Woolf: Lessons from the recession
09/28/09 7:55AM By Art Woolf
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(HOST) Commentator Art Woolf thinks that individual Americans have learned some important lessons from the recession but the public sector hasn't gotten the message.
(WOOLF) The U.S. economy is finally showing signs that the long, deep recession will soon be over. One of the most painful lessons we've learned from that experience is to be careful about taking on debt. Encouraged by mortgage brokers and supported by financial institutions, far too many people took on much more debt than they could afford.
There's nothing wrong with debt per se. We all take on debt for worthwhile purposes-to pay for college, to buy a car, or a house. Debt in moderation is fine, but it was the excessive use of debt that got many people, and banks, into trouble.
Most households have now changed their behavior by dramatically cutting their spending, paying down debt, and increasing their savings. But another big debtor, the federal government, is experiencing an explosion of debt.
This year, nearly 40 cents out of every dollar the government spends will be financed by borrowing. The federal debt, which amounted to 40% of the nation's GDP in 2008, will be 65% next year and 80% by 2016. That's the highest level since just after the Second World War and as the military shrank from 12 million troops to 1.5 million in two short years, the nation's debt burden fell.
One reason for our exploding national debt is the recession, and whether the massive government spending was necessary to forestall an even more severe downturn is a subject that economists will be debating for years. But the government's borrowing, and its debt load, are projected to keep growing even as the economy recovers.
Our federal debt is now financing ever-larger promises of government goodies, including Social Security, health care, defense, and some pure pork. And, unlike the situation after World War II, spending on those items is increasing, so we can't grow our way out of the debt problem.
Vermont policymakers are following a similar worrisome course of making fiscal promises they can't keep and promising to provide us with more services than we can afford, and more than they are telling us we have to pay for.
That includes projected budget deficits that amount to $350 million over the next four years, $700 million to replenish the unemployment insurance fund, and commitments to state employees and teachers for retirement benefits that is underfunded to the tune of $2,000 million.
It's easy to get into debt, but much harder to get out.
Not succumbing to the lure of easy money is a lesson that most Americans have learned-the hard way-in their own private lives. But most of us haven't figured out that our elected officials are still pushing the limit on the credit card we call our tax capacity. They're making commitments and promises that we can't afford or aren't willing to pay for.
It may help them get elected, but we, and future generations, will pay a high price for their electoral success.
(TAG) You can find more commentaries by Art Woolf on line at VPR-dot-net.