Why Spending More Federal Money Is a Truly Bad Idea

John ArmstrongEconomy/Economics

I have said on several occasions that I am not a trained economist. I do not understand all the debates about theories and systems and frankly think most of our politicians do not either. I have also said that I think the most refreshing moment of honesty in the last presidential campaign was the most politically damaging. I refer to John McCain's admission that he did not understand the economy that well. The statement killed him but it was a rare moment of honesty almost never heard from a political candidate.

_original One thing I do understand. When revenue decreases spending should decrease. I took a 25% salary decrease twelve months ago. My wife and I have managed but only because we changed our spending habits rather dramatically. It has been a challenge but we've managed on a lot less. We've done less of those things that we enjoy and more careful accounting for every dime we receive and spend. It just makes sense. Everyone, including non-economists, can figure this out, or at least should be able to figure it out.

The problem is that the federal government, namely the president and Congress, cannot figure this one out. A report from the treasury reveals what we all knew was coming. This recession is starving the government of tax revenue. The numbers are stark. Tax receipts are on pace to drop 18% this year, the biggest single year decline since the Great Depression. At the same time the federal deficit will rise to $1.8 trillion.

Here are some more bleak numbers. Individual income tax receipts are down 22% and corporate income taxes are down 57%. Social Security is in trouble too. Receipts will drop for only the second time since 1940 and Medicare taxes are on pace to drop for only the third time ever. The last time the numbers were this bleak was in 1932, right in the middle of the Great Depression.

Our tax system is woefully inadequate to support the promises our federal government has already made. But at the same time the president and Congress are spending new money as if it grows on proverbial trees. The solution they offer, so far, is to print more money, which only makes matters worse.

I am not an apocalypse soon guy but a financial meltdown is almost sure to come if we keep this up. I understand the desire of Congress to reward various constituencies but when will they consider the next generation. My generation ("the boomers") now lines up asking for the biggest pay-out in history and expects the next generation to foot the bill. Someone will pay the piper. It is inevitable. It seems few politicians understand and very few people care.