 SM
|
|
|
|
Who We Are
Money Focus Mutual Funds Insurance Mortgages Taxes Step by Step Hot Topics Contact the Editor
Featured Site AfterHourTrades.com, Inc. Featured Columnist: 
All content is © copyright (1999-2002)BonPaulProductions (all rights reserved) |
Order your copy of Building Wealth in a Paycheck-to-Paycheck World by Paul Petillo. It is packed with safe, proven wealth-building strategies that cover all the major components of a balanced financial plan, including:
The Economics of Family, Part Three
"George W. Bush's administration is spending domestic money faster than Clinton, faster than... Bush, the elder, faster than Reagan. You have to go back to the Ford administration to find a time when domestic spending has risen so fast. That's not including defense spending; that's not including the prescription drugs plan that's about to be passed," David Brooks of The Weekly Standard said on the NewsHour. "It's not just Bush; it's the Congress. Fiscal discipline has just disappeared in the past year or two..."
The question is whether that is really such a bad thing.
Too often we look to our leaders for examples of fiscal responsibility, using complicated economics to govern our everyday lives when in fact we should first understand the principles at play first. Running a deficit is not such a bad thing from a governmental standpoint. Can it be bad for your family and your budget?
A deficit is simply spending more money than is brought in the form of income. Without going back too many years, deficits have brought much debate to Washington as party lines have divided on what exactly is "too" much. George Sr. lost his bid for reelection based partly on his increase of taxes to wrestle a growing federal deficit. Clinton, in 1993 saw deficit reduction as fiscally responsible and passed a deficit reduction plan in 1993. George Jr. claims his deficit spending will stimulate the economy. Is any debt okay?
Long ago, when I first entered into the working world, the true test of a person's worth was the amount of credit they were given. It was thought that you had achieved a certain level of responsiblity when lending institutions found you able to repay any loans they may have granted. The credit they extended came with as a result of your employment and the knowledge that there was a balance between the two. In other words, they knew you had the means to repay the debt.
When the government runs a deficit, it is attempting to borrow from the private sector to finance sudden and unpredicted budget oversights. They do this by financing their needs through the issuance of public debt, literally borrowing from you and I. Now remember, it is you and I who have graced them with the first round of cash, that because they have not anticipated correctly, has proved insufficient to operate the government.
When the first President Bush raised taxes, the federal deficit had exceeded 5% of the Gross Domestic Product. Real GDP is the output of goods and services produced by labor and property
located in the United States. In the second quarter, real GDP increased 1.3 percent. The figure in terms of dollars was in the vicinity of $10.486 trillion. The final numbers on the third quarter are still facing revision but it has been suggested that the GDP increased at an annual rate of 3.1 percent in the third quarter of 2002. These advanced estimates are released by the Bureau of Economic Analysis.) The current President, faced with post 9.11 security measures has pointed out that our deficit spending could exceed $200 billion per year without any real damage, given the continued growth of the economy.
In the budget you run for your family, the scenario plays itself out quite differently. Spending in excess of what you bring in forces you to borrow to make ends meet. The lender will allow you a certain percentage of what you make, your personal GDP, to accomplish whatever need you have to spend more than you earn. There is very little likelihood that you are using the money for the same reasons that the government does.
In the past, deficit spending by Washington was considered fiscally irresponsible. The public had an obligation, a the popular rhetoric of the times suggested, to the future of the nation by running zero deficits. But it is important to understand that zero deficits become more of an ideal rather than an actual attainable goal. Deficit spending, done in moderation can actually stimulate the economy through job creation, a function that a less than healthy economy may not be able to do in the private sector. On the other hand, it removes money from the capital markets that may have created those very jobs.
So who is right? Those that preach fiscal austerity or those that see running a deficit in the here and now as sound economics. Both are. There is the factor of low inflation. This makes the money worth more and therefore more attractive to borrow from the citizens through the capital markets. Using the money to extend unemployment benefits, train workers whose jobs have been removed by the changing economy, creating a revised Social Security based on matching contributions in a progressive savings would find the money well spent. Using the money to further tax cuts for specific groups of citizens or losing focus of homeland security would be a poor use of money that would otherwise be spent on fixing an economy that is stumbling along.
On the home front, using borrowed money to remodel your home, send a kid to college, or consolidate loans that were made with poor judgment are signs of good fiscal responsibility. Borrowing for a big screen television, a vacation that cannot be paid for from the regular GDP of the household, would be signs that you have not considered the long term effect of what you are doing.
Running a zero deficit may be an ideal that is not feasible right now, but it shouldn't be lost in the shuffle of spending on projects that have no long term benefit.
|