Investing ABC's

Government spending has been a problem for decades.  Yes, the federal budget was, arguably, balanced for a short time in the 90′s, but that was only a green flag that they could start spending more.  I would like to state that I am one of those people who does not view tax cuts as a spending program.  Asking how we’re going to pay for a tax cut is like my son asking how he will pay for me not increasing his allowance.  The answer is, “your not.”  If you have less money this year than before, you have to reduce expenses – that is the way a budget works.  Often times, what you hear presented as being a “tax cut,” isn’t a tax cut at all, but rather “not an increase.”  Both sides of all issues, in political debate, exercise “artistic license” in developing their definitions and choice of words.

Yes, there is a reason that “zero base line budgeting” is unpopular.  Under the current system, if the govermnet spends $10 billion on a program this year and the plan is to increase it by 10% next year to $11 billion, then next year one side proposes spending $10.5 billion (a 5% increase instead of 10%), the side in favor of the project cries that it is a 5% cut or a half billion dollar cut and the other side says (usually ineffectively) that it is a 5% increase.  Unfortunately, politicians are primarily lawyers, whose profession it is to challenge and push the limits of common definitions.

While Federal spending is indeed out of control, I believe the larger threat to the economy is the state and local budget.  We normally only hear of the high profile issues with other states, but mostly the woes of our own states, counties, and municipalities.  Now multiply thos woes times 50 states, your county’s problems times 3,100 (1) and your city’s issues times 30,000 (2).

Existing pensions, continued collective bargaining, state bankruptcy, and

(1) Approximate number of counties in the United States.
(2) Approximate number of cities and towns in the United States.

Well… Let’s see…. Fiscal incompetence? Yes, that’s it. Post over… You still reading? I said it was over…. Oh, OK!

Is it the fault of the Governator? Is it the fault of those evil, right-wing Republicans who want to give tax breaks to the rich? Is it because of the idiotic, left-wing Democrats who always try to spend triple the tax revenue? All of the above.

Although I can’t fault the current elected officials and exclude their predecessors. Fiscal incompetence has been around and even rampant for decades. If you, as many individuals and families do, get to a point where you are spending more than you are earning, you have to figure out what you are going to eliminate so that you can survive. In the world of government, both Sacramento and Washington DC, they figure how much they want and they take it. If they can’t take enough from you, they will borrow against the earnings of your grand children to be able to spend it today. Don’t you wish you could do that – if your personal budget isn’t balanced, just take another 15 or 20% from your employer? Not only is it incompetence, it is arrogance. On both sides of the aisle.

The 2007 budget deficit was (only?) $162 billion (source: 2009 Federal Budget, table 1.1) and according to the Congressional Budget Office, federal revenue will take a dip this year and rebound to just above 2008 levels in 2010, but yet the deficit will be more than $200 billion greater than in 2008. Why is that? It is because our elected representatives have an inability to balance the check book.

There have been years where our household income didn’t increase. That only means that my spending for that year has to remain at previous year’s levels. If we went out to eat once a week and inflation made the cost of doing that more expensive, I might have to skip a week here and there. It happens – and not just in my house. This isn’t an action that I’m illustrating – it is a principle, and one that has been missed by our elected officials for decades.

Whose fault is this? Mostly ours, because we’re the nimrods who vote these dip sticks into office. When we hear of scandals – Clinton/Lewinski, Duke Cunningham, Tom Daschle, etc… we’re surprised and appalled. Why? It takes a unique breed of person to want to run for an office like that as a career. They are highly overconfident which can’t happen without arrogance. Being successful to the point of thinking you can get away with the stupid crap (most never get caught) only breeds more arrogance. So what we are left with in office are arrogant, self absorbed people who think that they are above the rules. If there are any Mr. Smiths in Washington, you could probably count them on one hand and have fingers left over.

Who is the top finance person in your state? Normally it’s the State Treasurer and/or State Controller. I’ll bet dollars to donuts that it’s an attorney. That’s like hiring a hotel manager to be a mechanical engineer – the hotel manager might be a brilliant guy, but he/she probably doesn’t have the skill set to be a decent engineer. We consistently put square pegs into round holes because they are from the right party or because they are the political up-and-comer without regard as to whether they are qualified to do the job.

So, in a nut shell, we are putting people in office who are unqualified and fiscally irresponsible. Until we get executives and legislatures who take a stand to not spend what they don’t have, we will continue to wallow in the mire and wonder why it’s happening.

- John