Hey, D.C. – The House is on Fire!

In the late 1990’s the U.S. government was running a budget surplus with plans to be totally out of debt by 2006. Shortly after the new millennium our leaders decided to cut taxes, add prescription drugs as a new Medicare entitlement, and fight two wars on a credit card, all of which created significant annual deficits and turned a good financial horizon into a bad one.

Then, in 2008, the economy collapsed, and the annual deficits immediately grew to over $1 trillion a year to fight off a possible economic depression. It took several years but after spiking, the annual deficit was worked back down to just over $400 billion a year (still a big number.) However, during the past two years tax cuts and uncontrolled spending have exploded the annual deficit back to an amount that is projected to, again, be over $1 trillion dollars in 2019.

We all remember our Economics 101 classes; countries should run surpluses in good economic times, like we are experiencing today, and save deficit spending as a tool to help us through the bad times. Unfortunately, we have discarded that wisdom, and neither political party seems to have the discipline to manage our federal budget, which has resulted in over $22 trillion in debt when, only twenty years ago, the U.S. was on track to being debt-free.

And, it’s not getting better. The Administration’s proposed budget is expected to, again, result in over a $1 trillion deficit next year. It also projects interest costs of nearly $500 billion, now the country’s fastest growing expense.

This would be unacceptable fiscal management for our companies, but we, for some reason, tolerate it as a nation. The current track is unsustainable and is leading us down a very bad path. We need to step up and draw more attention to the mismanagement of our federal budget that, if not reversed, will have dire consequences for our kids and grandkids.

So, why is this so tough? A big challenge is that the largest part of the U.S. budget is spent in two places that are mostly considered untouchable; retirees (social security and Medicare) and national defense. Combine both of those with interest expense, which has become a big driver of the annual deficit and must be paid for the U.S. to avoid default, and we have a tough situation.

So how do we tackle these problems? First, we need to realize the future of our kids and grandkids is at stake if we continue to live today off borrowed money; when we adjust our mindset to realize that, it will give us a higher sense of urgency related to this problem. Secondly, we need the political will to deal with the tough problems related to the budget.

Once we have the sense of urgency we can start to tackle the tough problems. Then, if we want to cut expense we need to look at where most of the money is being spent; the military and retirees. We may have to further raise the retirement age (this is starting to get personal for me but if we all look at the budget problem through our personal lens we will never get it fixed). Secondly, we need to be sure we are looking at our military budget to ensure we are protected while also spending our dollars as efficiency as possible.

If we want to spend less we have to focus on where the most money is being spent; the parts of the budget that people get emotional about (foreign aid, research, subsidies, etc.) generally don’t add up to enough to make a big difference in the deficit.

I understand that no one (conservatives, liberals, or anyone else) wants their priorities to be cut, but, unless we are willing to tackle this problem, a time-bomb waiting to blow up, we will have serious issues. We can decide to do nothing and keep borrowing money; and, that will work until it doesn’t anymore. Once the global lenders decide the U.S. has gone too far then the problem will get really serious, really fast.

Some will argue that the economy is doing well so we shouldn’t change anything. Of course the economy is doing well; it is benefiting from a trillion dollars a year of borrowed spending. Anyone who borrows $100,000 a year to live a grander lifestyle than they can afford is going to enjoy the good times; but, they (or in the U.S. case, our kids) are still going to one day deal with the consequences.

It is time we all started holding our leaders to account for their fiscal mismanagement and demand we immediately begin to deal with this budget shortfall.