If you’re even slightly interested in the US economy, and, let’s face it, most of the world is, then you’ve likely been at least marginally following the last few weeks worth of debt ceiling news. The quick and dirty of it is that the US government has a debt ceiling that puts a cap on how much debt the US federal government can carry. If they reach that cap, they can no longer issue treasury bonds and the like to raise money to pay for things. Based on what I’ve read, everyone would like us to believe that it’s a major crisis, and the world will end if we don’t raise that debt ceiling and allow for more debt. But, is it really a crisis?
Let’s think about this just a little bit. Replace “U.S. Government” with John Doe in everything I’ve just said, and all the news you’ve read. If we were talking about an individual, we wouldn’t be talking about how the world would end if they weren’t allowed to accumulate more debt. We’d be talking about how they need to radically cut costs, increase income, pay off debt until they can get their finances in order. Would it be called a crisis? Maybe on a personal level, John Doe would believe it was a crisis. But, it certainly wouldn’t be world ending.
I’ll admit that it is a bit different when it’s a government entity that we’re talking about. If the US government goes bankrupt, there will be some pretty serious problems with the economy for a while. Which brings up another issue altogether. The US economy needs some diversification of it’s revenue streams. Way too much of the economy balances on how much money the US government sinks into it each month.
It’s time we start asking the same questions of the US government that we would be asking of John Doe. Do you really need that expenditure? That service? All three cars? The McMansion? Unfortunately, those that are in charge in Washington are playing political ball instead of really trying to solve the problem. They think way to hard about what programs they can cut that won’t lose them votes in the next cycle, or how much they can raise taxes without losing votes, when, instead, they should be looking to make the US government financially solvent and stabilizing it’s fiscal situation. You or I would start with a balanced budget, I don’t see any reason why the government shouldn’t do the same.
What do you think? I don’t think I’m being to idealistic in asking that they carry a balanced budget each year. Or that they cut costs until they can do that. Yes, they’ll likely have to raise taxes some to pay off what they’ve got for debt, but if it doesn’t come with some pretty significant cost cutting, they’ll all be looking for new jobs in 2012 anyways.
photo credit: Public Notice Media
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Brave New Life says
Most of the money is spent on military (or as they call it, “defense”). We’ll be hard-pressed to balance the budget until we cut back on military operations.
The other challenge with the government is the flaw of a 2-party democracy. If the Republicans cut spending, the Democrats scream that we’re killing education (or whatever gets cut). If the Democrats raise taxes, the Republicans scream socialism.
We’re an economy built on growth, and when that growth stalls, we end up where we are now. Going back to your analogy, that would be like John Doe spending money now, assuming he will work forever and receive raises year over year until death.
My University Money says
I like your analogy BNW. I think any long term solution has to include raising taxes and cutting spending. It’s crazy how politicized everything is in the USA. They will never cut military spending due to the military industrial complex in so many states. People don’t realize that the hundreds of thousands of entry-level jobs in the USA army is the American form of socialism. Check out the income backgrounds of the average PO.
I think they could cut a good deal of the defense budget by greatly reducing our base presence in other countries. Keep the handful of really key strategic ones, and get rid of the rest.
shanendoah @ Baking the Budget says
I also think the government should be required to save in times of plenty- you know, create that 6 months of living expenses emergency fund that we’re all supposed to have.
And while I like your analogy, sadly, I think it falls down in practical uses. While I do think some taxes should be raised (or at least loopholes closed) and some spending needs to be cut, the US government isn’t analagous to an individual person in any way. Its much closer to being a corporation. And some corporations (so we’ve been told by both political parties) are too big to fail.
But the government can’t even act like a corporation because it has responsibilities to more than its bottom line. A corporation can cut costs (layoffs) and increase income (raise prices) and still claim its behaving responsibly- because its only responsibilities are to corporate share holders- they are fiduciary.
The US Government’s responsibilities are not only fiduciary. They can’t focus on the bottom line and ignore the impact of their decisions. They must take in to account all the consequences.
I do wish more members of the government were willing to forget about party lines and simply do what’s right for the country. And I do blame the two party system for that. If we had viable 3rd and 4th parties, members of government would be forced to compromise and work together much more often, and I think a lot more would get done.
I have been waiting a long time for our government to try and solve the problems. Whether it is politics or something else, they do not seem to do it. Frankly, I have given up on government solving problems. I focus on solving my own problems and let them just leave me alone.
Marie at FamilyMoneyValues says
We can’t keep giving ourselves a free pass to spend as much as we want! The US government has not been able to balance a budget, let alone get out of debt. Ever – to my knowledge.
It’s like losing weight, you have to eat less and move more. We need both tax increases and spending cuts.
I agree with you that this has become too political. Our elected representatives are more interested in being reelected and keeping their power and not in the welfare of the country as a whole and the citizens of that country. If someone was to try to write a book like Profiles in Courage they might have a very difficult time in finding many politicians who act with courage and not in a self serving manner.
Clinton had a surplus and we still had “defense”. Why can’t we do it again if it was done once?
If I have to live within my income why can’t my government?
Financial Success for Young Adults says
What is most frustrating to me is that fact that we cannot reach an equitable decision. The politics behind this decision are showing every country that we are a house divided. And a house divided cannot stand.
Financial Excellence says
I think we all agree the government needs to increase income and reduce spending. In Keynesian economics, reducing government spending while raising taxes means the economy will slow even further.
So the question becomes this: Do you increase the tax rate (Democratic answer) or do you decrease the tax rate, which increases spending and helps businesses grow, thereby creating more jobs and increasing income, which grows the tax base (Republican answer)?
I agree Defense spending can be reduced, but by that token so can most of the government’s spending. There’s so much waste in government institutions it’s ridiculous.
@krantcents – to your point, I don’t think the government can, will, or should fix my problems. Too many of us are waiting on the government to solve everything. I truly feel that the only one responsible to fix my situation is… me.
Bret @ Hope to Prosper says
Unfortunately, a lot of people are misinformed about the military’s role in the budget deficit. Although the military definitely needs to be cut a lot, that won’t solve the budget deficit. In fact, if we cut the military to zero tomorrow, laid off all of the soldiers and closed all of the bases, we would still be running a defict.
The real culprit is Entitlements, which now consume 65% of the Federal budget. That is way higher than any time in our history and it’s growing rapidly. Let’s face it, way too many Americans (and immigrants) are on the dole and that needs to be cut. It won’t be popular ahead of an election, but it has to be done.
I don’t know if I would call it a misinformation, really. The defense budget does take up a pretty good chunk of the overall budget. But, I wouldn’t disagree with you on the entitlements either. Any significant cuts will have to take a good portion from that as well. I think across the board cuts are in order, but really doubt that will happen.