S&P's wake up call

US firms are doing well (profit wise) but are not hiring much. They are doing more with less. Or at least doing no less with less. Make life easy for them and maybe there will be a lift in employment. Perhaps they should be granted some tax breaks based on the numbers they hire.

Those rallied in favour of slashing government spending believe that the republic's slide to more and more debt is much more than just a matter of economics. It's a defining imperative as to what future Americans want for themselves and their children.

Consider the facts from the United States Bureau of Economic Analysis. Government spending at all levels has risen over time, as follows:

• 27% of gross domestic product in 1960; to

• 37% of gross domestic product in 2011; and expected to touch

• 50% by 2038.

and the percentage of Americans who pay zero or negative federal income taxes has risen from:

• 19% in 1986; to

• 51% in 2008.

All of this has taken place while the total national debt swelled to 100%of GDP today from 42% in 1980.

Simply put more and more Americans are living off the sweat of someone else's brow. And that "someone else" comprises fewer and fewer people over time. This is the major issue. Also vital to address is the matter of the widening income inequality between the haves and the want-to-haves.

In the absence of unprecedented bipartisan action to tame the runaway debt and fashion a financially sustainable America, Arthur C. Brooks on 25 July in the Wall Street Journal (The Debt Ceiling and the Pursuit of Happiness) outlines two possible outcomes: the Scandinavian option and the Greek option.

In order to fund a growing social welfare state, more and more able-bodied taxpayers will have to finance a republic that allows many to enjoy the good life without paying for it. This will require higher taxes and a closing of loopholes. The Swedish model is a good guide to such a future.

The Greek option is the alternative. Under this scenario, less and less people over time will fund the welfare state, while demands on the state will rise unabated. Austerity will eventually be introduced by politicians in Washington. If that fails, then austerity will be forced on the United States by its trading partners.

One route delays Judgement Day, while the other route brings that day forward.

Most Americans are no doubt praying that their elected representatives will act on the matter of out of control debt as soon as possible. Long before S&P considers yet another downgrade.