Essay by:
David Barger
Fort Lewis College

The United States economy in 2009 has reached its most precarious condition since the Great Depression of the 1930’s, and between a balance-of-payments deficit, current and capital account deficits, and a negative balance of trade, the sounding of the alarm cannot be ignored any longer. The causes of these developments are various and deep in the globalized economy, however, many of them began when President Nixon unilaterally decided to float the dollar’s exchange rate in the international currency market in 1971. By 1973, a system of flexible exchange rates had taken over, adding a significant amount of financial liquidity to the international economy. The growth in markets for borrowers, investors, and speculators ushered in a new economic order characterized in part by increased interdependency among states and businesses. An increase in the quantity and speed of capital flows brought tremendous economic growth throughout many areas of the world. The increase in liquidity offered the ability to buy now and spend later. This blessing in disguise has been over-exploited throughout all levels of society and all throughout the world, from some of the poorest individuals to the federal government of the United States. In order for the global economy to make a turnaround, the federal government has a duty to reverse its trend of limitless spending despite the monumental payments it currently makes for Social Security, Medicaid and Medicare, and national defense.

The largest portion of government spending (21.5%) for the fiscal year 2007 was Social Security at $586.2 billion. Without a doubt, the government must keep its promise to provide for the retirement of its workers, even if it requires raising taxes. If taxes are raised, benefits should also be cut down so that they are received only by those in the greatest need. To accomplish a need-only Social Security system, the age requirement for Social Security benefits should be removed and replaced with a maximum income standard, thereby trimming excess spending on those who are or will be relatively well-off in their retirement.

To reduce spending on the second largest government expenditure (20.9%), Medicaid and Medicare, the United States should pursue a comprehensive reform of its health care system. The reformation should value individual choice over an obligation by the state to pay for medical care. One viable system that fits these parameters is a medical savings account which would decrease medical expenses and extend coverage to a greater number of people. A combination of voluntary and required medical savings accounts is the best route to decreasing the government’s role in health care and facilitating an increase in the private sector’s role. By requiring employers to cover more of their uninsured workers, medical care can be extended at a minimal cost to the federal budget.

The third largest portion of government monies (20.2%) was spent on national defense in 2007. Although the state has a preliminary duty in providing national defense, it should also be reformed. The political, economic, and military elites of the United States need to re-envision their foreign policy under a leader who believes that defense can be less offensive. Under well-guided foreign policy, the U.S. can reinvest certain defense monies into other industries, such as the development of alternative energy needs and fuels. Additionally, some defense funds could be reinvested into aid programs which could positively reinforce the public image of the United States and reduce the need for a $552.6 billion annual war budget.

Spending more on government programs than is collected through tax revenues is a serious problem that can only get worse with the oncoming retire of the baby-boomers. Throw in the fact that we have reached the limits of borrowing, and the gravity of the situation becomes quite apparent. Borrowing from foreign investors and continuing to print money are unsustainable practices that the United States must seek an immediate end to. These dire times demand that we follow a new path in our approach to the national debt and federal spending. Deficit spending should be made illegal at the state and federal level except in response to natural disasters or wars. If borrowing becomes unavoidable, the government should be encouraged by its citizen to borrow and spend with responsibility. Perhaps this could be accomplished by creating budgets for periods of greater than one year and building a system that creates more transparency in government spending to foster public trust through accountability.

Regardless of whether or not the solutions proposed in this paper actually turn the economy, excessive government spending is going to affect Americans for years to come. The Government Accountability Office (GAO) reports that if nothing is done to alter the current structure of government spending and taxation, the federal government will only have enough money to pay for interest on the national debt and entitlements (Medicare, Medicaid, and Social Security). This means that by 2040, the federal government will not have enough money for discretionary spending, which typically buys services that are not enforced by legal requirements, like the postal service, infrastructure (roads and highways), national parks, and national defense.

If no further limits are imposed on federal spending, life will begin to change quite drastically for Americans in the future. Families will spend more time at work and more money on health care. In this economic climate, saving will become very difficult if not impossible. Many students across the nation would have to end their academic and career dreams prematurely with the end of readily-available student loans. Local and upstart businesses would likely see a similar fate due to the end of easy borrowing. Capping this whole bleak situation would be rampant taxation to account for an increasing interest on the national debt. It is safe to say that the viability of future generations depends on the speed and planning we employ to confront the problems of the debt and deficit today.




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