The Congressional Budget Office projects that the federal deficit will be approximately $1.2 trillion for the 2008-09 fiscal year, according to an article in the Wall Street Journal. In that same article, President-Elect Obama noted the possibility of trillion dollar deficits for the next few years and spoke of the need for budget reform.
This year’s deficit will be added to the $10.6 trillion dollars of debt already owed by the federal government. This figure does not include implicit liabilities of the federal government, which $1 trillion in various commitments, $7 trillion in unfunded Social Security obligations, and $34 trillion in Medicare obligations, bringing the total liabilities of the federal government to about $52.7 trillion dollars. The population of the United States is about 305 million, so the government owes $173,000 on behalf of every man, woman, and child in the country.
The size of these liabilities raises issues of justice, which means to give to each what is owed to him. Has the $173,000 that the federal government has explicitly or implicitly borrowed on behalf of each American has provided them with $173,000 of benefits? Will an additional $1.2 trillion of benefits be generated by this year’s $1.2 trillion deficit?
Unlike private debt, debts of the federal government and other public debt is inherited from one generation to the next. Banks will not lend individuals more money than they can pay back in their lifetime, and laws prevent the debt of one individual from being passed on to his children. A person’s debt obligations end with death. Governments, however, persist for generation after generation, so debt not paid back by one generation are passed on to the next. When the government borrows money, it borrows that money from us and from our children.
By letting the debt grow faster than the economy, a government can effectively run a Ponzi scheme, like the one for which Mr. Madoff has recently gained so much attention. Each generation gives money to the one that came before it until the last generation is faced with a debt that it cannot repay. This ends in economic and financial catastrophe brought about by some combination of inflation and default.
I do hope that our President-Elect is serious about budget reform, including Medicare and Social Security reform. This can only be accomplished by a combination of increasing government revenues and decreasing expenses, which would include reductions in Medicare and Social Security benefits. These measures are contractionary, however, and would tend to deepen and worsen the current recession. When such reforms should be made is therefore a matter of prudence, but whether they should is a matter of justice. It must be done. Our children deserve better.
Copyright © 2008 by Joseph Burke. This article may not be reproduced in any form without the author’s express written permission. Posted on A&M Blog with Author’s permission.
