Search DC's Musings

Monday, January 4, 2010

2010: Welcome To The Deficit Decade

On Friday we entered the new year and decade loading the Odyssey with the dog and kids and heading home. Having spent the week at my sister's in the hills of Marin County we ended the decade refreshed and relaxed, ready to head south and get ready for the routine of school, work, community service and recreation.

Not atypical for our annual sojourn, our journey home began under thick clouds and occasional showers as we wound through the green hills of Marin and the East Bay before connecting with the great Interstate 5 near Tracy and heading through the crops, orchards and ranches that feed California and beyond. Our ride into the new decade was bumpier than the year before due to lack of adequate road maintenance. Along the way we saw the familiar signs posted on the side of trailers and billboards put up by the farmers "Water is Food" "No Water, No Jobs = No Future" and "I Don't Water, You Don't Eat."

Very noticeable was the increase in CHP activity, leading Leslie to comment "the state needs the revenue." Also noticeable was the relative lack of traffic, the advantage of travelling on New Year's Day that falls on a Friday keeping most home at least one more day.

As we drove through the heart of the nation's state with the most population, the highest GDP, the most retail spending, the most international trade, the highest unemployment and biggest state deficit, I pondered, "What is the biggest issue we face in this decade?"

As I hit a small hole in the road driving past yet another closed state operated Rest Area (Next One Also Closed. And the One After That. And The Next One.) I knew it was money. Money, it is said, is the root of all evil; certainly true in political evil and most generally for the population at large as well. As we start the Twenty-Tens public money will be the root of future evil, and also our largest problem as a state and nation. Public finance will be central to the 2010 elections, and the 2012, 2014, 2016 and 2018 elections as well as our state and national budget problems are not going away very soon.

The State of California enters the new decade with a budget deficit of over $20 Billion and growing. As employment continues to shrink, foreclosures continue to grow and the economy continues to decline, future revenues look to continue to drop. Faced with this our Legislature's majority continues to complain about lack of revenue and rather than looking for even more cuts from the budget they bloated in the last decade with a 100% increase in spending, they continue to look for more taxes they can levy on an increasingly disgruntled populace.

Similarly the United States Treasury enters the decade awash in red ink, well over One Trillion Dollars and counting. With major health care reform measures passed in the House and Senate that add several trillion more to future budgets, and therefore deficits, law makers in the majority in both houses and the White House appear prepared to ignore the laws of economics, and politics, and widen deficit even further. Like their counterparts in Sacramento, the elected majority in Washington is looking who and how much to tax to pay for their spending.

When just the "rich" are being taxed the majority of Americans are fine with the proposition. They got theirs, they should share more of it. When the definition of "rich" starts to creep further down the income scale that is when political calculations and slogans begin to fall apart. Slowly the tax creep down the income scale overcomes the political rhetoric and one day a couple looks at their finances and realizes how much more it costs to register their car, how much less is in their paychecks due to higher withholdings, how much more it costs to buy gas, and shoes, and backpacks for their kids. Reading the news they know that inflation has been mostly absent from the economy, and their receipts show this. They also show higher sales taxes.

Entering a decade with huge deficits presents not only economic and budgetary problems for government, but also political and ideological challenges for the electorate. An electorate that has just made it through a whip-lash decade that began with a recession and then a lengthy and steady period of economic growth followed by an economic crash, is a bit shell shocked. Most Americans learned many lessons about consumption, spending, budgeting and saving. As they apply those lessons to their home economics they pick up the paper and learn that the lessons they learned from the last few years of the previous decade have been completely lost on those they voted into office. While we learned to not buy the shoes just because they are on sale our politicians are passing another multi-billion dollar bond measure we will have to pay interest on, or another multi-hundred dollar spending bill that pays for intersections in some backwater Midwest town among other items.

While asking us to pay more taxes our elected officials in Sacramento and Washington continue to spend more of the taxes we are already paying. With no plan to stop the deficits from growing there certainly can be no plan to wipe out the deficits entirely, or at least bring them down to an acceptable percentage of Gross Domestic Product.

And this will be the issue of our nascent decade: Government Deficits. How to pay for them? How to shrink them? How to prevent them?

Politically the question in California becomes when will the electorate change its voting habits and patterns to ensure these questions will be answered by our Legislature. Will the voters determine this issue of budget deficits is significant enough when it comes time to vote for Governor? When it is time to re-elect their current members of Assembly or Senate? Is there any chance the electorate will wake up to its collective responsibility and realize the size of government in Sacramento is way too large, spends way too much and is way to complacent in giving tax money to the public employees that control most elections? At what point does the California voter realize his/her vote has consequences and repercussions and we are living those today from votes s/he made over the past decade?

Our state is on the verge of bankruptcy. Our nation is heading to financial insolvency based on the current deficits and spending bills passed or in the legislative pipeline. The amounts of money and percentages of the overall economy tied up in debt and debt service is staggering. Like the economy as a whole that became over leveraged on a real estate pricing bubble, our state and national debt has become over leveraged on tax revenue bubbles that grew tremendously in the previous decade. What happens when that bubble pops? It is already leaking air, and we are seeing the initial reactions of our elected officials: pump in more air in the form of taxing more.

The Deficit Decade is upon us. With the public at large already showing signs of reducing spending on consumer goods, paying down their debt and increasing their savings, how long before their personal changes in habits will trickle into the ballot box?

Happy New Year.

No comments: