America’s Economy: Why Jason Calacanis’ 120% Solution Won’t Cut It

Jason Calcanis has a simple solution for America’s woes. To summarize his eminently readable article in his own words:

What made America great was our ability to innovate and create world-class products, ideas and services that people around the globe fell in love with and wanted for themselves.

From health care to human rights, from democracy to dishwashers, from windshield wipers to the World Wide Web, from search engines to soda pop, we’ve accomplished so much by dreaming and rolling up our sleeves.

We need to put down the remote, cut our credit cards in half and start new companies with new ideas. Our entrepreneurial spirit and hard work will get us out of this mess.  All we need to do is release them.

Note: The emphasis is mine.

As a true entrepreneur Jason argues in favor of working harder and innovating out of this mess. I think the problem is much deeper than that. America never lacked innovation in the first place. Innovation and entrepreneurial spirit along with an abundance of natural resources is what made America what it is today, an unquestioned super-power in the whole wide world.

The most significant difference between then Indian society and USA which I found when I landed in USA in 1996 is the mindset on credit. America is accustomed to taking credit or incurring debt, be it for business or for household necessities. An average US citizen carries a credit card debt of $8,562, in addition to a public debt of over $35,025.46. The USA government carries a staggering debt burden of .

In India, during the childhood and later I was taught not to take debt. Taking any kind of debt was bad, be it for luxury or even necessity. Debt givers were looked down upon with contempt and debt takers with pity. So ingrained is the mindset that I could never even imagine taking debt for any reasons. In USA, I was told that I could get nowhere without a good credit rating and to build one I had to take debt and then pay it in time! This hare-brained scheme never worked for me. So when I tried to rent an apartment they found that my credit rating was non-existent which is bad, real bad. I tried explaining to them that I don’t need any debt, I am well off and so my credit rating should be good, right? Wrong. Creditors want you to take a loan; not taking one is bad in their books. They also want you to delay some payments so they can rake up the interest rate and they also want you to pay it and they will honor this with increasing your credit ratings. Sounds strange? It will if you are not an American. Somehow it has been ingrained in their system and the general perception is that it is right. Taking credit is not looked down upon, nay it is encouraged in every sphere of life.

The Chapter 11 (Chapter 11 is a chapter of the United States Bankruptcy Code, which permits reorganization under the bankruptcy laws of the United States. ) is an anathema of US legal system. It allows organizations and individuals to go Scott free from any amount of debt. When deprived of consequence, it is easy to see why citizens and organizations prefer to go for easy debt without much care in the world.

Now don’t get me wrong. I love America, the Americans and the values they stands for. An average American is probably the most hardworking species you will see anywhere. They believe in getting paid for a hard days work. However as every Superman has its kryptonite, I think America’s greatest weakness is its love for debt.

Rebellious, that I always am, I refused to take a credit card. I did have one debit card which I occasionally used. When I started my business, the general advice was to start it with a significant capital influx through Angel investors and then go for VC rounds. I refused to take credit and I started small, from my own savings. Taking credit for business is a quickfire way to rise high and fast, the VC way. Starting without any loan will set you back by several years as you fight with meager resources at your disposal. However it is also much more satisfying and fulfilling to see it grow organically. While we may not be anywhere near Jason’s ventures we are doing fine in our small way, unaffected by the economic downturn and we are constantly growing.

Note: In India too lot has changed over the years. People are becoming more open to taking credit, worse the government encourages business to take loans by reducing the tax burden. I think it is the wrong way to go.

What’s wrong in leading a simple life without debt? Why not live within our means and grow organically with hard work, honesty and sincerity - the age old values of the world? Sure you are not likely to get filthy rich in the leagues of Bill Gates or his buddy but you can lead a much more satisfying and stress free life. And in the end your body will meet the same fate - ” ashes to ashes, dust to dust” as the billionaires of the world and the poor destitutes.