Deficits Don’t Mean Disaster

(Full Article in USA Today)

When it comes to money, even a lot of money. Let's say it is $422 billion. Would you say it was a lot? It is all a matter of perspective. If this money is in your bank account, it is such a large amount that you probably could not spend it in your lifetime, even if you tried. However, when compared to the U.S. economy, which currently generates $12 trillion, it isn't much.

And that is where it all comes down to perspective.

The $422 billion number is the current deficit the country faces. While the number is larger than we have seen in years' past, when you actually look at it from the perspective of percentage of GDP (Gross Domestic Product) it is a much smaller deficit than we experienced as a country in the  '80s and '90s.

Remember those days? Economists warned the deficits would destroy this country, when in fact, just the opposite has happened: we have thrived as a nation. We have not only added millions of jobs, but our standard of living has risen to the highest level.

mortgageThe naysayers who said the sky would fall back then are the same ones that say the sky will fall now. I have news for you. They were wrong then and they are wrong now. The sky didn't fall then, and it won't fall now. The argument is that we are living irresponsibly by borrowing money that our children will have to be responsible to pay, leaving them with a country that is completely broke.

The argument is that we as individuals would never live beyond our means and borrow money as reckless as the U.S. Government does. Really? You do the same thing. For example, you borrow money to by a home. Often you get a 30-year mortgage when you are 50 years old. Wouldn't those payments burden your children as you may have past on before the mortgage is paid. You could pay cash for the home, but that is not a wise investment of your cash when interest rates are so low. You can do more by leveraging your cash and this is exactly what government spending does as well.

A well-built house that is financed is AN ASSET, not a burden to one's children. On the flip side, an expensive cheaply built house paid with cash is the burden. It is the size and the quality of the home is what really matters. How it is financed is not the issue.

Hopefully you can now look at government spending in a different light. Getting crucial infrastructure built and paid for by money that is financed is a wise move. On the other hand, when government gives cash as subsidies to farmers, these are absolutely wasteful as they do nothing to build our infrastructure and they are not financed but paid for out of cash from current taxes.

Both President Bush and Democratic presidential nominee John Kerry promise to spend more money. That money will come out of our pockets either today or tomorrow in the form of higher taxes. The timing of those taxes is less important than whether the extra spending yields benefits we could not achieve acting as individuals.

Speaking of President George Bush, there are also creative ways to make things better and more manageable. For example, there were many people who were strapped for cash and debt was piling up, and they had a way out, but the law wouldn't allow them relief. They wondered, "Why can't I sell my annuity payment?" and finally the government listened. January 22, 2002, President Bush signed into law to allow those who had structured settlements a way to get to their cash in one lump sum to handle a crisis in their life. A judge was required to approve it, but finally some relief was being given to hundreds of thousands of hard working American families.

Harmful and unnecessary government spending burdens us and our children far more than the deficit. That is where our focus should lie.

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