All across America, families are balancing their budgets and even paying off debt. Since the financial panic of 2008, personal debt has fallen as Americans tighten their belts and pay back loans. Some, unfortunately, had to declare bankruptcy because their debts got too big. Washington cannot declare bankruptcy; it must instead follow the example of millions of Americans and cut spending to live within its means.
Most state governments, likewise, have managed to balance their budgets, even during these hard times. A few states, notably California and Illinois, continue to follow the federal government’s profligate example. A few raised taxes to get their fiscal houses in order, but most simply reduced spending. Several very large states with financial challenges, like Texas and Florida, balanced their budgets without any income tax at all by reducing spending. They are showing the way.
Washington could use the guidance. President Obama promised to cut the annual deficit in half in his first term. Instead, his budgets include near-trillion-dollar deficits as far as the eye can see. Unlike most state governments, and unlike America’s families, President Obama has to this point refused to do the serious work of cutting spending.
Incredibly, the “fiscal cliff” deal actually increased spending on net by $47 billion, while simultaneously letting 13 new or higher taxes take effect. The President also called for a “balanced” approach. So far he’s 0 for 2—no halving the deficit and no balance.
The next opportunity to focus Washington’s attention is the debt ceiling, which we hit last month. Treasury is now using some extraordinary tools to keep paying bills, but this likely won’t last beyond February. So something has to happen. But what should happen?
Would you give your spendthrift teenager a higher limit on his credit card if he did not have a plan to live within his means? No way! Instead of helping, you’d be giving that irresponsible teen more borrowed money to spend, making his situation worse.
The same principle applies to our nation’s credit card, which boys and girls of tomorrow will have to pay off. Increasing the debt limit without a credible path to balancing the budget puts off needed spending discipline and pushes us toward national ruin.
A truly balanced plan would lead to a balanced budget. The debt ceiling—if not raised—would force the federal government to operate on a balanced budget overnight. This approach could lead to unorganized cuts as the executive branch decided which bills to pay and not to pay, which of course is not ideal. (Congress could help by passing a prioritization bill in case we need it). Under a new law, or even without one, the Treasury would undoubtedly have enough money to pay our interest expense, avoiding a default on our debt.
Increasing the debt ceiling without reforms would be an unfortunate step toward a Greece-like meltdown at some point. Thankfully, the debt ceiling debate gives Washington policymakers a chance to get to much happier outcome: a balanced budget over time.
While our debt situation is dire, to this point our federal government has been able to use deficit financing because, as bad as things are here, they are better and more stable than in many parts of the world. It also helps in marketing our debt that the Federal Reserve is buying so much in a largely fruitless attempt to stimulate the economy. Regardless, we have a short window of opportunity to get our house in order before credit markets demand severe austerity.
Benjamin Franklin once said, “Never leave that till tomorrow which you can do today.” That’s why Congress should not raise the debt ceiling unless it includes immediate reforms today that put us on a sure path to balance, keep us in balance over time, provide for the common defense—and do not raise taxes.
There are a number of ways the budget could be balanced in short order. The Heritage Foundation put forward a plan that achieves balance in less than 10 years. Senator Mike Lee (R-UT) sponsored that plan in a budget debate last year that also included plans from Senators Rand Paul (R-KY) and Pat Toomey (R-PA), both of which led to balance. None of them raised taxes. The House-passed Paul Ryan (R-WI) budget led to balance much later, but at least it was on the right path.
In contrast, liberals in Congress and the executive branch have not produced a single budget blueprint that balances within 10 years—or ever. For a President who likes to talk about a “balanced approach,” none of his proposals achieves the most important balance: spending only what you take in in revenue. That’s real balance.
Conservatives in the House and Senate are right to not raise the debt ceiling unless it includes reforms that put us on a path to balance within 10 years and keep us balanced. To do anything else would be abetting Washington’s massive overspending habit.
(Derrick Morgan is vice president for domestic and economic policy at The Heritage Foundation.)
Wealth is not Created at the Top: It is Only Devoured There
The UK has left the EU and we can argue about the minutiae of Wealth until we’re blue in the face. But the overriding factors are apparent and in one of the richest countries in the world it is shocking that so many people can’t even be sure if they are going to be able to eat enough today or provide for their loved ones.
These days, politicians from the left to the right assume that most wealth is created at the top. By the visionaries, by the job creators, and by the people who have “made it”. By the go-getters oozing talent and entrepreneurial-ism that are helping to advance the whole world – Opinion by Rutger Bregman
… across the spectrum virtually all agree that wealth is created primarily at the top and so entrenched is this assumption that it’s even embedded in our language. When economists talk about “productivity”, what they really mean is the size of your paycheck. And when we use terms like “welfare state”, “redistribution” and “solidarity”, we’re implicitly subscribing to the view that there are two strata: the makers and the takers, the producers and the couch potatoes, the hardworking citizens – and everybody else.
Bankers, pharmaceutical giants, Google, Facebook … a new breed of rentiers are at the very top of the pyramid and they’re sucking the rest of us dry
In reality, it is precisely the other way around. In reality, it is the waste collectors, the nurses, and the cleaners whose shoulders are supporting the apex of the pyramid. They are the true mechanism of social solidarity. Meanwhile, a growing share of those we hail as “successful” and “innovative” are earning their wealth at the expense of others. The people getting the biggest handouts are not down around the bottom, but at the very top. Yet their perilous dependence on others goes unseen. Almost no one talks about it. Even for politicians on the left, it’s a non-issue.
To understand why, we need to recognise that there are two ways of making money. The first is what most of us do: work. That means tapping into our knowledge and know-how (our “human capital” in economic terms) to create something new, whether that’s a takeout app, a wedding cake, a stylish updo, or a perfectly poured pint. To work is to create. Ergo, to work is to create new wealth.
But there is also a second way to make money. That’s the rentier way: by leveraging control over something that already exists, such as land, knowledge, or money, to increase your wealth. You produce nothing, yet profit nonetheless. By definition, the rentier makes his living at others’ expense, using his power to claim economic benefit.
But here comes the rub. Most rentiers are not as easily identified as the greedy banker or manager. Many are disguised. On the face of it, they look like industrious folks, because for part of the time they really are doing something worthwhile. Precisely that makes us overlook their massive rent-seeking…
The problems we face are that the politicians are firmly in the hands (pockets) of the uber wealthy. We live in a corporate plutocracy and those holding all the wealth and therefore power have no intention of changing the status quo, even if it isn’t sustainable. They remind me of bacteria (or cancer) devouring the host body more and more even though eventually it will kill them too.
Donald Trump Forgets Important Lesson From Grandad:
Harper’s Magazine reprints an interesting letter from US President Donald J. Trump’s own grandfather that may get you thinking. Here is it then:
The Emigrants – By Friedrich Trump – From a letter written in 1905 by Friedrich Trump, Donald Trump’s grandfather, to Luitpold, prince regent of Bavaria. Trump had been ordered to leave Bavaria for failing to complete mandatory military service and to register his initial emigration to the United States twenty years earlier.
Prince Luitpold rejected Trump’s request for repatriation; the family later settled in New York. Translated from the German by Austen Hinkley.
Most Serene, Most Powerful Prince Regent! Most Gracious Regent and Lord!
I was born in Kallstadt on March 14, 1869. My parents were honest, plain, pious vineyard workers. They strictly held me to everything good — to diligence and piety, to regular attendance in school and church, to absolute obedience toward the high authority.
After my confirmation, in 1882, I apprenticed to become a barber. I emigrated in 1885, in my sixteenth year. In America I carried on my business with diligence, discretion, and prudence. God’s blessing was with me, and I became rich. I obtained American citizenship in 1892. In 1902 I met my current wife. Sadly, she could not tolerate the climate in New York, and I went with my dear family back to Kallstadt.
The town was glad to have received a capable and productive citizen. My old mother was happy to see her son, her dear daughter-in-law, and her granddaughter around her; she knows now that I will take care of her in her old age.
But we were confronted all at once, as if by a lightning strike from fair skies, with the news that the High Royal State Ministry had decided that we must leave our residence in the Kingdom of Bavaria. We were paralyzed with fright; our happy family life was tarnished. My wife has been overcome by anxiety, and my lovely child has become sick.
Why should we be deported? This is very, very hard for a family. What will our fellow citizens think if honest subjects are faced with such a decree — not to mention the great material losses it would incur. I would like to become a Bavarian citizen again.
In this urgent situation I have no other recourse than to turn to our adored, noble, wise, and just sovereign lord, our exalted ruler His Royal Highness, highest of all, who has already dried so many tears, who has ruled so beneficially and justly and wisely and softly and is warmly and deeply loved, with the most humble request that the highest of all will himself in mercy deign to allow the applicant to stay in the most gracious Kingdom of Bavaria.
Your most humble and obedient,
… Well then. Long ago, yes.. Still applies? You tell me.
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