Is Democratic Reform of Deficit Finance Possible?


Friday September 3rd, 2010   •   Posted by Emily Skarbek at 12:34pm PST   •  

For many, economic logic and application to a wise management of finances is a chore considered best left to the “professionals”. After all, crunching numbers given the vast array of rules and regulations can be taxing (pardon the pun). However, debt finance is a particular economic subject that can be easily understood and just as easily applied by Joe Some as Joe Business. “Living within your means” is an adage that we’re all familiar with. We may not always do it, but we can generally all agree with and understand the principle. Furthermore, it’s a lesson that holds just as true for the individual as it does for the city, state, and federal government.

The primary lesson to draw from the understanding of deficit finance is that the debt obligations shift the burden of payment into the future. Tomorrow’s generation will bear the costs of today’s debt-financed projects. We know this intuitively from our own experiences. For instance, remember when you splurged for the three-course dinner with a friend at your favorite five-star restaurant? Many hours (and expensive cocktails) later, you and your friend cap off a celebration of her new job with spoonfuls of tiramisu. With ease, you happily sigh and slide your card on top of the check for the both of you. Three weeks later, you’re nervously sighing over the latest VISA bill and wondering “how did it get so high?” You may remember the good company, but have just the faintest recollection of the tiramisu.

Unfortunately, such an experience of “spend then think”, “incur and forget” has been a familiar practice in the halls of Congress. Just recently, Washington passed a measure that would allow them to increase their “credit limit”, or amount of debt they can accumulate, to nearly $14.3 trillion, equal to approximately 100% of the U.S. gross domestic product (GDP). During the first six months of the current fiscal year, October through March, interest on the debt cost taxpayers some $202 billion. Can you remember any federal ventures that seemed worthy of such undisciplined spending? They probably can’t either. . . .

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