The real deficit story

We're starting to hear politicians bragging about the shrinking deficit of FY 2006. The deficit was reported as $247 billion last year. Here's proof, say many, that what George H.W. Bush in 1980 called "voodoo economics" really works: that you can simultaneously cut taxes and ignore fiscal discipline, and somehow this will result in budget surpluses. (That voodoo economics is alive and well was demonstrated last week by Mitt Romney's proposal to elminate taxes on interest and dividends and pay for the tax cut through "economic growth".)

Not so fast. Before we celebrate, we need to look at this number they call "the deficit". This statistic is roughly analogous to cash flow in a business, and as any freshman business student can tell you, cash flow is not necessarily a good measurement of business health. A somewhat simplistic comparison would be looking at your family's financial condition if you paid off your car last month, and then purchased a new one with the same monthly payment as the old one. Your new monthly expenses would be the same as they were last month, but that ignores the fact that you're now $30,000 more in debt than you were.

The "2006 Financial Report of the United States", published by the Treasury Department", contains a more realistic measurement that is more analogous to a business profit/loss statement. This is called "Net operating cost", and is hidden on page 39 of the report. (This is the number that actually gets added to the national debt.) This statistic showed a more realistic deficit of $449.5 billion last year.

Every way you slice it, this nation has been living on debt for the last seven years. You can look at charts for the national debt, private savings rates, the trade deficit, US debt held by foreigners, etc. - they're all headed the wrong direction. The so-called prosperity we have seen recently was created through debt. The reverberations from the sub-prime mortgage crisis are only the tip of the iceberg, and confirm what our religious leaders have been saying for years: debt is a bad thing, and sooner or later, the chickens come home to roost.

The non-partisan Concord Coalition has published a pamphlet containing questions we all need to ask candidates in 2008. (Click on the link above.) For the sake of our children and grandchildren, we all need to start asking these questions - and get our neighbors and friends asking them too.