Posted by
Skiddles on Monday, November 05, 2007 1:35:30 PM
I have just read an article on thehill.com by Mike Soraghan. Soraghan quotes Senator Tom Coburn (R-Okla.) stating that “The greatest moral issue of our time isn’t abortion, it’s robbing our next generation of opportunity.” The thrust of Sen. Coburn's statement is that deficit spending is worse than abortion.
Is it just me or does that seem a little wacky? How are these topics related? If it is morally repugnant to leave a debt for a future generations to pay then lets stop deficit spending. What does that have to do with abortion? Surely the same moral objection should apply to any child who was never going to be affected by Roe vs Wade.
Deficit spending has a long history in America. Social Security has never been a savings plan. It has always been plan to redistribute money between the generations. And Social Security and Medicare are going to overwhelm the budget now that the Baby Boomers are retiring.
But what I really want to explore is whether deficit spending is really that bad. Lets begin by defining deficit spending. Prinston's WordNet Search defines deficit spending as "spending money raised by borrowing; used by governments to stimulate their economy"
With this simple definition, it is hard to argue that stimulating the economy is inherently bad. But it is more complicated than is implied by this definition.
In fact a majority of Americans rely on deficit spending every day. Mortgages, auto-loans, and credit cards are all examples of deficit spending on a personal level.
How many people can afford to pay cash for their first home? Some can, but they are the exception to the rule. Most people see the folly of buying consumables on credit cards, but sometimes that is how people make ends meet from one month to the next. Obviously, you can't do that forever, but it is possible to ride out a short term cash shortage with credit cards.
The real problem is that the national budget is not
sophisticated enough to distinguish between capital outlays and
operations expenditures. All outlays are treated as operational
expenditures for budgetary purposes. So spending 250 billion dollars for a bridge over the Mississippi River is treated the same as 250 billion dollars spent on Medicaid payments.
I think that it is wrong to ask future generations to carry the debt burden for national equivalent of McDonald's Cheeseburgers. But what is wrong with asking the next generation to carry some of the burden for needed infrastructure that they will benefit from, like a bridge? Is it wrong to assume that two or three generations will benefit from the bridge?
Perhaps we should be pushing Congress to use more common sense when considering borrowing money. Most people agree that government needs to have the ability to borrow in order to smooth out short term fluctuations in tax revenues. But Congress needs to distinguish between expenses, depreciating assets, and major capital assets.
Expenses are payments for goods and services that will be consumed within two years. This category would cover salaries of elected and unelected government workers, travel expenses, interest payments, and benefits programs. It would be preferable to pay for these items out of general treasury funds but we should allow for the fact that taxes are not smoothed over the twelve months of the year.
Depreciating Assets, are those that degrade over a 5 to 25 year period, like an M1 Abrams tank, F22 Raptor, or Air Force 1. These are the equivalent of a new minivan for your family if you were expecting quads - you know your going to need it. This could also cover major overhauls to our national infrastructure. Again, it would be great to pay cash for these items but that may not always be possible.
Major Capital Assets are those like bridges, roads, and government buildings that will benefit multiple generations. These are assets that states have been leasing to private operators. Most people see the flexibility and benefits offered by purchasing a home with a mortgage.
My conclusion is that federal borrowing should really be driven by the use of the funds being raised. Instead of issuing 30 year bonds for any deficit, Expenses should be financed using T-bills, Depreciating Assets should be financed using 10 year T-Notes, and only Major Capital Assets should be financed using 30 year bonds, or perhaps a debt ladder whereby the debt is raised by issuing some of the bonds for 10 years, some for 20 years, and some for 30 years. Also, Congress should have a plan, by making provisions in the budget to accumulate reserves for debt retirement upon maturity.
If we take this approach we may find that we can accomplish more with existing revenues or possibly even reducing tax rates and absolute taxes collected.