Debt Ceiling

All the recent talk of budgets, debt ceilings, taxes, and entitlements has, frankly, left my head swirling. As a fiscal conservative I tend to automatically think that having a balanced budget is a good idea. I mean, how can it be good for our country to remain in debt. Yet, the country doesn't just remain in debt-- its debt continues to grow. I worry about foreign powers having ever increasing influence in our national interests because they own an ever increasing share of our debt. Most of all, though, I worry about how our economy can remain solvent when inflated currency flows at a growing rate. How can an issue that should be so cut and dry (I mean it's all dollars and cents, profit and loss, black and white) be so difficult for our leaders, and us, to agree on?

I will start by admitting that I am no economist. I never did take an economics class-- either micro or macro-- in college. So, I can only argue from (in my opinion) common sense and the bits of knowledge I gain from reading those who know this subject far better than I. I know this much. The two main schools of thought in the current economic debate stem from two economic schools of thought. Those who are sure we must spend our way to prosperity and continue allowing our federal government to operate on credit are, whether they realize it or not, following the economic ideas of John M. Keynes. Those, like me, who believe that continuing down the current path will be destructive in the long-run, and that a balanced-budget/minimal-tax approach is best for the long-term health of our economy stem from the philosophy of individuals such as Milton Friedman.

I recently read an article in Time magazine which stated quite plainly that the federal government cannot and should not operate on a balanced budget. This was quite a shock to me. I know there are those who think that a balanced budget is not feasible, but I had never heard anyone argue that we should not have one. The writer mentioned that those who compare running the federal budget to a family budget are naïve and ignorant. Now, I realize that the budget of the federal government is larger and more complicated than the budget of the average family, but it certainly seems that some basic principles would be shared by both. Namely that a budget that constantly pays out more than it takes in is not sustainable. This writer argued that the government needs to be able to spend more than it has so that other entities are able to borrow from it. Here is where my lack of economic knowledge comes in to play. I just don't understand why our government must be in the business of lending money to anyone. I am not saying that it cannot or should not be in the business of lending money. I perceive that there are likely times and situations where that type of transaction is useful and profitable. I just don't see why it is argued that the government MUST do this.

More and more I am beginning to see that some people believe (or at least operate as if they believe) that the economy is somehow a part of the federal government. They view the economy as a subsidiary of the government that is able to be directly controlled via the government. In fact, many believe that not only is this the case, but also that this is the way it should be.

Now it seems to me that the economy is an entity entirely separate from the government. The economy, very generally speaking, is the composite of transactions, money flow, investments, and wealth creation that are constantly occurring in an organization. Specifically, I am talking of the overall national economy of the country. Most of the activities mentioned above happen in the private sector. It is true that government regulations impact and even direct all of these activities, but the activities themselves happen apart from the government. Also, any portion of the overall economy that happens to be public (that is going on inside and including the government) is wholly dependent upon the private sector. What I mean by this is that the public sector derives all of its revenue from the private sector economy by taxing the transactions that take place there. The private sector can create wealth through value-added transactions and investments. The public sector cannot create wealth. It can only draw wealth out of the private sector and redistribute it.

With all of that being said, it seems that one way to boil all of this debt ceiling debate down to bite-sized chunks would be to say the following:

The debt ceiling needs to be raised because the public sector economy continues to grow.

The public sector economy continues to grow because we are unwilling to make true cuts in any area of the public economy.

The only source of income for the public economy is to draw from the private economy through taxation.

The more the public sector grows the more income it needs to operate and the more it must draw from the private sector.

The more money that is drawn from the private sector the less money is available for investment and wealth creation.

This line of argument brings me to a basic conclusion. If we continue to raise the debt ceiling then we continue down a path that limits and weakens the private sector economy.

So, should we raise the debt ceiling? As a general rule I would say no based upon what I have written above. Yet, I have to be honest and say that I do not know for certain that this is a situation that is not a special case. Is this a special exception in which we should raise the debt ceiling? I am not sure. I do know that continuing this kind of fiscal policy is not healthy.