U.S. spending versus income

In a recent column, the economist Paul Krugman advocated significant current deficit spending, but recognized “in the long run the government, like private individuals, has to match its spending to its income” (“Deficit worriers have it all wrong,” @issue, Dec. 9).

Krugman incorrectly stated that federal debt basically is money we owe to ourselves. Most of the debt is owed to individuals and entities —- not the federal government.

While current deficit spending to fund infrastructure may now be prudent, the question is: exactly when will the government “match its spending to its income?” It certainly didn’t do so during the 2001-2006 years of relative prosperity (and very low interest rates with Republicans in control), during which debt held by the public increased by 45 percent, from $3.32 trillion to $4.83 trillion. Prior to 1981, the debt never exceeded $1 trillion. It now exceeds $10 trillion.

Say we run huge deficits for a year and things start turning around (whether partially caused by deficit spending or not), will Congress balance the budget in 2010 —- an election year? Of course not, it will continue to provide all the entitlements and special interest spending conceivable, while its members talk out of both sides of their mouths —- “we must be financially, responsible for our children’s sake!” The 2012 presidential election follows shortly after 2010.

Total federal debt now exceeds $10.2 trillion and debt owed to the public (including foreigners) is about $6.3 trillion. (Last year’s revenue was $2.5 trillion.) Long-term treasury bills typically pay around 5 percent interest, meaning debt owed to the public produces roughly $315 billion of interest per year —- about $2,739 per each of the 115 million U.S. households. If the $6.3 trillion grows to $8.3 trillion in two years, the interest will grow to around $3,609 per household. Few people like to pay money and receive nothing in return. At what point is the foundation shaking?

With the baby boomers’ retirement entitlements coming due soon, the U.S. Government Accountability Office says fiscal policy is “unsustainable,” and sees our nation’s debts eventually “spiraling out of control.” If that happens, there’ll be no means for any government agency or program to bail anybody out of anything. It seems inevitable.

We absolutely need to balance the budget every year the U.S. is not experiencing an epidemic and not in a depression, recession or non-nuclear world war (if such a thing is possible) —- so that deficits can be run in times like these without ever causing our debts to spiral out of control.

> Allen Buckley, from Smyrna, was the Libertarian Party candidate for U.S. Senate in 2008.