Generally speaking, I try to avoid news stories and headlines about the economy. This reticence dates back to the days when the newspaper came to my door, when I usually discarded the business section. To me, forcing my brain to wrap itself around business and economic topics is an effort I find as appealing as a bowl of cottage cheese. To put it more succinctly in the slang: blech.
Reading about the economy makes my head hurt. Reading about the politics of the economy, however, makes it hurt worse. Taxpayers have bailed out banks, auto companies, insurance companies and the mortgage industry, and will receive nothing in return from those recipients of government underwriting. Now, Freddie Mac and Fannie Mae, those government-owned mortgage "companies," are looking for additional billions in bailouts. The European Union, with some encouragement from Washington, has just agreed to pony up another trillion dollars to stabilize their economy after the bailout of Greece. Mind you, all of this money - all of this revenue - does not exist. It represents revenue that has yet to be produced or collected. It is akin to that money you put on your credit card, in the hope that over time, you'll make the money you need to pay off the debt in the future. But if you rely too heavily on the model of deficit spending (spending future money, beyond current revenues), you quickly fall behind, and your debt liability increases dramatically.
The graphic found on the blog at Heritage.org is telling. (Note: While the graphic is informative, I do take some issue with the tone of the post. Deficit spending by our government is not a new phenomenon, and the blame should be shared by decades of Congressional and Presidential budget busters from both parties. I will allow, however, that there may be times when deficit spending is appropriate, but ideally this should be the exception rather than the norm). That said, the finger-pointing about the origins of the recent economic turmoil have no logical bearing on the continued decisions to accelerate deficit spending. The numbers show that the current projected annual deficit reflected in the budget proposals of the current administration far outpace that executed by the previous administration. To blame yesterday's administration for the spending of today's administration is simply tu quoque. It diverts from the real issue of defending your choices by accusing someone else of making similar choices, thereby allowing you to avoid having to defend your choices. Not exactly an honorable or intellectually honest approach.
Moving on. Economically speaking, we live in the Age of Debt and Deficit, (alternatively, the Age of Entitlement). Some argue that this is the natural consequence of materialistic and capitalistic social structures, feeding the compulsion for instant gratification. And to be sure, it is hard to deny the causality. But other sociopolitical models such as communism and socialism have their own problems. For no matter the structure, you have producers and consumers. Ideally, I am both a producer and a consumer, and not one or the other. Certain types of regulation, however, interfere with that balance. Placing artificial controls over what producers produce, and what consumers consume, inhibits both and is thus detrimental to the overall economy. It places control and power in the hands of the decision makers, and often results in the classification of people into labor groups. For example, much is made out of the "middle" class, that arbitrary space between those in poverty and those considered wealthy. The gap between the rich and the poor, and all that. This is an artificial construct, and arguably unnecessary for a healthy society. Yet even the socialist ideals of equality and entitlement by design create arbitrary classes: the political elite that make the decisions, various protected classes based on preferential selection, and the laborers. Furthermore, the drive for equality and entitlement necessarily lowers both the median and the mean in terms of prosperity.
I'm a simple transaction kind of guy. I consider it wise and prudent to make more than I spend. When my net income is reduced, I spend less. I strive to reduce my debt liability at every opportunity, but am willing to spend when I believe the investment is advantageous or the expenditure is affordable (fun is an important part of life, evidenced by several trips to Disney - but it is always paid for, taking advantage of good deals wherever they may be found).
I don't live my life thinking that I am entitled to anything this world has to offer. I am blessed, to be sure, and I labor for my wages. Hard times may come, and if they do, I'll adjust and continue to labor to provide for my family.
I certainly don't know what the future holds for the economy. It seems reasonable to me, however, that the Age of Debt and Deficit is a house of cards waiting to fall. And the consequences of such an event will be … severe. It may also be transformative in way that is entirely unpredictable. What happens then is beyond me - and makes my head hurt.
For now, I will simply continue to live within my means, and focus on those things I can control instead of worrying about what I cannot. It sure would be nice, though, if our political class would slow the headlong rush toward insolvency.
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