Debt and equity are common terms from the financial world but I argue below we should begin thinking of our politics in this way as well. Debt is commonly defined as an obligation (usually to repay money) owed by one party to another. As such its terms are usually fixed establishing a moral and legal obligation to repay a sum certain. Conceptually debt permits the borrower to anticipate future purchasing power in the present before it has actually been earned. Equity by contrast is a more free-form ownership claim on the residual value of an enterprise or asset. If the debts of a company are too great the company may go into default and breach its debt covenants; however the terms of its equity are not violated per se; the equity is just not worth anything.

As I have been arguing for several years in this blog and elsewhere the developed world has taken on way too much debt — too much current spending that has not yet been truly earned and will need to be funded somehow by our children. Our politics have been similarly ossified. The so-called Super Committee in the Unites States was given the mandate by Congress to find at least $1.2 trillion in savings by the Thanksgiving recess or mandatory budget cuts would automatically go into effect the following year. While painful but viable budget plans are available — most notably the $4.2 trillion plan that Erskine Bowles and Alan Simpson led — neither the Not-so Super Committee nor the greater Congress appears able to achieve any form of sensible compromise. In other words all the positions taken are debt-like in their rigidity.

The clearest example of this is the "No New Taxes" pledge made by many House Republicans and the similarly inviolate commitment made by many Democrats not to limit entitlement programs like Social Security or Medicare in any way. This is despite the fact that federal taxes are at their lowest levels in a generation on the one hand and that we are living longer (and therefore consuming more healthcare and pension benefits) on the other. These intransgent political positions take on the nature of debt obligations — even the campaign language speaks of "No Tax Pledges."

The public policy debate on non-economic issues is similarly ossified. The erudite lawyer and campaigner for the common good Phil Howard has argued that we have created so many legal rights (think debt obligations) that public officials are no longer able to act in the interest of the greatest common good (think pubic equity). Like a borrower hemmed in by its debts the current public servant school principal or judge has limited discretion to pursue the greater public good.

Europe is of course not immune to this phenomenon. I write this piece airborne (as usual) en route back from Brussels where the leaders of the Eurozone have once again failed to tackle the fundamental economic problems facing their 27 member states. A crisis has been brewing for years in Europe because the core members of the common currency have locked themselves into a one size fits none currency; taken on way too much sovereign debt (especially at the Southern periphery); and refused to countenance any form of debt relief or debt-for-equity swap. This is just the "balance sheet" problem. In addition rigid labor trade and other rules have sapped economic growth in the least flexible markets and not provided the ability to afford the level of ongoing social benefits (think debt-like present consumption entitlements) that politicians have promised for years.

Asia ex-Japan is the obvious exception to the debt straight jacket of the West and indeed much of the sovereign debt that does not sit recursively on the books of Western banks is owed to China and other new powers amassing huge foreign reserves. While certainly better off on a relative basis these emerging powers are not "decoupled" from the indebted economies and with rising wealth they are also feeling the pressure to begin social spending programs on health education and pensions.

To me there is only one long-term solution as opposed to the serial kicking of the can down the road so beloved of politicians (i.e. keep spending and let the person elected next term solve the problem). We need to return some equity-like flexibility to the system; to make more of what is now fixed variable; and to create the conditions for true economic growth (and concomitant job creation) that ultimately lifts standards of living. So when you hear the word "debt" think rigidity fixed entitlement and mortgaging our children’s future. And when you hear "equity" think freedom growth and allowing our children to enjoy the fruits of their own labor. I think Mariana and Walter deserve no less.