I’ve been at work all day, and did not have a chance to listen to President-Elect Barack Obama’s speech on the current status of and his future plans for the U.S. economy. I did, however, have a chance to read the transcript online.
To be honest, the biggest thing which jumped out at me was Obama’s apparent resignation that America will see at the very least a $1.2 trillion budget deficit each year for the coming years (I’d be willing to bet it doubles in 2010), that big government is undoubtedly a panacea, and that government spending is somehow the only prescription for economic recovery. From the speech:
There is no doubt that the cost of this plan will be considerable. It will certainly add to the budget deficit in the short-term. But equally certain are the consequences of doing too little or nothing at all, for that will lead to an even greater deficit of jobs, incomes, and confidence in our economy. It is true that we cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the vicious cycles that are crippling our economy – where a lack of spending leads to lost jobs which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit.
Perhaps the best way to articulate my feelings on this subject, as I am by no means an economic genius (quite the opposite, actually), is to get a little more personal than I usually do.
My wife and I have a few credit card accounts. The last time we used any of them was about two years ago, long before the creation of this Web site, when our vacuum cleaner exploded in a mist of dust and dog and cat hair and I grew tired of spending $140 every year or so on a new machine — so we bought a Dyson (great, great product, by the way). Other than that, it has been years since a single purchase was made, and we have been working diligently to pay them off. Even now, I’m sure that our outstanding balances are nothing compared with the national average.
That being said, I remember exactly how easy it is to let that debt pile up when the foundations for it are already there. When you’ve got, in your wallet, a credit card that already has a $500 balance, or a $1500 balance, or a $7000 balance, it’s a whole lot easier to throw common sense to the wind and say “ahhh, what the heck” when face-to-face with that shiny new $700 flat screen LCD television or, for some of you ladies out there, when you’re face-to-face with that cute Coach purse or sexy pair of Salvatore Ferragamo shoes.
For us, our habits officially changed five years ago when we bought our house, too much house as it were. On the rare occasion when there were big purchases–I bought a $1700 52″ rear-projection TV within hours of signing the papers for our mortgage–they were done with cash, with saved-up “allowances” we provided ourselves so that we could live and eat and spend when necessary while still maintaining a common sense approach to our financial condition. For the most part, while at that time we were making a fair amount more than we were spending, we worked to pay down our credit card debt. After our daughter was born nearly six weeks premature, after we got saddled with the medical bills on top of the normal costs of raising a child, that payment plan became a whole lot less aggressive. Still, it was all about fiscal responsibility, and every decision we made was grounded in the effects it would have upon our lives for years to come.
See, the problem with building up debt through irresponsible spending is that not only is it difficult to pay off when you finally wake up and smell the stupidity, but once you’re in a little debt, it’s almost impossible to put a stop to the spending even while in progress. That’s why so many people have so many cards which are “maxed out.” That’s why so many people have no clue just how deep a hole they’ve dug until the phone starts ringing and the creditors start calling. People need some sort of artificial cap in order to force them to quit spending; it’s the nature of this new American spendthrift culture.
We’re so out of whack, after all, that the entire rent-to-own industry has grown because people are so desperate for shiny faux mahogany that they’d gladly pay thousands of dollars in weekly rental fees for a dining room table which, with a little patience and fiscal discipline, could be theirs for $600 in cash. We’re so out of whack, after all, that people go to payday lending institutions and gladly sign over 20, 30, 40 percent or more of their next paycheck just to have access to it quicker.
The American people are spending themselves into oblivion, and they’re taking their lead from what they see in Washington, D.C. With Barack Obama admitting that we’ll be seeing a trillion-dollar deficit each year, my worry is that the federal government will have every excuse to rationalize a little more deficit spending here and a little more deficit spending there–because, really, who’s gonna notice just a little more?–and will have as much difficulty slowing down that irresponsible spending as a 19-year-old college student with only a $2,500 balance on a credit card with a limit of $5,000.
The problem, however, is while that student will inevitably be forced to stop at his credit limit, there is no such cap for our federal government save for a tipping point when China no longer wants to lend us money, or when we’re printing more and more money, destroying the value of our currency just to make the interest payments, and nobody wants the American dollar anymore.
The answer to paying off credit card debt is fairly straightforward, but hardly easy. Simply maintaining problematic spending habits elsewhere while making only the minimum payments will not get you anywhere, so some changes must be made. Either (1) you must find a way to bring in more net income and route that extra revenue toward paying off your debt, or (2) you change the way you spend money, making sacrifices where necessary and cutting out non-essential spending, in turn routing your savings toward paying off your debt. Ideally, you do both. I don’t see the federal government doing either.
In fact, the one thing I haven’t yet heard at all from Capitol Hill, from anybody on either side of the political spectrum, is how exactly we plan on digging ourselves out of this hole. Nobody, Republican or Democrat or Independent or Socialist, wants to explain to the American people exactly how we’ll meet our debt obligations, how we’ll stay afloat with a $1.2 trillion deficit this year and God knows how much in 2010. Complete silence. All the talk is about the spending. And it has to stop.
Spending more to foster immediate and lasting economic growth is ludicrous. Economic growth is cultivated through tearing down the government-implemented barriers between business and prosperity. Lighten the tax burden on business and corporations, reduce or eliminate regulations. That’s the way to entice business to DO business in the United States. That’s the way to create jobs. That’s the way to increase revenue taken in by the federal government, revenue which should in turn be used to pay off our exponentially expanding debt.
Obama’s tax cuts are tempting by design, intended to woo short-sighted, lazy Republicans who haven’t learned or refuse to learn the lessons of the elections of 2006 and 2008–that moderate Republicans lose, and conservative Republicans don’t–and rely on the apathy of a woefully uninformed constituency to obfuscate their interest in political expedience at the expense of conservative principles. These measures aren’t so much a tax cut as a tax credit anyway, and at best are short-lived and absolutely dwarfed by the almost trillion dollars proposed for new spending, spending designed to fund government’s further incursion into our daily lives under the false pretense of infrastructure improvements, broadband dissemination and more.
Infrastructure improvements are fine, but resurfacing the driveway or putting in a stainless steel, six-burner gas range in anticipation for efficiency in the long-term makes little sense if the bank is calling and foreclosure is looming. Avoid foreclosure first, restore your credit, get some money in the bank, and then worry about the landscaping. Do that by ridding yourself of unnecessary expenses, and refusing to take on any more. Do that before the hole you’ve dug yourself becomes a grave.
All of this comes at a time when our friends in Europe are laying out plans for a new world order, decrying capitalism as it stands now and aspiring to inject more government involvement in the new global economy. German Chancellor Angela Merkel called for more regulation of financial markets, former British Prime Minister Tony Blair laments that profit–that pesky side effect of capitalism–is such a focus, and French President Nicolas Sarkozy advocated a global approach to the economy, said that “immoral” speculation has “perverted the logic of capitalism.”
“It’s a system where wealth goes to the wealthy, where work is devalued, where production is devalued, where entrepreneurial spirit is devalued,” he said, before providing a glimpse of his own aspirations for the world economy. “In capitalism of the 21st century, there is room for the state,” he said.
Merkel, Blair and Sarkozy seem to be holding up the faltering of the American economy and subsequent missteps across the globe as evidence that capitalism doesn’t work. The problem, however, is that we’re not allowing capitalism to work. At every turn, we’re looking for more government involvement, more of a government stake, building up our reliance on government, and brushing personal responsibility and fiscal common sense away as though time-tested economic laws just don’t matter.
We need common sense in these times. For the sake of the world, that common sense approach must start in America. The ideas articulated by the president-elect today, however, do nothing but countermand any approach to economic revitalization based upon common sense.
Low taxes. Minimal government involvement and regulation. Responsible government spending. Let business do business, let capitalism build capital, and get out of the way.
With any luck, my wife and I will finally have our credit card debt paid off just in time for more than $125,000 in law school loans to come active. Eventually, employing the tenets of fiscal conservatism in our own household, we’ll pay those off too. Unless we change our course in America, however, unless we do the hard things now even though such efforts may be neither politically expedient nor popular, no matter what we do under our own roof, my child and her generation will bear a financial burden unseen by any other generation in the history of the world.