Thursday, June 21, 2012
Getting Blood from a turnip is a compliment I receive for my negotiating skills. In my personal life it’s become much more accurate as well as I navigate through my own financial issues. This week I had some challenging choices to make as to obligations that I have versus things that I get tremendous value out of versus investments that would yield long term benefits. There's not enough money for all three. My situation is not dire, I have the privilege of choice even though it often doesn’t feel that way. I have friends who have had a much more difficult time, having to choose between rent, medicine or food. Those decisions dictate survival and are severe.
“Dramatic,” “Draconian,” “Austere” are some of the vocabulary words the media and politicians are using to describe the $1.5 trillion in cuts that will automatically kick in this December unless certain thresholds in deficit reduction are met. This was the compromise agreed to last summer during the Debt Ceiling debacle.
At first glance $1.5 trillion is a huge number – it’s about the annual deficit. The US Budget brings in revenue of approx. $2.3 trillion and has expenditures of approx. $3.6 trillion – or a $1.3 trillion shortfall. A cursory analysis indicates that the required $1.5 trillion in cuts would then balance the budget. Alas, no such luck. The $1.5 trillion in cuts is to be implemented over the next 10 years – or $150 billion a year. Now that’s still a lot of dough. It works out to about 4% of expenses.
Personal income in the U.S. is largely dependent on schooling and geography. The median individual income is $32,140 a year. 4% of that is $1,285. Spread over a year it’s $107 per month. For the average individual, cutting $107 per month is probably doable. It’s certainly not austerity, dramatic or draconian. Let’s keep that in mind as the rhetoric heats up – knowing that the $1.5 trillion in cuts isn’t evenly spread over 10 years as in the example – it’s weighted towards the later years, so it’s more like 2% being cut in the near future – or using the average individual they’d have to find $50 per month in savings.
It is simply not sustainable to spend more than is brought in. My own situation proves it – after having been a part of the upper wage earners for a number of years, my story became like millions of others through lay off and depleted resources resulting in bankruptcy. (See previous blogs for that journey.) One of the consequences of that is that I can’t spend more than I bring in – there is no credit available to me. It’s not austerity, it’s prudence.
The U.S. (and indeed the global) economy would benefit from such prudence. It’s naïve (being kind) to think that there will be a balanced budget in the near future. It’s also not Armageddon if 4% of the expenditures are cut to begin to align income and expenses. What’s particularly frustrating about this issue is that it shouldn’t be partisan. As citizens we should demand that our Government responsibly manage our resources. Each political party can (and should) argue about how to raise money and what that should be spent on – but whether we spend more than we bring in should no longer be a point of disagreement or negotiation. Getting the media and politicians to align on that would be opening a vein in that turnip.