December 30, 2012

The “Fiscal Cliff”: What The Hell Is The Federal Government Doing?

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What is the issue?
The White House
The White House

In 2011, the federal government spent $3.6 trillion. That’s $400 million an hour, every hour, every day of the week, every week of the year. The bulk of the spending, 56% of the federal budget, went to Social Security, Medicare, Medicaid and other social benefits. 22% was spent on defense and 6% on interest. The remaining 18% was spent on everything else: education, infrastructure, energy research, NASA, federal salaries, etc. To pay for this, the feds collected $2.3 trillion in taxes from you and your employer. Then, to cover the difference, the government borrowed $1.1 trillion (the interest due was carried forward, adding it to the bill). This kind of overspending has been going on for four decades. From Nixon to Obama, the federal government has spent more money every year than it has taken in. Future taxpayers are supposed to pick up the bill.

A Democratic Perspective: More Federal Spending Will Spur Growth

Federal spending and debt isn’t all that worrisome. The old cliché, you gotta spend money to make money, holds a lot of economic truth. And the fact that people still want to invest in the United States says something positive about our economy (though it may be more of a choice between bad and worse these days). Think about it this way. You just graduated from college and are in a lot debt from student loans. You can either take your first job opportunity (even if minimum wage) and began paying back the debt, or you can go further into debt to get your masters degree, betting that the advanced degree will guarantee you a much better paying six-figure job. So you make the investment to spend more on your education. This is basic economics not just for young people, but for startups like Tumblr and large companies like Sprint — bets that long-term gains for short-term hits will eventually pay off. You also need to consider that without government stimulus money (first from Bush then from Obama), the United States economy would have crashed with potentially devastating consequences. Simply put, the federal debt is bad, federal spending is intense, but on a macro level it will eventually lead to economic growth for all. Moreover, a more centralized and integrated government is the most effective way to lead in an increasingly global market. Slowly, but surely we’ll see recovery.

A Republican Perspective: Federal Spending Is Reckless and Irresponsible

There are about 311 million people in the United States. On a federal level, between the three branches of government, all of these people are represented by, give or take, about 2,000 people and various faceless interest groups. How can so few humans responsibly take charge of so many people’s money? Imagine someone gave you $1 million dollars to start a company. How would you spend it? Now imagine that you worked your whole life and saved up $1 million and then risked every penny of it to start a company. Do you think you might handle the money differently in each of these two scenarios? Odds are, that if it was your hard-earned money — your life’s savings — you’d be a lot more careful and smart with how it was spent. A similar logic is at work with federal spending. The people managing the money don’t get it. It’s just a number on a spreadsheet, not hard earned cash. The solution then, is to cut federal spending and limit federal power, leaving the local money at more control over their own money. Switzerland, the most secure economy in the world, is secure, in part, because they have no centralized, federal oversight. Collected taxes are managed by local municipalities.

What is the fiscal cliff?

The upcoming fiscal cliff will force the federal government into beginning to balance the budget by taxing everyone in America more and cutting nearly $110 billion off of social and defense programs. In other words, it will force the government to collect more and spend less. But the cliff isn’t really what’s at stake. It’s the debt ceiling. Currently, there is a legal limit on how much money the federal government can borrow. President Obama wants to raise the limit so the feds can borrow more for further investment in the country. Republicans want to keep the debt ceiling in place in an effort to slow federal spending and live within the feds’ means.

The question going forward is this: Do we trust the federal government to continue to spend and invest our money? Or do we want to limit the federal government shifting power more toward local governments, companies, and individuals? The answer to this question remains elusive. But, one thing does seem rather certain. The 2012 budget sent to Congress was 2,238 pages; it was followed by thousands of additional pages of amendments and legislation. And these are just words on paper that don’t take into account the reality of implementation. How is anyone supposed to have the time to understand any of this? It seems we don’t and, for better or worse, we don’t have much of a voice in deciding how the federal government spends our money. TC mark

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