December 01, 2008
Let's not shop 'til we drop
John O'Connor, Editorial Director
Our elected officials appear to have embraced the notion that you have to spend money to make money. Or at least that you have to spend money.
How have we been blowing through the Treasury lately? Let us count the ways: $29 billion for the Bear Stearns cleanup; $700 billion to buy spoiled assets; $200 billion to buy stock in Fannie Mae and Freddie Mac; an $85 billion loan to AIG insurance; another $37.8 billion for AIG; and $250 billion for bank stocks.
But wait, there's more. It appears that General Motors (either separately or as a merged firm) will soon be lining up at Uncle Sam's ATM. With a budget hemorrhaging billions in losses, California may not be far behind.
But not to worry. We'll simply put it on our charge.
It's almost impossible to pinpoint the full tally of this unprecedented spending spree. But there's little doubt that the annual deficit—the amount borrowed to make up the differences between spending and revenue—will undoubtedly soar.
Peter Orszag, director of the Congressional Budget Office, recently forecast that rescue spending and falling tax revenue from a recession could create a $750 billion deficit in the current fiscal year, up from the $455 billion of the just-ended year. The deficit was about $163 billion in 2007. As it approved rescue packages, Congress last summer and this fall raised the debt ceiling to $11.3 trillion from $9.8 trillion. Currently, the debt stands at just over $10 trillion.
Some believe the debt-related problems are actually far worse than government numbers indicate. If the government followed the accounting required of corporations, it would include as a liability the present value of future expenses for Social Security, Medicare and Medicaid. That would have made the 2006 deficit $2.4 trillion instead of $248 billion. The current debt would be around $68 trillion, not $10 trillion.
Without dramatic reform, the cost of those three programs alone is projected to rise from 18% of gross domestic product today to 28% by the middle of this century, and as much as 35% soon thereafter.
So what are our options? Really, there are only two. We can either cut benefits or raise taxes. But for some reason, we the people don't want to face that reality. When politicians tell us they will raise taxes or renege on a promise not to cut them, we eviscerate them during the next election. Small wonder, then, that as our nation's debt continued to climb, both presidential candidates were promising to trim taxes.
Look, I don't like paying any more taxes than I have to. But we have to quit behaving like spoiled children. The idea that we can simply keep borrowing our way out of every fiscal mess is hardly a solution. Unless the goal is to bankrupt our nation.