October 2, 2012

Reducing Deficits, Sequestration And Jobs

Politicians need to take a lesson from the average household. When a family reviews its budget it first identifies the amount of funds it has to spend and then decides what it needs and wants. First are the necessities; food, clothing and shelter. It then ascertains the funds remaining and decides how best to spend or invest it. The family budget also takes into account how much debt it needs to pay down each year.

This is the approach government must take with our national budget. One expenditure in our budget cannot be looked at in a vacuum. The country needs to get a handle on its spending. Yes, we need to look for ways to generate revenue, including trying to jump start the economy with a targeted stimulus package; however, we also need to gain control of the governments spending habits. The up front stimulus package must be a part of our long term budget. If the stimulus is done right, it will increase our net revenues in the long run because it allows us to build infrastructure making us more efficient in the future and put to work our greatest asset; its citizens.

One of the first steps in the budgeting process is to estimate revenues generated over the next decade. If done right, this will tell us the constraints on our spending in future years. A top priority in a families budget is to pay the mortgage on time. Our nation needs the same perspective. Built into the national budget must be a plan to reduce out outstanding debt relative to our Gross National Product.

In the past we were able to grow ourselves out of our debt problems. The economy grew at such a fast pace that we reduced our debt to Gross Domestic Product by increasing our GDP at a faster pace than debt. This will be a bigger challenge in the future. At the end of World War II we were the last industrialized country standing. We put people to work by converting to a peace-time economy and assisting nations in Europe and elsewhere, such as Japan and South Korea, to get back on their feet and be viable competitors with us. Economies of other countries like China, India and Brazil begun emerging. In 1989 the USSR dismantled and went towards a "free-market", competitive economy. Countries in southern Africa are starting to emerge. Don't be surprised to see counties in the Mid-East start to be strong competitors over the next twenty five years.

The above realities must be taken into account while projecting our future revenues. It is doubtful that we will grow in the future at the same pace as we did in the past because of these emerging competitors. We must also acknowledge that much of the growth in the last decade was from borrowing from China and not internally generated.

To budget on a rational basis, we must look at total spending and prioritize expenditures. If we look at each line item of expenditures separably, without considering the total revenues available, we will never get our budget in balance. A good example is how we went to war in Iraq. When President Bush led us to war, there was no discussion as to how much it was going to cost and how we were going to pay for it. In fact our President encouraged us citizens to not change the way we were living, including our shopping habits. He made the case if Americans changed their life style as a result of 911 and the Iraq war the enemy would have already won. He encouraged Middle America to continue buying ice cream from Cold Stone.

This is a primary reason why our budget is out of control. The nation starts to spend before determining how it is going to pay for it.

Medicare and other social programs may be a high priority; however, first we must put it into the context of the revenues available and the importance of medicare relative to other expenditures that we deem to be worthwhile. This is not the time for our politicians to be partisan. It is time to face reality. It is time to stop being a Republican or Democrat and be an American.

Obama, after November 6th, take one day off and get back to work.

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