The federal budget and America’s economic recovery

CLARKONOMICS: With all the doom and gloom about the federal deficit, I see a ray of hope.

So often as humans, we have to wait until things get bad enough before we pay attention to them and start making them better. We’re hearing so much right now focusing on the debt ceiling and federal deficit. The fact that the dominant news coming from Washington is about cutting spending and discussing the unsustainable promises we make, well, I think that could be a positive development.

For the last 10 years, we as a nation lived like deficits didn’t matter. Deficits do matter. Having a federal budget deficit of close to $15 trillion is really an ugly thing. And the promises we’ve made with Medicare, Medicaid and Social Security would raise that debt exponentially to the point where we bankrupt America.

At the same time, the Federal Reserve reports American households are carrying $14 trillion in debt. (Isn’t it ironic that we’re in the same ballpark with both our household debt and our federal debt?)

As longtime listeners know, I have always been obsessed about government, individuals and businesses having their books in balance. I’m a believer in a federal balanced budget amendment with real teeth, where the feds would be required to keep a balanced budget, barring an outbreak of war.

My preference is for the role and size of government to shrink. Yet too many people want government to provide for them and they don’t want to pay for it. Well, you can’t have it both ways. If you want government to care for you, you have to be willing to pay whatever level of taxes that will necessitate.

We are going to have to take some tough medicine in America. People have started changing how they handle money, but the reality is we need to do a whole lot more. The Federal Reserve reports the average American family would have to reduce its debt by $26,000 to get debt levels back to where they were in the 1990s.

So we have work to do. We didn’t get in this mess overnight and we won’t dig out overnight. It has to be done step by step.