

I do not wish to sound too depressing or discouraging, but reality forces its way on all of us despite our rhetoric and intentions. I do not know whether there will be a fiscal deal before midnight or not (I happen to think it quite possible), but whatever it is, the fiscal cliff is only a very small portion of a vastly larger problem to which we have all contributed. We all have our own share in the massive indebtedness of our nation, regardless of which government expenses we happen to prefer for ourselves and others as serving our own interests. To the extent that the solution to the more urgent (if minor) crisis involves a compromise where some entitlements are cut, some military spending is lowered, some taxes for some people are increased and some people receive more short-term benefits, we still have the larger issues to deal with that have not even been discussed and that appear at this time to be politically untouchable for understandable if selfish reasons. As it appears that we are going to go cliff diving, even if this may not be the cliff, at least it ought to be a comfort to know that we are all in this together.