Marchbooks' Blog

February 6, 2010

The Problem With Government Spending by Janus Kane

Filed under: Comments from our Authors — marchbooks @ 11:01 pm
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I try not to wax political too often, but that is easier said these days. The current economic climate makes it difficult not to ponder how we got here and what the ramifications will be for ourselves and our children. When one starts talking about American debt in numbers that are more suited to science fiction than real life, one can’t help but wonder what went wrong.

The U.S. government, on its face, has gone to great efforts to try to avoid the pitfalls of our predecessors. But, I don’t think you have to be a great economist to see that something is not working. I believe in Obama, I believe in his vision of change, but I don’t envy the job he has before him.

I make no claims to being a great economist or mathematician but, early in my life, I learned some basic, fundamental concepts that the bureaucrats in the White House should be reminded of. ‘Don’t spend money you don’t have’. It’s a simple concept. I’m not talking about the fiscally responsible use of credit. Banks capitalize on the velocity of money. They take your money and charge you interest for the luxury of borrowing it back. It’s a profitable business. Money sitting in a bank is stagnant money. This philosophy does not work for the consumer, even if that consumer is the American government. When you write a check, you need to deduct that amount from your check register. The fact that the recipient of that check takes a month to cash it does not entitle you to go out and spend that money again. That is economics 101.

Budgetary planning is essential for individuals, businesses and governments alike. It is not sufficient to just come up with a budget and then ignore it. Let me say it again. Budgets are only effective if you follow them. Admittedly, you cannot plan for every eventuality. No one could have foreseen 9/11 or Katrina, but you do your best to plan for the unexpected (a smart homeowner tries to anticipate the need for a new roof or furnace). When you are off the mark, you regroup, adjust your budget and move on. Unfortunately, the government does not have to worry about how they will make up a budgetary shortfall – they have us.

According to David Walker, the former Comptroller General of the United States, balancing the budget by the year 2040 could require cutting federal spending by 60% or raising federal taxes to nearly two times today’s level. How could the American government, arguably the single largest consumer in the world have gotten so far behind the eight ball?

I am not suggesting that our government should be run like a large corporation, but some basic business principles should be recognized. When WalMart buys product, do you think they pay a premium for it? They are a huge corporation with a tremendous amount of clout. They, for all intents and purposes, dictate terms to their sellers. Those terms are (surprise, surprise) to their advantage. And yet, this large corporation amounts to only a drop in the bucket of this country’s budget. So why is it that the American government is paying $300 for $15 dollar hammers, $75 for a screw and $3.4M for a turtle walkway? Why are contractors falling over themselves to scoop up lucrative government contracts?

It’s clear that a serious budget analysis is necessary. Politicians have to start acting for the benefit of their constituents rather than culling the favor and financial support of big business by selling the American taxpayer down the river.

If you would like to look at American debt in all its glory, go here. It’s a real eye-opener.

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