If pictures are worth a thousand words, take a look at this chart produced by our friends at JP Morgan. It shows the situation with the federal budget better than I could ever explain with words alone.
On the left we see the spending built into the budget; on the right, the level of revenues. Under this budget, we will spend $1.4 trillion more than we take in. For those, like me, who have a hard time picturing a trillion of anything, here are a couple of examples:
- If a person lives to be 85 years old, her heart will beat about 3 million times during her lifetime. 1.4 trillion represents a lifetime of heartbeats for 466 people.
- It would take 350,000 people, earning $100,000 per year for their entire 40 year careers, to collectively earn $1.4 trillion -- before taxes.
The 350,000 people in my second example are not nameless and faceless hypotheticals--they're our children and grandchildren. Our flesh and blood. And this raises some very interesting questions.
Do you really want your child or grandchild to have to work her entire career to pay for this year's deficit?
Does the government's 2011 budget give you so much satisfaction that you are willing to sacrifice the life of your son or grandson to pay for it?
You may say my questions are hyperbolic, yet the freedom of future generations is exactly what is at stake. Somehow, sometime the debt must be paid.
This is why I believe the federal budget deficit is our biggest long term economic problem and it is time we got serious about fixing it. But there's the rub: how we go about fixing it makes a huge difference.
Some think we should go cold turkey and immediately cut our spending by $1.4 trillion. That's what it means when they say that we shouldn't raise the debt limit. But such draconian therapy would certainly kill the patient. You simple cannot remove that much demand from the economy without crushing it. A quick glance at the chart reveals that we would have to eliminate all defense spending and all social security spending to get $1.4 trillion. It simply isn't feasible.
Others would have us raise taxes to pay for our spending. But it doesn't take an MBA to know that raising taxes undermines economic growth. At a time when we are still trying to recover the 8.8 million jobs killed in the last recession, raising taxes would be foolhardy.
The only viable way out of the deficit mess is the hard way--a multi-year strategy targeted at controlling spending while increasing revenues through economic growth. Certainly we have plenty of room to cut wasteful spending. And certainly we have room to reform taxes and eliminate the abusive exemptions and exclusions that have come to light in recent years. But our biggest weapon in the fight against the deficit is the unrivaled ability of the U.S. economy to create wealth.
It is time for our political leaders to recognize this fact and do all they can to foster economic growth. Growth is the key to our future and this means flattening the tax base, reducing stifling government regulation, backing away from environmental priorities that put more weight on minor sub-species than on economic vitality and doing all we can to allow the markets to operate as efficiently as possible.