Life Costs

December 30, 2011 — Leave a comment

A friend of mine posted the American budget in terms of a household budget to highlight how little the American government has actually achieved in attempting to balance the federal budget. The exercise was very helpful and looks like this:

It’s actually quite simple. Now I know there are many people out there that love the idea of “not spending beyond one’s means”. This principle is great and kudos to all that can do that. But to be honest, if you can, you are already in the secure upper percentile of society. You are a minority. Life costs money.

The US government (the people) have obliged themselves to certain costs. However, few want to pay for these obligations. America’s three largest expenditures are for defense (20%), social security (20%) and health (23%). The security budget is hard to cut because the country has so many obligations to other countries and put itself into such a delicate position. The social security costs are a promise to many retired people who helped build America. The health care budget could be reduced through some regulation and economic incentives like in Singapore. Without getting into a long discussion on health care and possible solutions and existing problems, I’ll just say that there are too many intertwined factors that give certain industries copious amounts of money for ensuring that their shortsighted interests are met.

Getting back to the budgetary element, what I would like to point out, and this is an issue in many EU countries and even in Switzerland, is that to run a modern society there are many costs. When these costs are met and investments are made, all of society stands to benefit, when they are not we all lose.

America and Europe are modern economies. Modern economies need to operate in the knowledge economy and produce innovation in procedure, technology and better services. If America and Europe stop investing in their people and their infrastructure, the customers (companies) that create jobs and wealth will go elsewhere to where their needs and desires are met.

I will not disagree that some excess spending can be cut, but more importantly, revenues need to increase to pay for the costs of running a modern state. Just like it cannot be expected that a modern American family making $21,700 a year should save more, it cannot be expected that the American federal government really spend less, unless the future wants to be sacrificed. Read Paul Krugman’s latest article on the pitfalls of the current austerity measures.

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