Montana Viewpoint

October 3, 2005

When government spends more money then it takes in, a deficit is created, and money has to be borrowed to cover it. The government borrows money by selling bonds that pay interest to the investor. Each year the deficit is added to the national debt, so, while a deficit is just a yearly thing, the national debt is forever, and so is the interest on it.

As of September 29, 2005, the national debt was $7.9 trillion and ratcheting up by a couple of billion bucks a day even as you read this. The interest on the national debt is now $335.5 billion a year and increasing. About 9% of the federal budget is used to pay that interest and that interest alone, because we don’t pay down the debt.

The Congress and the President are borrowing and spending money at an unprecedented rate. Well, it might be said that there are some pretty unusual circumstances out there; still, prudence would caution you that you should have put something aside for the proverbial, and now actual, rainy day. But even before Katrina and Iraq the deficit was growing yearly, largely because of massive tax cuts while government spending remained the same or was increasing.

One of the main conservative premises behind cutting taxes is that it will produce smaller government; small enough, as the leading proponent of tax cuts proclaims, to drown in a bathtub. That may be possible to do in the states, most of which have a requirement for a balanced budget in their constitutions, but it’s not the case when you can print your own money.

As individuals, we make economic decisions everyday about what we can afford to purchase, and, if we are wise, will not buy what we cannot afford. But the ease of getting credit kind of puts a different spin on that. It used to be that if we said to a salesman, “I can’t afford to buy that,” we would get a condescending smile as he turned his attention to the next customer. Today, instead of the cold shoulder we see the salesman beam as he tells us, “Of course you can! You can borrow the money from us!” And borrow and buy we do, ignoring for that moment our ability to pay.

So, just as we allow ourselves luxuries we can’t afford to pay cash for, politicians promise us necessities we can’t afford to pay cash for. Salesmen want to get commissions, politicians want to get re-elected and nobody wants to tell us if we aren’t willing to pay more, then we can’t have it.

What we are seeing today is the collision of political pressure for services with political pressure for lower taxes. It is easy to convince people that they should pay less in taxes; it is not so easy to convince people that they should receive less Medicare or police protection.

If you are a prudent citizen, and you are determined to have something out of your economic reach, you might cut down on expenses somewhere or get a part time job. Governments either have to cut spending or increase revenue (revenue is the word politicians use when we don’t want to say “taxes,” which is most of the time).

What’s wrong with running a deficit? Economists generally agree that government should carry some debt because it keeps the economy healthy, but there’s a point where the cost, both social and economic, is too much.

The social cost is that some of that $336 billion in interest could be used to finance programs like the new (and costly) Medicare prescription drug plan. The immediate economic cost is that when people buy the bonds that government issues to pay off the debt, there is less money available for investment in the private sector. The long term economic cost is that it encumbers our kids and grandkids and great-grandkids.


Jim Elliott
Phone: 406-444-1556
Mail: State Senate Helena, MT 59620