The Rocket Science of Overspending
In July, I blogged some spending 101 for Congress and the President, including contigency planning for alien invasions. I thought I made some good points. However, through the whole spending debate that occured this last spring nobody in the media or elsewhere was able to make clear what is going on with the US government. Nobody except Dave Ramsey. He explained it on Fox and then on his website. If you take the big federal numbers and translate them to a size we can understand, here’s the situation:
– Joe and Susie (the Federal government) make $55,000 a year
– They spend $96,000 a year
– At the same time, they have $366,000 in credit card debt
Look at those numbers again. Every year those clowns in Washington are adding $41,000 a year to that massive debt total. Soon enough, our overspending will kill our ability to do anything else except pay the interest on that debt. 150 years after America abolishes slavery, we decide that debt slavery really is a good idea. Yea! Give us shackles! Give us shackles!
No wonder our credit score as a nation (our bond rating) was reduced.
So what did the government do this last Spring? They agreed to find some way to cut spending from $96,000 to $78,000. Meaning they’re still adding $28,000 dollars a year to the government’s massive credit card debt total. Which we have to pay!
If the US Government was a family, they would be making $55,000 a year, they spend $96,500 a year, & are $366,000 in credit card debt. What’s the first step to get out of debt? Stop overspending! But that means a family that is used to spending $96,500 a year has to learn how to live on $55,000. That’s a tough pill to swallow. It works the same way for the government. You can’t borrow your way out of debt, whether you’re a typical American family or the entire U.S. government. At some point, you’ve got to say, “Enough is enough!” and make the hard cuts necessary to win over the long haul. – Dave Ramsey
The answer is NOT to print more money.
If you do that, you reduce the value of each dollar. It’s called inflation. As Ron Paul rightly points out, it acts effectively as a tax. Or as I like to put it–a PAY CUT. How many of you would like to get a nice fat 10% or 20% pay cut this year? Furthermore, instead of fixing the problem, the overspending continues, which means more pay cuts in the future. More fun!
No, the thing we have to do is STOP SPENDING MORE THAN WE MAKE. Here’s what has to happen.
- We must write into law that Congress balance its budget every year–they must not be able to spend more than they take in except in rare emergencies. This means they might need to build up a rainy-day fund.
- We must cut our spending. Now. I linked to an idea Ron Paul has for this in my 101 post where we just go back to 2007 levels of spending.
- We must work to increase our revenues. Not through hiking taxes to monstrous levels, but by providing optiomal regulatory conditions for economic growth. See my 101 post.
- We need to make sure the taxes are visible, so the American people can easily see what’s going on. Congress has mandated that lenders provide clients an APR so they can clearly see the rate they will pay on a mortgage. Why shouldn’t we mandate that the IRS send out an ATR–annual tax rate (or maybe Annual Grab Rate or Annual Tax Burden or you come up with the name)–which includes all Federal taxes translated into one total rate?
- We need to give everyone the opportunity to pay for the soldiers that defend them and the roads they drive on, even if it’s just $50-100 a year for the very poor.
- We must send people to the White House and Congress who are willing to do what it takes RIGHT NOW.
I mentioned Ron Paul a number of times above. He’s not my choice for president. But he has added a number of good things to this discussion. Here are the Ramsey links:
- Fox News: Dave Ramsey simplifies the US government overspending situation
- DaveRamsey.com: “Federal Budget vs. Household Budget: How do they compare?”
EDIT: Mark Holt makes an excellent point in the comments. Inflation isn’t just a pay cut. It’s a savings cut, a retirement cut, a 401k cut, a house value cut, an everything cut. Using that backdoor method, the DC Connivers institute a tax of everything, something they’d never be able to pass out in the open.
You are right about all of it. But inflation is worse than a simple pay cut. The reason inflation is more attractive than a tax is that the inflators also get a piece of savings, deposit accounts, investments, in short, everything that is denominated in dollars. It is not just income that is reduced when currency is inflated. A lot of people spend their lives amassing a nest egg so they can retire. Inflation is a way for government to get a piece of all of those nest eggs. It’s a pay cut, and a savings cut, an investment cut, an equity cut…
Mark, good grief, you’re absolutely right. Excellent point!
I agree with everything you’re saying, but is it even possible to cut government spending by nearly half? Think about it. Every single government body cutting spending by half. If we did that all at once, I’d be worried about stability. It’s easy to do for a single family, but for an entire government, with millions of people relying on the current establishment, I’m afraid it’s a different story. They made some fairly major cuts this year. If they keep doing that every year for a few years, we’ll get there. The hardest part would be cutting down spending to the point where that debt can start to be paid off. And it would take a looooong time.
Ben,
I can see your point. At the same time, the ten and twenty years plans Congress has been giving us has gotten us into this mess. They ALWAYS push it back ten years. And it doesn’t have to be 41% cuts across the board (or 29% if you’re going from the levels of spending they’re supposed have reduced it to). I’m sure there are some organizations that can be cut more and some less.
I know there’s low-hanging fruit (sizeable chunks that affect relatively few). Look at things like Solyndra. Millions upon millions for a few dozen people. Let them go to the business community and convince them to get funding. I’m sure there’s a lot more if we dig.
But there will be hard cuts. In those cases, I think the key is to give the folks a heads up and some time to transition (not years, but months), and then cut them off. I think what causes the most instability is the inability to project what’s going to happen. If people know the government is cancelling a contract or subsidy or assistance at X date in the future, they can plan. So give them 3 or 6 months of “severance.” That’s different that going cold turkey.
If there’s going to be a phased plan to get to a balanced budget, I’d personally like to see it achieved in less than 5 years, and track it so we can see just how good our representatives are doing on meeting that target. I want an annual fiscal health report.