Debts and Deficits

Doug and I were watching the local news on FOX the other night, when the anchor woman gave a lead-in for a story that made me laugh – scornfully. She said that Obama has promised to get us out of debt in four years! Doug even backed up the DVR box to be sure that was what she had said. It was. Wow! That would be quite a feat, since our current national debt is nearing 11 trillion dollars! ($10,895,353,832,730.22 to be exact – that’s over $35,000 per U.S. citizen!) You can keep up with this growing monstrosity at http://www.brillig.com/debt_clock/, where you will find the National Debt Clock.

The anchor woman made a common mistake, though it shouldn’t be common for a journalist – she confused debt with deficit. What Obama actually promised was to cut the DEFICIT in half in four years. That promise is incredible enough in itself, given our current level of spending.

Each year the government takes in a huge amount of money (revenue) in the form of taxes, tariffs, and various fees. Unfortunately, most years the government spends an even larger amount of money (expenditures). When it does so, we have a deficit for that year. The amount of the deficit is equal to the difference between revenue and expenditures in one fiscal year. (The government’s fiscal, or financial, year begins on October 1st of one year and ends on September 30th of the following year.)

It is possible, of course, that the government could take in more revenue than it spends in a year’s time. When it does, the difference is called a surplus. You have probably heard that we had a surplus at the end of the Clinton administration. In one sense, this is true. Due to the dot.com bubble, we took in lots and lots of money in the form of income and social security taxes. The social security money was invested in government bonds, giving the government lots of money to spend on other projects, which it did. Unfortunately, that money will all have to be paid back to the Social Security fund, starting around 2017, when there will be more retirees drawing checks than there will be workers paying in. Basically, what the government did was “borrow” from the Social Security Trust fund and call it revenue, even though the money will eventually have to be paid back. That is how the government had a surplus.

In fact, the government has had a deficit budget every year since 1969. And all those deficits pile up. The accumulation of all the deficits over the years makes up our national debt – that eleven trillion monstrosity. That is an incomprehensible amount of money. (See my previous post, “So How Much Are We Spending?”) No one is going to pay that off anytime soon, if ever.

Whenever I told my students about the size of our national debt, someone would always ask, “But don’t we just owe it to ourselves?” I’m afraid many adults probably think the same way. In fact, we owe real money to real people, and it has to be paid back. I’ll address that in my next post.