EDITORIAL – How rich countries (mis)manage to go broke

For our officials who are crafting the Cayman Islands’ next budget, and for our lawmakers who will vote on it, we consider a column we published today to be “required reading.”

In it, economist Richard W. Rahn (who is a member of the editorial board for our sister publication Cayman Financial Review), outlines the origins and unfolding of “The next financial crisis.”

Here’s the key paragraph: “The fundamental problem is most countries are experiencing little or no growth as a result of excessive government spending (particularly on transfer payments), and destructive regulations and tax policies. The unwillingness of the politicians (and their voters) to cut back on spending and regulation has led to an explosion of government debt, which is not sustainable at current levels of economic growth. This, in turn, is fueling a demand for more government spending (more free stuff) and thus more debt.”

The world has experienced the “tech bubble,” “housing bubble” and even the “tulip bubble” (referring to the 1630s craze, and rapid market collapse, for the flowers that had been recently introduced to Europe). Now, we have the “government bubble.”

Among countries with financially failing public sectors, there is a common denominator: Governments have been consistently overspending on socialist programs using capitalist dollars. When those dollars (and the population of capitalists) run out, debt begins to pile up.

- Advertisement -

We needn’t look far for prime examples. Consider our neighbors in South America: Argentina, Brazil and Venezuela – which have been experiencing tremendous economic struggles in spite of vast populations and abundant natural resources.

Argentina, at least, appears to have shifted back onto a better track, after electing right-of-center President Mauricio Macri, coming to an agreement with the country’s creditors, and mounting a succession of criminal cases against former President Cristina Kirchner.

On the other hand, Brazil’s star has been fading after years of being touted as the newest belle of the global economy. Now the nation of more than 200 million people is beset with woes, including the impeachment of President Dilma Rousseff and the downgrading of the country’s bonds to “junk” status. The upcoming Olympic Games in Rio de Janeiro, an event that was intended to be a “coming of age” celebration for Brazil as a first-world nation, has instead cast a harsh spotlight on the country’s third-world problems, such as sewage-tainted waters, Zika virus run amok and growing fears of violence – which led, of all people, Brazilian football star Rivaldo to warn tourists against visiting Rio for the Games.

As for Venezuela, well … Let’s just say the country, which has some of the most vast oil reserves on the planet, is nevertheless so penurious that it cannot afford to print any more of its own virtually worthless money. Lack of food, medicine, electricity, goods – basically everything – is causing immense suffering across the country.

While Venezuela is an extreme case, the underlying fundamentals are replicated across the globe: Greece, Puerto Rico, Detroit, Chicago …

For those who believe Cayman is somehow immune from the laws of economics, consider that our government is now spending $50 million annually for welfare, $107 million for healthcare and $252 million for central government salaries. Or ponder the billions in looming liabilities for public pensions and healthcare obligations, with little or no funds being set aside to offset those upcoming expenditures.

Think of our officials’ constant refrain that they do not have enough money to fund worthy initiatives – even modest ones such as Meals on Wheels, although government revenues verge on $1 billion per year. And think about the litany of “little luxuries” being packed into the election-year budget, such as health insurance for retired House Speakers, pay raises for the civil service or new pensions benefits being extended to former one-term legislators.

Remember that when rich countries, such as Argentina, Brazil or Venezuela, become poor, it is almost always the result of government bloat, blatant corruption or chronic overspending.

In Cayman, we must beware – and be wary – of those afflictions creeping into and contaminating our own public sector.

- Advertisement -

Support local journalism. Subscribe to the all-access pass for the Cayman Compass.

Subscribe now


  1. We will go broke in Cayman once our representatives continue on the track of wild spending where it is not necessary. There should be NO tripping up on feeding our elderly and providing for them that they can afford to pay their light and water bills.
    It is a total shame that our representatives will not even give the elderly a little raise to the stipend they receive on a monthly basis. What can $550.00 a month do. It should be raised to at least $800.00 a month. How long do you think they will be around? Just answer that question? Any representative who treat the elderly of their country badly they do not deserve to have parents. These people have already contributed, to building this country on what little they had from going to sea, built homes, license cars and paying their fair share of taxes until now, and now we treat them so badly. It is not good.
    Very few people are paying attention to what our representatives are doing, and of course they malice you when they are exposed. They will want to visit the elderly and leave a little 25.00 with them from their pockets; but that is not what they need. They need to not be struggling month after month, while their representatives take all of the money and dump it into secret societies.
    So unless we hold or representatives responsive; we too will go broke.

  2. There is more to the “next financial crisis” than an eye can see. And it is certainly not only Governmental spendings that pave the country’s way to a financial crisis.
    I won’t pretend to understand it all, but being an open minded individual I watch such documentaries as Woody Harrelson ‘Ethos “Time to Unslave Humanity and THRIVE: What On Earth Will It Take?, both are unconventional documentaries that lifts the veil on what’s REALLY going on in our world by following the money upstream — uncovering the global consolidation of power in nearly every aspect of our lives.
    The documentaries are available in 27 languages. The latter documentary is made through the prism of “new age” stuff one might say, but watch through the end and you might learn more about “bubbles” that burst and worldwide financial crisis throughout the history. From the former documentary you might learn that America is NOT a Democracy, but rather a polyarchy. With all that in mind you might look different on the world’s economy and its driving forces.
    I would really like if Mr.Richard W. Rahn comments on The fundamental problem of most countries in the light of the things exposed in these two documentaries. Both are are free to watch on YouTube.

  3. Some brilliant man said something like “Politics is the art of persuading the poor to give you their votes with a campaign funded by the rich. While promising to protect one from the other.”

    This year’s Presidential campaign is estimated to cost both sides a billion dollars. Even a billionaire like Donald Trump cannot fund this personally. Hillary Clinton certainly can’t. So both will sell political access.

    So each of them will make promises they cannot keep without raising taxes.

    Soak the rich? Someone calculated that if the US government took every cent from every person worth more than one million dollars it would keep the government running for just one year. So what happens the following year?

    These big governments love to spend money they do not have on what they consider to be worthwhile causes. Whether it is bathrooms for transgender people or wars in distant countries.

    It will be a big shock when the chickens finally come home to roost. As Venezuela is finding out.