Now with the public having spoken this time the same way it spoke last time, isn't it about time to do something about Federal spending? Recall that the current president was voted in and his party given power the previous election because of public outrage over how the ruling Republicans had mismanaged the budget. Well the Democrats, being Democrats, did even worse. The deficit as a percentage of GDP grew from 3.18 percent in 2008 to an astounding 10.64 percent in 2010. The total debt burden in the county grew to almost equal GDP at $14 trillion placing the United States among the top 10 debt burdened countries in the world along with Zimbabwe. Welcome to the third world. The CBO says that the Obama spending spree will add $9 trillion to the debt over the next decade. Everyone, including the president recognizes that this debt is unsustainable. Why? One reason is that the markets will have enough treasurys and will either stop or significantly slow down their purchase. In so doing, the government will then have to sell the stuff to themselves in order to keep on financing deficits. Well who owns the government debt right now? Most people would say China but China is either three or four now - trading places it seems daily with Japan. Actually the Fed is number one and is now saying that it is going to buy even more in $600 billion in long term treasurys. This is monetizing the national debt and is reckless and even fool hardy. What can be done? First, a balanced budget amendment is fool's gold. Congress will always move to balancing by raising taxes than cutting spending. Raising taxes is easy. Cutting spending is not. If budgets are going to be cut, it is not how senator elect Rand Paul claims by cutting Federal employment, wages by 10 percent and freezing federal payrolls. Nor is it by taking recommendations from places like the Heritage Institute which is pick and choose what's important and what's not. That's a value judgment. No. What has to be done is to cut the entire federal budget by 10 percent as a starting point. Tell all the agencies that they get 10 percent less - yes including defense. No sacred cows. Then let them cut without congressional interference and manipulation for selected constituencies. Then limit the growth in government to no more than than the growth rate of GDP the previous budget year never to exceed the long term growth rate in the economy (3.7 percent). Then let total federal spending never to exceed 20 percent of the previous year's GDP. This will get the deficit down and the budget will balance itself in 10 years. I too prefer a flat tax of 18 percent of all income and the removal of all other taxes period at the federal level to restore incentives and remove uncertainty.But first things first. Right now I believe we have the will to cut federal spending across the board if all have to share the burden. So let's get started.
Harold A. Black is professor emeritus in the Department of Finance, University of Tennessee, Knoxville having retired after 24 years of service. He has served on the faculties of American University, Howard University, the University of North Carolina - Chapel Hill and the University of Florida. His government service includes the Office of the Comptroller of the Currency and as a Board Member of the National Credit Union Administration. He also has served on the boards of directors Home Savings of America and its parent company, H. F. Ahmanson & Co., Irwindale, California prior to its merger with Washington Mutual Savings Bank, on the board of New Century Financial Corporation, Irvine, California, then the nation’s largest real estate investment trust and as director and later chairman of the Nashville Branch of the Federal Reserve Bank of Atlanta. He writes an occasional article for the Knoxville News-Sentinel at http://www.knoxnews.com/staff/dr-harold-black/. His web page is haroldablackphd.com