Tuesday, February 24, 2009

Being Fiscally Conservative

There's a lot of talk about liberal vs. conservative ideals and attitudes these days, but it seems that nearly all of our representatives in the US House and Senate have forgotten the meaning of being fiscally conservative. There's plenty of blame to go around.

President Obama stated in his address to Congress tonight (2/23/09) that one of his goals is to cut the budget deficit in half. That's a wonderful goal, but it's like saying he wants to sink half as fast as we are currently sinking. Bill Clinton and George W Bush and their associated congressional delegations both saw a budget surplus, so it's been possible in the past irrespective of political party. World circumstances are partly to blame for that surplus window being very small, so I'll grant that it's not just greed and corruption driving the deficit. Still, Old Hickory managed to pay off the entire national debt once so it's been possible in the past.

Given that we want to move toward a balanced budget, I like to compare small scale and large scale to identify principles. For instance, what happens if I as a consumer try to spend my way out of my financial problems? Assuming I can get infinite loans, it doesn't look so bad at first. I get my necessities taken care of, along with whatever I can convince myself looks like a necessity, along with a few things that are just too cool to pass up.

But what happens if my source of money shuts off and begins to come due? Not only do I have to suddenly balance my budget, but part of that budget n0w has to go to pay off both principle and interest to cover my spending spree. The national equivalent of this thought experiment is that in 2008 8% of our taxes went to interest payments. The deficit goes toward increasing the principle each year. I think it would be a bit high if 8% of my income went to interest payments, but some people are well above that percentage on their personal budgets.

Every time we run a deficit, that percentage goes up. Guess what happens if we keep running deficits every year? Pretty soon, we end up with so much of the budget going to debt that we can't pay for anything else. Could you survive with 25% of your budget going to interest? How about 75%? What's the drop dead value where you can't meet requirements for survival? What's our national drop dead point where we can't defend and support ourselves as a country?

If it helps, think of this Saturday Night Live skit, and apply it to governmental spending.

We have lots of options to choose from.
  1. Balance budgets now voluntarily. It hurts for a while, but it's like being vaccinated against stupidity.
  2. Gradually cut back on expenses as the percentage of debt service goes up, and put off the choice.
  3. Pay off debt later when we are forced to do so by an overwhelming burden of debt.
  4. Ignore it until we have uncontrolled inflation, and can use $100 bills as kindling.
  5. Call it quits and see what form of government comes out from the far side of the chaos.

Well, it turns out to not be much of a choice after all.

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