I was surfing the ‘net last night, searching for a good topic for today’s post, when I came across this gem of a video. It’s not long, but if you don’t have time to watch right now, it basically outlines the budget problems various states are facing, due to the economic crisis.
Particularly interesting to me is that California is considering issuing IOUs, instead of paying their bills. Now, I could be wrong, but if I owed the state money at tax time, I don’t think they’d look too kindly on my sending an IOU in the mail.
It seems that the government could take a lesson from those of us who are diligent to budget our money day in and day out, especially those of us who regularly budget for irregular income.
Most people with irregular incomes have good months and bad months, good years and bad years. During the good years, a wise person puts money aside for bad years. And during the bad years, he has money available to cover the difference between his income and his essential outflow.
The same should be true for the government. Over the course of history our economy moves in cycles. Some years are good…very good. But other years are horribly bad. The problem, as I see it, is that the government tends to use the extra income in the good years for pet projects. Politicians on both sides of the fence dangle promises in front of the citizens, hoping that they will win favor and get re-elected.
It’s not popular to say, “We don’t have enough money to fund this project.” But it is necessary. It’s even necessary when the thing being funded seems essential. Just ask a single mother, who has had to make the choice of whether to put food on the table for her children or to see a doctor about persistent headaches. Both are essential, yet sometimes only one can be chosen. If there isn’t enough money, then there just isn’t enough money. It isn’t fair and it isn’t good, but racking up debt month after month will only make the problem worse.
Fortunately there are probably a lot of non-essential (but unpopular) cuts that can be made in any government, state or federal. Unfortunately, I don’t think our politicians are willing to make that step.
I’m not sure what the answer is, but I do know it frustrates me when I see governments, funded to serve us by hard earned taxpayer money, not able to control their budgets. My answer would have been to sock away money during our high flying years, but unfortunately that time has passed.
What do you think? Is there a solution? Have the state and federal governments been responsible in their stewardship of taxpayer money?
Photo by Clinton Steeds.
{ 14 comments… read them below or add one }
There are a lot of lessons the government could take from us, not the least of which is the creation of an emergency fund. They should also not spend more than they earn, pay down debt, and save for future expenses instead of constantly going down the path of instant gratification.
I don’t know what it will take for the government to become adept at finances, however. Maybe if we elect Warren Buffet as the President?
What you are describing, that being true fiscal responsibility, is a part of the Austrian School of economics. What governments seek to force upon us all is Keynesian “economics” which has two basic parts: 1. Use any crisis to increase the size and power of government. 2. Always live by creating ever more debt.
Keynes held that if one creates enough debt, prosperity follows. Obviously this is absurd, but given the first part, that of seizing ever more power, politicians and bureaucrats worship Keynes.
Keynes held that capital and profit magically appeared regardless of what regulations were put into place. he held that you can spend your way out of any problem, in essence the ultimate creator of “retail therapy!”
To have fiscal responsibility we have to spread the ideas of personal responsibility and take back our lives from government. As long as there are those who call for government programs and intervention, then Keynesian debt based policies will remain in place.
Hear, hear!!!
This is so relevant right now. Taxpayers have taken on generations of debt, for what? Thanks for the insight.
There are some many with their hands in the cookie jar, that this cycle is going to be tough to break.
No one wants to cut back and be told “no”. It’s just not the way it is.
I may be wrong on this one, but since governments operate on whatever they take in, spending as they go, wouldn’t banking an emergency fund require the government to increase taxes in order to accumulate the necessary money? I doubt that spending cuts would be enough to create a surplus equal to 6-12 months of expenses – this being the amount that most finance bloggers recommend for a personal emergency fund.
For the federal government, that would work out to a 3 trillion-6 trillion dollar range, with the states being even more on top of that.
Actually budget cuts would more than cover any such fund, though the cuts themselves would solve the problem. The federal budget could be cut by over 80% without cutting any “essential” service such as the courts, or even without touching the military (though the military budget could be cut by almost the same amount if only the government would stick to what is allowed by the Constitution and avoid foreign entanglements).
Most of the spending is on two things: inappropriately named “entitlement” programs, and the interest on the debt which was created by those “entitlement” programs.
Abolish these ineffective, unConstitutional programs and we could cut our individual taxes enormously, all the while dramatically boosting the economy. This double benefit would necessarily result in a higher standard of living for almost everyone, but most especially for those who are the least well off.
Unfortunately our state government here in California is dealing with ugly choices when trying to figure out this budget. No one is going to be happy with the outcome and everybody is lobbying for their particular interest.
I think it makes it much harder on the legislators when they hear all sides from each group that is so passionate about their cause. Education, healthcare, prison system, etc. How do we make these choices? And, as you said in your post, we as individuals and families end up having to regularly be faced these same types of decisions. We all make sacrifices daily, so more severe than others, to get through.
The only security that we have is knowing that whatever choice we make we will still have a place in our family. The legislators spend so much time thinking about the next election and their constituents and the possible outcry from their decisions that their thinking gets cloudy and decisions come slower and slower.
Luckily we will not be up for re-election in our families!
Hmmm, seems like this came up before in the story of Joseph advising the Pharoah to save for the seven poor years that would follow the seven rich years. You would think thousands of years later, the government could get it right.
Isn’t that the truth!
And the debt keeps piling on. Here’s the state of the Golden state in two minutes or less: http://www.newsy.com/videos/ca.....w_currency
They need to use the “envelope” system! Seriously…….
Great post! More people ought to pay attention to this approach. Government is quick to tell you what to do, but doesn’t practice sound fiscal management themselves . . .
I live in California and I can tell you that the reason why California in particular has such serious budget issues is due to the very nature of it’s political system. We have a proposition system here. That means that if a law is passed by the state legislature, citizens can immediately put up a proposition in order to change it. It can be seen from two perspectives. On one hand it can be seen as having a very democratic state government where the ” will of the people” is absolute. On the other hand it also makes the state government totally ineffective.
Perfect example is Prop. 13, which was passed in the 70’s to put a limit on property tax- both commercial and residential. What this means is that those who bought houses here 30 years ago still pay the same tax rate on a house that has gone from being worth maybe $50,000 to now close to a million. The same is true with residential property. This has created a number of serious problems. It severely limits the amount of taxes the state can collect. It also had a social consequence. Since unlike other states where taxes go up progressively with value, which means older people will eventually downsize or move out of their homes, in California they have no reason to move. Thus it creates a supply problem and prices skyrocket, which in effect prices out the young professional families whom are now moving to places like Texas, North Carolina, and Oregon. The state is bleeding itself to death. Due to the proposition system and the fact that Cali’s avg age is rising means that the law will never stand a chance of being repealed. Thus the state will starve.