Friday, January 27, 2012

Opinion: Why We Can't Seem to Cut Spending

It's no secret that the USA is in deep financial trouble. 

We currently have racked up a $15.5 trillion national debt... one third of which was added in just the past four years... and we are borrowing 40 cents of every dollar we spend.

There seem to be three approaches to solving this problem:

* Cut spending. Stop borrowing. 
* Tax the crap out of the rich to pay for it
* Some combination of both

But we have a problem with all three of these. Raising taxes during a recession is generally considered the worst possible thing you can do. The last President who tried it was Herbert Hoover in 1929, and it was widely thought to have made the Great Depression even worse. Besides, when people are struggling to buy groceries the very last thing they need is higher taxes.

Even President Obama, who campaigned on a promise that he would "repeal the Bush tax cuts" reversed himself right before they expired and asked Congress to extend them. He told us that "raising taxes during a recession would cost us an additional million jobs." And he was right.

And it's not very easy to cut spending either, because our "discretionary spending" is the smallest portion of our federal budget. If you want to cut any entitlement, you will have voters howling in protest. I'm not talking only about welfare and food stamps here, these are relatively small costs. The big entitlements are social security, medicare, and medicaid.

Think about what happens whenever you try to cut these things:
  • Cutting Social Security and Medicare is almost impossible because those people actually PAID for it. We stole their trust fund, and now we can hardly ask them to take a cut. Plus, senior citizens never forget to vote. This is why they call social security the "third rail of politics."
  • Cutting Interest Payments on the Debt is even harder to do. This would be "defaulting" and would send the nation into a total financial collapse. This simply is not an option.
  • Cutting Agricultural Subsidies could help, but the amount of money involved is relatively small. And then all the farm states would be up in arms, and food prices would go up.
  • Cutting National Defense is a risky proposition, but it will happen. Still, the entire defense budget is less than half of our annual deficit. That's right, if we had absolutely no army or navy, we would still be $800 billion in the red. Plus the current defense budget is near an all time low as a percentage of the budget.
Go ahead, cut welfare, food stamps, college loans, foreign aid, veterans benefits, cut it all out, and you still haven't made a significant dent in our deficit.

Because all our discretionary spending combined is currently less than the budget deficit, and half of it is defense related.

Is there a way out of this mess?

Yes, but it isn't one of the three ways listed at the top of this post.

The only way out of this mess is to put America back to work. President Obama might think that "10% unemployment is the new normal" but it simply isn't sustainable for very long. We need more people working and less people looking to the government for sustenance. We really need more people producing things we can export.

This means we would somehow have to reverse the flow of jobs offshore. And this is lot easier said than done, since we seem to like buying imported goods for less at Walmart.

The best solution may be to cut spending where we can, then freeze the rest of it, while having a real plan for domestic job creation. Our government must shrink. We cannot afford to have upwards of 20% of our total workforce employed by various levels of government.

People want things for free
The key to restoring our economy isn't in extending unemployment benefits, or in more generous welfare and food stamp subsidies... it's in putting America back to work.

We simply cannot continue to be a nation who consumes a lot, and then produces less and less. And who borrows money to pay for it. We cannot be "Greece on a grand scale." Not if we want our children and grandchildren to enjoy some degree of prosperity in their lives. 

Incidentally, Europe is in much the same shape. Their social spending will overwhelm their own economies is a few more years. The future might belong to the undeveloped nations who have resources... like Brazil, India and China.


  1. you started off with a very reasonable analysis that broke down into a pointless Obama bashing rant that contradicted some of your earlier analysis points. What a waste of a potentially good post.

  2. My premise is simply this: you cannot solve this problem by cutting spending (because most of our spending can't be cut) or by taxing (because there isn't enough money out there to keep the big wheel going for very long.)

    The only real solution is to make us a productive nation again. One that manufactures and exports, and not one that keeps consuming more food stamps and more benefits from government.

    I am truly sorry if this offends Obama fans.