How I Would Balance The Budget

>> Wednesday, January 26, 2011

"If you would be wealthy, think of saving as well as getting." ~ Benjamin Franklin
I just read a snippet of Obama's state of the union address over at AOW's place this morning.

I didn't watch the speech. There is much more believable fiction on other channels.

As I've said countless times, I am not an economist. These billion and trillion dollar proposals, stimuli, tax increases and cuts boggle my mind. I don't understand how cutting this and raising that will reduce the national deficit very significantly.

I can only compare the national budget to my own personal finances. It is the only way I can relate.

I make far less money than I need with which to balance my budget. And, I can't manage my bank account by speculating that some future windfall is going to drop into my lap. I can only base my accounting on what I physically have in my possession.

I, unlike the government, cannot simply print more money. And, truthfully, because the government can print more money, this is where the comparison between my budgetary concerns diverge from the government's.

I could just stop here, and that would pretty much make my point.

But, I digress. Since I am not, in any way, some kind of economical genius, I devised a way, years ago, of balancing my budget. This is what I do:

When I receive my paycheck, after first depositing a small amount of it into my savings account (for emergencies), the first thing I do is determine what bills are most pressing. Then, I calculate how much of my money I can afford to pay on those bills. If I don't have enough to cover all the most immediate bills, I do one of two things:

1. I call my creditors and make payment arrangements. I negotiate (if they'll let me) a future time and amount that I feel reasonably (barring some unforeseen catastrophe)sure I can pay, and/or...

2. I sometimes have to let a bill or two slide until the next paycheck. This is undoubtedly the worst choice, because once in a while something gets turned off. Unfortunately, that can't be helped. If I don't have the money to pay it, it can't be paid.

Next, I pay the bills I have determined I can pay without going completely broke.

With the remaining money, I calculate how much I can spend per day until the next paycheck. Then I try to stay under my self imposed spending limit every day, thereby increasing the amount I can spend per day until the next paycheck. Hopefully, if I did my calculations correctly, and some unforeseen financial emergency doesn't come up, I will have something left before my next paycheck, which I can add to the paycheck, with which I pay the next round of bills.

I check my bank balance every day, religiously. (By the way, because I check my balance everyday, I have stopped attempts of identity fraud on more than one occasion. You see, what they do is invade your bank account and withdraw a very small amount of money at first to see if you discover it. If you don't catch it, they withdraw huge amounts.)

This system works for me, provided I don't overspend my daily allotment on whims. If I do overspend one day, I have to necessarily adjust my per diem spending limit.

This cycle will continue until I either start getting paid enough to pay my bills and have funds left over, or I receive an unexpected windfall such as win a lottery, or a rich uncle dies and leaves me his entire fortune.

Neither is likely to happen. I don't play the lottery and as far as I know, I have no rich uncle.

Now, the way I see balancing the federal budget is much the same, except on a much grander scale.

Just like myself, unless the Federal government has a trillionaire uncle somewhere who dies and leaves his entire fortune to the U.S. Government, or the federal government wins a trillion dollar plus lottery, the way it's currently budgeting it's money is not working.

The federal government has to first determine how much money it actually has.

Then, it has to pare down it's spending to the point where it can only spend what it has, and no more. If it has to be done daily, the way I do it, then do it that way. If something has to be cut off temporarily, let it be cut off.

Make some arrangements, if necessary. The government should always be aware of exactly how much money it can spend without going over the limit. In other words, the government should be checking it's bank balance every day and making adjustments.

It needs to stop printing up monopoly money. All that does is create a false sense of security that our children and grandchildren will have to pay dearly for later.

Then, don't go over the limit.

Too simple, you ask? Perhaps. But, as I say, I'm not an economist.

Cross posted at Casting Pearls before Swine

13 comments:

BenT - the unbeliever,  January 26, 2011 at 12:31 PM  

This is one of THE most frustrating analogies. The United States government only a little like an average household.

First the government doesn't have a relatively fixed income like you. The best analogy is that the US government has a commission income. When the country's economy is great US income goes up, making it easier to pay bills, and start new programs. When the stock markets take a dive so does the US Treasury balance. In 2008 the country lost 40% of it's worth. The government's income fell by just about that same amount. Can your monthly household suffer a similar economic catastrophe?

Secondly when the government has the least income, is when it needs to spend the most money. Government spending stimulates the economy, it creates jobs, and encourages citizens and business to spend money. Plus of course when the economy is in the toilet needs for important social services increases. If you must use the homeowner analogy then when the federal income is down, we have to borrow on our home equity line. That's essentially what the national debt is. It's a credit line against the full value of our country. The Obama administration is only the latest in a long line of administrations doing this borrowing, because....

Thirdly there's only one, maybe two, people determining the budget for a regular household. But for the United States, we start with the president's administration proposing a budget...and then we send it to a committee of 500+ congressmen/women to revise/append and finalize. And every one of those Congressmen can propose breaking the budget and borrowing a million here and million there and everyone of those congressmen have their own priorities. Some care more about their district than the overall financial health of the nation. Some just don't care about the budget at all. And then some say let's not even borrow the money, let's just buy stuff on the no-down payment plan.

Because that's essentially what we did during the Bush administration. The War in Afghanistan and the war in Iraq plus the Medicare prescription drug benefit, were all bought on the no-down-payment plan. There costs weren't placed on the budget at all, and their funds came from accounting shenanigans that hid the cost. That's something that the Obama administration has done is every year make sure that the ongoing costs of these programs are included in the current year budget. It doesn't make his budgets look good, but it is fiscally responsible.

Fifth, the US can easily increase it's income. You poo-poo the program Pres. Obama advocated for in his State of the Union, but increasing rail transportation and infrastructure and college education all have measurable increases on American productivity and economic growth. Remember back at point one, increase the economy, increase the federal income, pay off debt.

ELAshley January 26, 2011 at 2:50 PM  

Wow, I don't know where to begin rebutting that... so I won't. The resultant headache would be more trouble than any rebuttal is worth.

What I heard last night was more of the same. Last nights SOTU wasn't any different than any other speech he's given over the last year and a half.

I also heard a lot of out-right lies and repeated, previously failed, Obama promises.

And that's being fair.

My analysis of the SOTU?

Hyperbole. Platitudes. "Investment = Stimulus/Spending." Masterful Obfuscation... in short: same ole, same old. The whole thing rang hollow. Last night wasn't AMERICA's Sputnik moment. It was Obama's. It was his graceless fall to earth. Even last night's CNN panel (with the exception of one) questioned the content of the president's speech.

For the most part I sat incredulous that the president, basically, rehashed last year's speech, and any number of speeches in between.

As to balancing the budget, Ryan clearly delineated the problem facing the changes that need to be made, namely, it's either going to hurt now, or it's going to hurt far worse later. It's not a Republican deal, it's not a Democrat deal. BOTH parties will have to address the issues of our debt and spending, including the cuts that will save this country from bankruptcy....... Forget about your careers, gentlemen. Choose to love America greater than yourselves ,or your party. It's going to hurt either way, so just do it.

There should be no sacred cows... on EITHER side. Especially Obamacare, which a majority of people want repealed, which I'll remind you, Obama admitted to in last night's SOTU! Entitlements, Defense, GOVERNMENT, defunct agencies, everything needs to be on the table.

His liberal approach to spending, government, stimulus, thus far, has failed. It's time to move in a different direction. Obama doesn't have the luxury of making demands of anyone, whatever he thinks of his presidential authority. He's not a king... he is just one branch of government.

Edwin Drood January 26, 2011 at 5:05 PM  

BenT the pre-Obama deficit is less than 50% of todays deficit. Quit blaming Bush. I'm glad to see one liberal who knows congress spends money not the President. Does this mean you will admit that the 2007, 2008, 2009, 2010 Democrat lead congress's were responsible for our economy? I doubt it

Awesome 5th point BTW, you want another government created economic bubble? That really worked for us last time didn't it?

BenT - the unbeliever,  January 27, 2011 at 1:32 AM  

Deficit is different than debt. Deficit is the year-to-year shortfall of income to money budgeted. Debt is the accumulation of all those deficits. Pres. Obama's budgets have had larger than expected deficits because 1)the government has had to spend extra money to combat the weak economy and 2)the economy has still performed even worse than predicted so government revenues are down.

What apparently has to be pointed out to ya'll conservatives is that there are short, medium and long term financial goals and problems. While ya'll keep focusing on the short (oh no there's a deficit! The sky is falling!) and medium term (oh no the debt is at $14-trillion! We're all doomed!). Pres. Obama is looking further out at how the nation retains its economic leadership 25-30 years from now.

When Eisenhower invested in the interstate system there was no immediate economic return, but today it is a linchpin to America's economy. The same could be said of defense investments into computer communication that lead to the internet. Who could have predicted how the World Wide Web would change/spur and grow business?

If we don't spend money now to increase college educations, spur alternative energy development, and improve transportation speeds and costs then 25 years from now our economy will be at a disadvantage to those countries that do.

Marshall Art January 27, 2011 at 1:11 PM  

With the brief time I have to do this, I will say that if the US economy is more like a guy on commission as opposed to a fixed income, the even more restraint is in order and far, far less non-Constitutionally mandated spending should occur. Those I've known who live on commissions budget differently than people like myself, but they do budget and keep themselves (most of them) from over spending or spending without knowing there is money to spend. It really is that basic and if everyone responsible for spending the people's money kept the basics in mind, we wouldn't run up such debt.

Ben's biggest mistake, and I think this is what made Eric gag, is the idea that the gov't can generate anything beyond misery what the private sector is far better designed to do. Presidents can urge all sorts of activity. But the federal gov't cannot create anything. They don't manufacture, sell or take profits from any productive activity. They only take our money. To take it and offer it back to do things their way does NOT lead to a stronger economy. Only getting the hell out of the way of the free market can we regain economic prosperity.

And by the way, college education would be far more affordable if the feds didn't give so many grants and loans. No university has the incentive to keep education costs low if they know anyone can apply for gov't assistance. Indeed, they can charge whatever they want and know that they will still fill classrooms as the taxpayer continues to fund the loans and grants the feds dish out.

ELAshley January 27, 2011 at 3:14 PM  

John Stossel has the sanest approach toward fixing the economy; debt, deficit, governemnt spending, warts and all....



We're in deep trouble.

You know why. Our debt has passed $14 trillion, and yet our current spending plans will make that worse. The U.S. debt will reach Greek levels in just 10 years.

But do not despair. If we make reasonable cuts to what government spends, our economy can grow us out of our debt. Cutting doesn't just make economic sense, it is also the moral thing to do. Henry David Thoreau had it right when he "accepted(ed) the motto ... that government is best which governs least."

So what should we get rid of?

We start by closing the Department of Education, which saves $100 billion a year. Education ought to be in the free market. It's insane to take money from states only to launder it through Washington and then return it to states.

Next, we should close the Department of Housing and Urban Development: $41 billion. We had plenty of housing in America before a department was created. Let's get government out of that business.

Then we eliminate the Commerce Department: $9 billion. A government that can't count the votes accurately should not try to negotiate trade. Trade should be free. Free trade creates prosperity. And since trade should be free, we should eliminate all corporate welfare and all subsidies. That means: agriculture subsidies, green energy subsidies, ethanol subsidies and subsidies for public broadcasting. None of these is needed.

I propose selling Amtrak. Taxpayers will save money, and riders will get better service. Why is government in the transportation business? Let's have private companies compete to run the trains.

And we must finally stop one of the biggest assaults on freedom and our pocketbook, the war on drugs. The drug war is really a war on our own people. The ends do not justify the means.

Now the biggest cuts. Republicans propose to cut discretionary nonmilitary spending. Good. But why stop there? That's only 15 percent of our budget. We must cut more. That means cutting Medicare, Social Security and the military.

I know. Medicare and Social Security are popular, but they are unsustainable. We must privatize Social Security and slowly replace Medicare with vouchers."


Continued....

ELAshley January 27, 2011 at 3:22 PM  

Continuing...

And that brings me to Obamacare. The only way to cut costs and still have medical innovation is to free the market. So I propose that we repeal Obamacare immediately. Then we must do more: We must repeal all government interference in the medical and insurance industries, including licensing. All that impedes competition.

Now, military spending. Do you recall what candidate Obama said about the war in Iraq?

"I will bring this war to an end in 2009. So don't be confused."

But I am confused. We're two years past 2009, but we still have 48,000 troops in Iraq. We must shrink the military's mission to truly national defense. That means pulling our troops out of Germany, Japan, Italy and dozens of other countries. America cannot and should not try to police the entire world. We can't afford it, and it's not right.

Those cuts will put America on the road to solvency. But that's not enough. We also need economic growth.

Our growth has stalled because millions of pages of regulations make businesses too fearful to invest. Entrepreneurs don't know what the rules – or taxes – will be tomorrow. This discourages hiring.

All destructive laws must go. I again propose the Stossel Rule: For every new law passed, we must repeal two old ones.

We need to progress to an America that cherishes individual freedom. That means a government limited by the Constitution, one that protects our shores and our persons but otherwise stays out of our way. We should take seriously the words of another president, Thomas Jefferson, and embrace "a wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned – this is the sum of good government."

That's my State of the Union address.


-- John Stossel


Our government has over-reached... doing far more than the Constitution allows. I know Ben will disagree, but that's illustrative of the problem this nation faces. Liberals want everything to continue as they have, albeit with a few, insignificant freezes to give the appearance of solving the problem. But the problem is the liberal political philosophy itself... that Americans work for the enrichment of government and all its social plans. Well, sorry, but the constitution doesn't allow liberals to do all that.

It's time to step back and get back to the beginning; sweep the foundation clean of the detritus of liberal hubris and return to the enumerated powers of both the Federal and State governments.

That will restore fiscal sanity, and cure a whole host of Liberal Big-Government ills.

Marshall Art January 27, 2011 at 6:32 PM  

I read and enjoyed the Stossel piece on Townhall.com. But two articles before it sprung immediately to mind when he reached the part about military spending. One of the articles was by Victor Davis Hanson which I may have read in a recent National Review. The other was by someone whose name escapes me, but it definitely appeared in Nat'l Review. (I generally don't throw out these mags for quite a while, so I may be able to find them---Hanson's might also be on his website).

They both spoke of the hazards of cutting military spending and both, coincidentally, spoke of how we generally become engaged in wars when our spending was low, or scaled back after the previous war. When we look weak, despots take action. It's pretty much a given. Scaling back anything militarily must not look at all like any scaling back is taking place. Unfortunately, bringing back troops stationed around the world can't help but send the wrong message unless it is countered in some way by an appreciable buildup elsewhere that is easily noticed by the scumbags. So while I am quite certain our military can find ways to tightened their belts, I would rather they waste then project any sense that we cannot afford to defend ourselves.

BenT - the unbeliever,  January 28, 2011 at 10:26 AM  

The US spends around $700-billion a year in military discretionary funds. That is almost equivalent to the military expenditures of EVERY OTHER COUNTRY ON EARTH! There is no one on the globe who can compare to our military might and strength.

You can't have limited taxation and astronomical defense expenditures. Even the generals at the Pentagon have said we spend to much on the military. Def. Sec. Gates submitted a plan to trim $100-billion from the Pentagon this year. Repub. Congressmen promptly turned around and said that was too much. Gen Petraus has said that our out of control defense spending endangers our national security, because it undermines our economic security.

If conservatives and tea partiers want to be taken seriously on the federal budget then they better be willing to discuss the entire budget not just their usual anti-liberal hobby horses.

BenT - the unbeliever,  January 28, 2011 at 10:35 AM  

"If we make reasonable cuts to what government spends, our economy can grow us out of our debt."

This is a lie. Blanket cuts to Education, Medicare, Social Security, Defense, HUD, Commerce, and rail service are not a reasonable solution. It's the response of an ideologue or idiot that doesn't understand complexity.

John Stossel isn't an idiot, but he is a libertarian ideologue.

There are real solid reasons we have Medicare and Social Security, there was and continues to be a need for these services. That's the practical reason they can't just be whacked from the US government.

The political reason is that the country is a democracy and lots of old people vote.

Marshall Art January 28, 2011 at 11:05 AM  

When the rest of the world steps up and provides for each other what they all depend upon us to provide, then comparing our spending to their's might not be just a knee-jerk lefty response. But assume for a moment, and this won't be hard, that they refuse to stand up against the scum of the earth. Do you believe the scum's behaviors won't affect our nation? It can't help but do so as we seek to form and maintain alliances for purposes of trade and economic growth. So aside from conceding the obvious, that the military has waste it can trim and the duty to stretch each dollar, I stand by my previous position. And are you sure Petraeus was talking about military spending being out of control? It hasn't increased as quickly as entitlement spending, so if hurting our economy hurts security, then entitlement spending needs to be addressed first for two reasons: It's rate of increase and the fact that defense is the Constitutionally mandated duty of the feds.

So it's not that the right would not cut military spending, but the priority should reflect need and federal responsibility.

""If we make reasonable cuts to what government spends, our economy can grow us out of our debt."

This is a lie."


Hardly. All he's saying is reduce expenditures to a level revenues can handle. It's what families do. It's what businesses do. What's more, as these cuts are implemented, it lessens the need for tax hikes. Businesses can relax knowing how to budget for the next several years and thereby be more productive, possibly hiring again. That means more profits, more wages paid, more revenues to further pay down debt.

And no one that I've heard, including Stossel, would simply cut Medicare or SS and leave all those in the middle of it with nothing. So that's a false worry. But all of these plans have ballooned more than even the worst right-wing predictions had claimed and they continue to swell.

ELAshley January 28, 2011 at 1:55 PM  

A bit off topic-- just a bit, seeing as how Obama believes he's going to save us from a fate like Greece with continued "investments" --but this is our blog and as a member of that collective I'm free to respond as I please...

Dick Morris has posted the following at TheHill.com....

Obama speech shows he’s out of touch

"His speech marks the real end of his presidency and the ascendancy of congressional government led by the House Republican agenda.

"A president’s major power is his ability to set the national agenda. But Obama’s State of the Union agenda was so boring, mundane, conventional and recycled that it will not capture either the national imagination or even center stage. It cannot drown out the drama of Republican efforts to slash spending, repeal ObamaCare, roll back federal regulations, block carbon taxes, kill union card-check and free community banks from regulatory paralysis. The ball is now in the Republicans' court.

[...]

"This speech was not enough to save this presidency."


In tandem with this excerpt, and to quote myself from a previous comment in this thread...

"Last night [SOTU speech] wasn't AMERICA's Sputnik moment-- it was Obama's. It was his graceless fall to earth."

For all his soaring rhetoric that night, all he could do was repeat the same lines and lies from previous speeches. No one but mind-numbed Obamites found his speech remotely inspiring. He lost his final opportunity to inspire the American people and pump new life into his presidency, to say nothing of his chances of reelection. The only way he can salvage anything in his remaining two years is if the Republicans drop the ball.

Considering their track record, it's a distinct possibility.

Edwin Drood January 28, 2011 at 5:01 PM  

Someone needs to tell Obama that just because all investment requires spending that doesn't mean all spending is an investment.

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