The Federal government's spending crisis is severe enough that minor cuts will do virtually nothing to help balance the budget. For example, eliminating NASA – not simply scrapping a Mars project, but deleting the entirety of NASA – would cut spending by a fraction of 1%. That’s enough savings to fund the Federal government for about 48 hours. To be meaningful, the spending cuts must be significant. For example, to balance the budget, the Federal government needs to cut spending by around 35%. A cut of that magnitude is equivalent to cutting the entirety of discretionary spending (i.e., the Departments of Defense, Health and Human Services, Transportation, Veterans Affairs, State, Housing and Urban Development, Education, Homeland Security, Energy, Agriculture, Justice, Commerce, Labor, and others). A cut of that magnitude is also the equivalent of cutting mandatory spending (e.g., Social Security, Medicare, and Medicaid) by 65%.
Cuts of this magnitude are not possible in the US for two reasons: (1) we do not have enough politicians who are willing to admit the magnitude of the problem, (2) as yet, it is too easy for the Federal government to borrow to fund its overspending. Eventually, perhaps as soon as a few years, the Federal deficit will become so large that foreign governments will stop loaning us money. At that point, politicians will admit the magnitude of the problem. But, by that time, the problem will be much worse than it is today.
Remember Fannie Mae and Freddie Mac. Economists sounded warning bells for many years prior to the housing collapse. They warned that the government was creating a bubble that would eventually burst and bring down a large swath of the economy. There weren’t enough politicians willing to admit that Fannie and Freddie were problems, and it was too easy for homeowners to borrow more than they could afford. Rather than restraining Fannie and Freddie when they had the chance, politicians waited until we slammed into the unyielding laws of economics. Once more, politicians are shirking their duties to restrain Federal spending, leaving us with the question not of whether to cut spending, but rather who will cut spending – politicians or the unyielding laws of economics. The former can bring us in for a controlled landing. The latter shows no mercy.
Cuts of this magnitude are not possible in the US for two reasons: (1) we do not have enough politicians who are willing to admit the magnitude of the problem, (2) as yet, it is too easy for the Federal government to borrow to fund its overspending. Eventually, perhaps as soon as a few years, the Federal deficit will become so large that foreign governments will stop loaning us money. At that point, politicians will admit the magnitude of the problem. But, by that time, the problem will be much worse than it is today.
Remember Fannie Mae and Freddie Mac. Economists sounded warning bells for many years prior to the housing collapse. They warned that the government was creating a bubble that would eventually burst and bring down a large swath of the economy. There weren’t enough politicians willing to admit that Fannie and Freddie were problems, and it was too easy for homeowners to borrow more than they could afford. Rather than restraining Fannie and Freddie when they had the chance, politicians waited until we slammed into the unyielding laws of economics. Once more, politicians are shirking their duties to restrain Federal spending, leaving us with the question not of whether to cut spending, but rather who will cut spending – politicians or the unyielding laws of economics. The former can bring us in for a controlled landing. The latter shows no mercy.
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