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2008 may have been a time for government to borrow—someone had to. It was a once-in-a-generation financial crisis. But 2005 was not. 2012 will not be a time to borrow, either. And balance cannot come only or mostly through tax increases.
The burden of government on civil society must decline if the economy is to flourish. The many state government constitutions that forbid deficit spending, or that set sharp limits on state government deficits, are a model for the national government as well.
The Obama administration has so far mostly talked balanced budgets while it actually runs astoundingly large deficits. But now its deficit panel, the National Commission on Fiscal Responsibility and Reform, has issued its conclusions.
The commission’s findings show, really, how far we still have to go. The commission sees the looming debt problem clearly. To address the deficits, it proposes in effect to raise the share of taxes in GDP by a quarter while capping spending (this will cause inflation to erode spending back down to 2006 levels in real terms over several years).
The commission didn’t give the spending culture of the past decade a free pass, and it does propose streamlining the tax code to lower marginal tax rates on income. But it thinks the general public should mostly just pay more to cover the profligacy of Bush junior and Obama.
Maintaining government spending is apparently the commission’s second highest value behind fiscal balance.
The British Conservative-Liberal coalition government under David Cameron has showed us what really needs to be done. Facing a crisis in finance quite similar to ours—with the low savings, the ballooning total debt, and annual government deficits at 11% of GDP—the new government proposed cutting on the order of 20% out of the total national budget. In the short term, it could put hundreds of thousands of out of work and raise costs for tens of millions.
But the Chancellor of the Exchequer argues that this will liberate private funds to restart growth and provide goods more efficiently. The policy is tough medicine, but it is medicine that America needs, too. It’s a treatment that values taxpayers more than bureaucrats and subsidy hogs.
Nevertheless, more important than the politics is the personal change that avoiding collapse will require. For most Americans, especially those in their prime earning years, this change requires saving and investing substantial portions of one’s income. It requires only taking the indulgences in life that one can pay for and being responsible for one’s needs over the long term.
Changing personally means taking shorter-lived mortgages, with bigger down payments. It means saving for that new car, not taking on more debt. It means bringing monthly charges under control, so that one knows how much is going out and what benefit one is getting for the expense. And, yes, it means ceasing to view the government as a sugar daddy.
At one time, America was a country that lived for the future. Now, we live for the moment, and we can’t see beyond our noses. But we can do better. We can live up to the ideals of the country by putting into practice the ethic of productiveness and responsibility that long-term prosperity demands. We can be a nation of savers and investors again. We can be capitalists.