One group says that Bush more than doubled the debt left by all the presidents before him, so he's to blame. Another group says that Obama is the most reckless spender every to occupy the office of President, and his goal is to create a European Social Welfare state. So what's the truth? Who's to blame?
You are. Oh, and Franklin Delano Roosevelt. Bush and Obama are simply following the lead, but more on that later.
OK, first a word of warning. In order to talk sensibly about this, there needs to be a little math thrown in. Most of us get annoyed (and a little freaked out) when we see either really huge numbers (is that billions or trillions) and decimal points, so to simplify things, I'm going to use round numbers. Don't rely on my numbers being absolutely accurate - if you're that interested, you can do the research yourself, but I assure you that the numbers are close to being accurate.
Also, many of the numbers and definitions used can be found on the website US Debt Clock.
Finally, to try and bring some context into the discussion, I'll be drawing parallels to our personal financial experiences. While it's overly simplistic to compare a country to an individual or a family, the fundamental principals aren't all that different.
When you think about finances of a country, one of the most important numbers to understand is the Gross Domestic Product (GDP). For most of us who work and earn a salary, the GDP should be easy to understand. It represents the value of the goods and services produced within the US per year, just like your salary represents the value of the service you provide to your employer in a year. In August 2011, that number is close to $15 trillion. In other words, we as a really big family earn about $15 trillion a year.
So let's come to understand the first part of the blame game, and that is that you're really the one responsible for the mess the federal government is in.
Huh? I didn't tell Obama to create a health care entitlement we can't pay for. I didn't tell Bush to fight wars against third world dictators. Why is it my fault?
Imagine:
- You have a job where you earn $48 thousand per year (GDP).
- You owe $176 thousand (US Total Debt)
- You have to pay almost $12 thousand of interest every year in order to pay that debt? 25% of your pay is going just to interest! (US Total Interest)
- The total value of everything you own (house, cars, jewelry, savings, retirement plan, stocks) is $244 thousand. (Total National Assets)
- You have kids that you have to pay for when they go to university and get married, and you're also going to need to have money for when you retire. That future obligation that you haven't saved for is $370 thousand. (US Unfunded Liabilities)
Keep in mind, these numbers have little to do with the Federal Government and taxation. They have to do with how we as citizens earn and spend our money. The comments in brackets show the equivalent categories on a national level, as found on the US debt clock, divided among all the population of the US.
This is basically where we're at in the US, and we're in bad shape!
As individuals, we borrow a lot of money to buy expensive homes and cars, and we save very little. This year, over 1 million people will lose their homes to foreclosures. We have a lot of future expenses that we haven't even begun to save for, like education, weddings, retirement, and our health. We set a very poor example for our government to follow. In fact, if the government tried to do the opposite, we would probably rise in revolt. We borrow today in the hopes that we'll earn more or invest better tomorrow, but as we've seen lately, that doesn't always happen. And if it doesn't happen, many of us secretly hope that the government will be there to bail us out. If we're not responsible enough to look after ourselves during good times, why do we expect that someone will look after us during the bad times?
The National debt is really just a mirror of what's going on in our personal lives. The Federal government has borrowed almost $15 trillion dollars, because it has been paid less than it has spent. That's $47 thousand per each person in the country. Just this year, the government will spend about 164% of what it collects. We've set a bad example for our government. So what's the first step to fix the problem?
Personal Responsibility.
As individuals, we need to get our financial house in order. We need to spend less, save more, and live within our means. It's a little hypocritical to expect our government to act one way, if we each act the opposite way. The beginning of the solution starts with us.
It's up to us to save for the future. The average American citizen has $1,800 in savings (liquid assets, like bank balances). That's two weeks salary. If we were committed to saving 10% of every dollar we make, we would triple the amount of savings we had by the end of the first year. Another way of saying that is that we only allow ourselves to spend 90% of what we earn. In other words, we commit that we will each spend less than what we earn, and put the difference into savings.
We don't have a problem that we don't earn enough, we have a problem that we spend too much, and that we don't save enough. We're a nation of too many grasshoppers and too few ants.
It's no wonder, then, that the government has the same problem we do. Once we start saving and spending less than we earn, we begin to hold ourselves more accountable for our own financial future, and once we do that, we begin to expect the same of others, including the government. We don't expect anyone to bail us out if our poor decisions get us into trouble, and we therefore begin to look less favorably on spending government revenues on bailing out large banks and corporations, or on giving food stamps to 47 million people.
Let me wrap up part 1 by confessing that I lived most of my life as a grasshopper. I always believed that I would have ever increasing earnings (at least until I got really old), and so that if I spent more today, I would earn more tomorrow to pay it. I remember talking with a friend of mine once, who happened to be a minister. He asked if I had a budget. I kind of snickered, and said I really didn't have one, and didn't think I needed one, because if I found that I didn't have enough money, I would just earn some more. I wasn't a teenager when I said this - I was in my mid 30's. Things were going well for me, but I wasn't saving, and planning for the future, I was purely living for the day.
I'm different now. There's a saying "Too soon old, too old smart", and that's true for me. I live much more simply now than I did, earn a lot less, but I also owe a lot less, and should be debt free (except for a house mortgage, which is about 1.5 times our family income) within the next 12-18 months. My kids did not inherit my grasshopper genes, and I'm thankful that they are much more disciplined about money than I ever was.
It's up to each of us to do what we can so that we can be financially independent, and not look for big brother or government to bail us out. The fact is, though, that many people expect the government to help them when they get into trouble. After all, the government can simply take some of the money from the people who did plan and save, and give it to those who have a greater need. When did that start and is that something that our constitution even allows for?
Well, that's where FDR fits into this picture, and that's the second part of this story.
