Creative Ways To Save Money - The Government's Gonna Need 'Em
The government needs creative ways to save money - and needs them badly.
Now, I suspect that if you read this blog, the idea that government deficits and government debt are a large and growing problem isn't a surprise to you.
(Deficits refer to the fact the government spends more every year than it takes in. Government debt is what our government has borrowed over time and now owes to various parties. Most of the debt is represented by Treasury Bills, Notes and Bonds.)
Let's focus for now on the administration's latest budget projections, specifically "publicly held debt," more specifically a number called "gross debt." This debt does not include the amount of "unfunded" liabilities the government must address in the future. (An example of unfunded liabilities would be future social security payments.)
Gross Domestic Product (GDP) stands now at around $14 trillion. According to the administration's budget projections, by 2015, gross debt will exceed 100% of GDP. So what's the problem?
When gross debt exceeds 90% of GDP, the debt becomes a serious drag on the economy. In fact, we lose at least 1% point of GDP per year. Over the long term, GDP averages around 3.5%. So that means we lose over 28% of our gross domestic product if our debt exceeds 90% of GDP.
But let's not get hung up in the numbers here. All these numbers are telling us is when we can expect a specific negative impact from all the debt the government's building up. We know it's coming. The question is, what can or must be done to either slow it down or stop it, right?
And there I believe we have a big problem. Part of that problem is, of course, big government.
But let's think about this. It's easy to say reduce the size of government. But what's your proposal? How exactly do we do that?
I'm not talking about the small, silly cuts that administrations have come up with over the years - and this includes both Democrat and Republican administrations. Both have, from time to time, told us they're cutting the budget, or cutting fat, or some other meaningless phrase. But when you look at what they're cutting, it always winds up we spend more than we take in - with the exception of a brief respite toward the end of the Clinton and beginning of the Bush administrations. (And these "balanced budgets" frankly used book keeping and accounting techniques that you or I couldn't use and still stay out of jail.)
Maybe a better question might be: What are you willing to give up?
Will you be willing to take less social security payout when your time comes? If your kids go to college, will you be willing to take on a bigger loan at a higher rate of interest if the federal government stops guaranteeing all those college loans?
How about mortgages? Suppose you want to buy a home and the government stops guaranteeing mortgages like it is now - and the interest rate on mortgages starts shooting up?
Or what about law enforcement? Can we cut back on cops - even as the economy continues its slowdown and people become more - shall we say - prone to break the law simply because they can't make ends meet? Or as homegrown terrorists step up their efforts to disrupt our economy and our safety to further their aims.
Well, I think you get the point. My experience is that people won't give up anything. The government's gotten so wrapped up in our lives that we find it harder and harder to push them out.
I hope this changes. I can't imagine what will cause it to change. I'm not so sure the Tea Party will do the trick - unless, of course, these are folks who either don't get a lot of government assistance or unless they've clearly thought through what they'd be giving up if they cut down the size of government the way it needs cutting.
But in the end, we're simply going to have to come up with creative ways to save money - for the government to save money. "Have to" because if we don't, the only choice will be higher and higher inflation - maybe even hyperinflation.
But that's a subject for another time.
Now, I suspect that if you read this blog, the idea that government deficits and government debt are a large and growing problem isn't a surprise to you.
(Deficits refer to the fact the government spends more every year than it takes in. Government debt is what our government has borrowed over time and now owes to various parties. Most of the debt is represented by Treasury Bills, Notes and Bonds.)
Let's focus for now on the administration's latest budget projections, specifically "publicly held debt," more specifically a number called "gross debt." This debt does not include the amount of "unfunded" liabilities the government must address in the future. (An example of unfunded liabilities would be future social security payments.)
What happens when gross public debt exceeds 90% of GDP?
Gross Domestic Product (GDP) stands now at around $14 trillion. According to the administration's budget projections, by 2015, gross debt will exceed 100% of GDP. So what's the problem?
When gross debt exceeds 90% of GDP, the debt becomes a serious drag on the economy. In fact, we lose at least 1% point of GDP per year. Over the long term, GDP averages around 3.5%. So that means we lose over 28% of our gross domestic product if our debt exceeds 90% of GDP.
But let's not get hung up in the numbers here. All these numbers are telling us is when we can expect a specific negative impact from all the debt the government's building up. We know it's coming. The question is, what can or must be done to either slow it down or stop it, right?
And there I believe we have a big problem. Part of that problem is, of course, big government.
But let's think about this. It's easy to say reduce the size of government. But what's your proposal? How exactly do we do that?
I'm not talking about the small, silly cuts that administrations have come up with over the years - and this includes both Democrat and Republican administrations. Both have, from time to time, told us they're cutting the budget, or cutting fat, or some other meaningless phrase. But when you look at what they're cutting, it always winds up we spend more than we take in - with the exception of a brief respite toward the end of the Clinton and beginning of the Bush administrations. (And these "balanced budgets" frankly used book keeping and accounting techniques that you or I couldn't use and still stay out of jail.)
Maybe a better question might be: What are you willing to give up?
Will you be willing to take less social security payout when your time comes? If your kids go to college, will you be willing to take on a bigger loan at a higher rate of interest if the federal government stops guaranteeing all those college loans?
How about mortgages? Suppose you want to buy a home and the government stops guaranteeing mortgages like it is now - and the interest rate on mortgages starts shooting up?
Or what about law enforcement? Can we cut back on cops - even as the economy continues its slowdown and people become more - shall we say - prone to break the law simply because they can't make ends meet? Or as homegrown terrorists step up their efforts to disrupt our economy and our safety to further their aims.
Well, I think you get the point. My experience is that people won't give up anything. The government's gotten so wrapped up in our lives that we find it harder and harder to push them out.
I hope this changes. I can't imagine what will cause it to change. I'm not so sure the Tea Party will do the trick - unless, of course, these are folks who either don't get a lot of government assistance or unless they've clearly thought through what they'd be giving up if they cut down the size of government the way it needs cutting.
But in the end, we're simply going to have to come up with creative ways to save money - for the government to save money. "Have to" because if we don't, the only choice will be higher and higher inflation - maybe even hyperinflation.
But that's a subject for another time.
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