Saturday, March 28, 2009

I.O.U.S.A - Justifiably overlooked DVD of the month

I.O.U.S.A. is a poorly made, poorly argued, poorly illustrated documentary about a serious issue, the US public debt. In a nutshell, the issue is this: prudence dictates that a government should only spend (on social security, building roads, fighting wars) as much as it earns (raising taxes). This is a balanced-budget. But, for centuries, governments have borrowed to spend and run up a "public debt". It's the equivalent of taking out a mortgage, except that, being the US, supposedly the most financially secure country in the world, the mortgage payments are very cheap. Over the past decade, the US government has taken the equivalent of a massive mortgage from China and Japan. The difference is that whereas you and I pay back our own mortgage, when the government takes out a mortgage, it's the future generations who pay through higher taxes. Now, the borrowing can still be justified if the money is spent on things that make the country more productive and thus ease the burden on future generations - stuff like building roads. (The equivalent of investing in a house and building equity - so long as you don't buy at an over-inflated price!) But if the government incurs long-run debt just to spend on frivolous stuff like cash hand-outs (the equivalent of mortgage equity withdrawal used to buy a new stereo) it's less justifiable. Moreover, as with a household, the government can take on so much debt that they risk defaulting. Historically, it was unthinkable that the US would default because, hey, it was super financially secure! The documentary argues that this isn't the case any more. To my mind this is a bit of a straw man to argue against. What would be more likely to happen, though still highly unlikely, is that the US would have to pay more for its debt. This is like riskier households paying higher mortgage rates than secure households. After all, there is a good reason why China and Japan lent so much money to the US. US debt is seen as a "safe haven" asset - there are few safer places to put your money. I mean, think about, would you rather invest in the housing market or the equity market or lend to the UK government?! For instance, last October when Lehman Brothers went bust, everyone was rushing to lend to the US - for safety - despite the already large debt. Indeed, the US was paying an interest rate of zero! So much for pricing default risk.

Taking a strongly partisan stance, director Patrick Creadon frames this issue by following the leader of the lobby group, The Concord Coalition, as he tries to whip up public anger at the state of the country's finances. Admittedly, Creadon has a tough job. The lobbyist is not particularly charismatic, and the subject he is tackling is complicated and dry. But, having seen Al Gore basically make a powerpoint presentation interesting, we know it can be done. It's hard to know what someone would think who had never considered this issue. Would they be entertained and educated? Given that my day job focuses heavily on this subject, I found the substance of the film to be poorly argued, trivialised and ill-presented. The interview snippet with Warren Buffett is short and unexciting and footage of Alan Greenspan scarce. The documentary also betrays partisanship in the kind of economic assumptions it makes, and thus, the kind of political stance it leans towards. If you really want to know more about this topic, you'd do better to start

I.O.U.S.A. played Sundance 2008 and was released in the US last summer and in the UK last November. It is available on DVD.

No comments:

Post a Comment