The US confronts increasingly apparent symptoms of fiscal distress, but with continuing divergent narratives about root causes and proposed cures. These competing narratives also have sponsors and beneficiaries, many of whom see alternative remedies through a lens of zero-sum, not win-win. 

President Barack Obama offers to reduce corporate tax rates but to make it revenue neutral - so some companies’ tax bill must go up to pay for the ones that go down. Among the ones that would go up are those with substantial current tax advantages; they range from real estate to R&D. 


A financial crisis commission produced three reports - a partisan official report lays the blame on greedy bankers and lax regulators; a second partisan report broadens the blame to include government housing policy, unqualified (and unscrupulous) mortgage applicants and relaxed central bankers; and a third diagnostic claims the root cause was millions of financially unqualified mortgage holders and a political system (both parties) that forced/encouraged social engineering through home ownership. Pick your narrative; pick your cure.

The governing classes are now examining whether to permit states to declare bankruptcy. Local governments have this option; states do not. Advocates suggest that bankruptcy (or the threat of it) is the best (only) way to rid states of unsustainable public employee pension obligations. Lying in the weeds are public employee unions who might envision a different bankruptcy outcome, perhaps following the path of the 'shared sacrifice' auto bail-outs, penalising bond holders and protecting union workers and pensioners. It is not far-fetched to imagine that politicians supported by public employee unions may suggest transferring public pension obligations to the federal level, perhaps indirectly via guarantees or cheap insurance if a stimulus replay seems too obvious.

Direct investors have options. They already differentiate based on talent and business friendliness. Taxation and anticipated taxation are figuring into their choices as well. Only a few state governors can claim creditworthiness. Others may prefer to dispatch their financial problems to Washington. If businesses and mobile professionals abandon high-debt, high-tax states, one way to begin to reverse the exodus is to nationalise the pension burden. We are one country; it’s just that we have very different narratives and seek very different cures.

Daniel Malachuk works with business and government leaders on global direct  investment strategies. He has advised many of the world's leading companies and  served in the US public sector as director of White House operations. Email: