After Standard & Poors (S&P) lowered the credit rating of the federal government, an Obama administration official said, “This is a facts-be-damned decision.” So what are the facts?
The facts are:
- The federal government had “revenues” of $2.16 trillion in 2010
- The federal government has a debt of more than $13 trillion, or just under six times its annual “revenue”
- The federal government is running deficits over $1 trillion, and is expected to continue to do so into the foreseeable future
- The federal government’s unfunded liabilities are estimated to be more than $100 trillion
To put this in perspective, let us apply the same ratios to an average American family. The median family income is about $50,000. If the average family followed the lead of the federal government, it would have debt of about $300,000. It would continue to add $25,000 to that debt each year. What do you think that family’s credit score would be? How long would creditors allow that family to live well beyond its means? Do you think that they could easily obtain more credit?
Of course, the federal government is not bound by the same rules as ordinary citizens. The federal government can simply reach into your wallet and take more money. If you did that, you’d be arrested. If the government does it, it is “shared sacrifice.”
There is certainly something damning about the S&P downgrade. But it isn’t S&P that should be damned.
In a letter to James Madison, Thomas Jefferson wrote:
[N]o man can, by natural right, oblige the lands he occupied, or the persons who succeed him in that occupation, to the payment of debts contracted by him. For if he could, he might during his own life, eat up the usufruct of the lands for several generations to come; and then the lands would belong to the dead, and not to the living, which is the reverse of our principle.
Isn’t the federal deficit eating “up the usufruct of the lands for several generations to come”? Isn’t the government obligating future generations to pay for the profligacy of the dead?
For politicians, the “future” is limited to the next election. That means offering today’s voters promises that can only be kept by piling up mountains of debt. And voters, while they might decry the federal deficits, demand that the government leave programs like Social Security and Medicare untouched. So who is the guilty party? Voters or politicians who pander to them?
The average family will not solve its financial woes by simply bringing in more money. Nor can the federal government. The only rational solution to the budget deficit is to cut spending dramatically. But that will not occur until voters quit eating up the usufruct of the lands.