How to Shrink the Deficit

I’m stealing the title of this post from an article i read by the same name in the “Review & Outlook” section of the Wall Street Journal dated December 3, 2010 that i read on the plane from SFO to Taiwan (wish our luck, we’re starting our Winter 2010 DCI tour :).

Anyway, in this article the unsigned author claims:

The U.S. federal deficit problem isn’t hard to understand. . In the short term, revenues have collapsed to 14.9% of GDP thanks to the recession and feeble recovery. Meanwhile, Democrats have raised spending to as high as 25% of GDP, a level not seen since World War II.

So i have a couple of things to say about this. One, i want to say i’ve point very careful to avoid the sort of finger-pointing that this quote endorses. “Democrats” have raised spending, like Republicans are also voting, submitting bills, and participating in the discussion of US fiscal responsibility. But again, that’s beside the point—i’m not going to say Democrats or Republicans, as a whole, are right or wrong, or somehow single one or there other out as responsible for the recession we’re in. What does finger-pointing like that accomplish?

Because, of course, we say that we’re all responsible, individually, for our own experience. So if i see a federal deficit, it’s because i haven’t been generous in the past. Whether i see Democrats or Republicans increasing spending or decreasing tax revenue is irrelevant.

But before we get into the solution for our problem (hint: it will have something to do with being more generous towards others :), i’d like to call into question one other idea in the quote above.

So this easy to understand problem is backed up by easy to understand math: you can’t spend 25% of the GDP and only collect 14.9% in revenue and have that work out. I wasn’t a math major in college, but i think 25-14.9=10.1. So that would put you 10.1% of the GDP in the hole a year.

But is it as simple as that? For example, what was the percentage of the GDP collected by the present tax laws before the recession? Or do increases in spending have no effect on the recession? What if some of the funds, spend now, brought us out of recession (for an idea on how to do this, see my article on what Germany did to counter the recession)? Would it be a mistake?

If you’re looking for a simple solution, i have one for you: plant the seeds to see the things you want to see in the world. If you don’t like to see a deficit (is a deficit a good thing or a bad thing?), first take care to make sure you’re paying back people yourself. Then look for someone who you could help pay their debts.

It’s an easy to understand solution you can do all by yourself, with out pointing fingers at anyone else. 🙂