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Learn To Love Our Massive Deficit

Monday, July 12, 2010 - 2:35 PM
This article explains the impassioned views of those who want to end spending to save our country, and those who believe we need to spend to save our country.  Quite a difference of opinion.  The author has some opinions of his own to satisfy both groups and solve all the problems.

http://finance.yahoo.com/banking-budgeting/article/110046/learn-to-love-our-massive-deficit?mod=bb-budgeting

The author doesn't put a numerical value to the national debt, but points out that the number used falls short of the actual national debt obligation.  He mentions Medicare and Social Security.  He leaves out all the perks to gv't workers after they retire: health care, pensions, security detail.  He leaves out Medicaid.  I think there are other debt obligations, but I'm not sure what those are.  (bold mine)

The article is worth the read, and the following is only a fraction of the full article.

 

The fiscal hawks point out, correctly, that our national debt figures don't fully reflect what we owe as a nation, since future obligations for entitlements like Medicare and Social Security don't show up as debt, even though they are huge checks that we've promised to write. All told, we've promised ourselves more than we can afford to pay. That's just math, not ideology.

The deficit hawks also point out, correctly again, that the debt markets may decide at some point that enough is enough, as they did with Greece. And it could happen suddenly. After all, the "debt markets" are not computers kept in some Wall Street basement -- they are made up of people, institutions and governments who loan us money in the expectation that it will be paid back, with interest. Right now, for example, the Chinese government gobbles up a huge proportion of the bonds that finance our growing debt.

All of this suggests that the federal government, the states and our overly indebted households ought to get their balance sheets in order, sooner rather than later. The remedy at the household level is to spend less, borrow less and save more, a process that is already underway. The remedy at the government level is to move the budget toward balance, which requires some combination of spending cuts and tax increases.

But wait. There is a counter-argument made by another very smart group of people. They argue that balancing the budget right now would be exactly the wrong thing to do! Our fundamental global economic problem is a lack of demand. We're not spending enough to keep our manufacturing plants running, our shops busy, our restaurants full -- which is why unemployment is still lingering near 10 percent. Cutting government spending, which is a substitute for private consumption and investment right now, would make the situation worse. So would any tax increase, since it takes money out of consumers' pockets.

Here's my reading of the situation: Both the deficit hawks and the deficit spenders have solid economics on their side. But, unless I'm missing something, there is a relatively easy way to reconcile the two views: Make serious fiscal adjustments now that don't kick in for several years. There is nothing stopping us from passing legislation today that takes effect in two years or five years or phases in gradually over a decade.

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MikeMike327 posts since
Feb 22, 2010
Rep Points: 875
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