People believe whatever they hear or read which can sometimes lead them to irrational conclusions. Below are some of the more intriguing theories which I have encountered.
The National Deficit
Consider the cry of the day: “Uncle Sam is broke.” By this most mean that the federal government is spending more than it takes in, is running an enormous deficit, has a high debt, and that therefore, the future of America has been mortgaged, leaving no room for economic growth. There is no question that Washington has been spending heavily, that the “pork barrel” system of government is one good reason for this, that the federal deficit remains at record levels, and that the national debt balloons higher and higher each day. But has it reached catastrophic levels? Not really.
For starters, consider that Uncle Sam’s accounting system is quite different from yours and mine. Uncle Sam operates on a “cash flow” basis, not a profit/loss basis. When he spends money to buy an office building or an aircraft carrier, it is considered a current expense, not a capital outlay. When Uncle Sam spends on defense, many assume it is a net expense. Not so. Remember that he recoups some of this through taxation of profits on defense contracts, taxation of the income of people employed in the defense sector, taxation of the profits of merchants who sell to those employees, and so on. And the same is true of spending in other areas.
Unfortunately, Uncle Sam does not produce a true balance sheet showing assets held (which have value) against liabilities owed. If he did, the U.S. Government would show a strong “book value.” The $2 trillion plus debt of the federal government is a figure which boggles the minds of most people. But consider the fact that the debt level is not as much as the annual gross income, that the debt service cost is only about 15 percent of revenue (and that even some of this flows back to Uncle Sam in the form of taxes on interest received by the lenders), and that most of the debt the U.S. creates is offset by assets acquired. For sure, federal deficits are one cause of inflation, but debt and excessive spending in the private sector is much more culpable.
Compare Uncle Sam’s balance sheet and income statement with that of the average family. Suppose, for example, that a family has annual net income of $50,000, owns a home worth $200,000, and, holds other assets amounting to $100,000. Suppose, further, that the family has a mortgage on its home of $100,000 (interest at 9 percent) and other debt of $10,000 (interest at 15 percent). By anyone’s standards (certainly the standards of most lending institutions), this is a well-financed family with good income. And yet, its annual interest costs are over 20 percent of its income, and its debt is high relative to its assets. Uncle Sam is much stronger than that, and furthermore, although Uncle Sam’s income and expenses may fluctuate from time to time, he will not lose his job or his assets because of temporary economic conditions.
I abhor the increases in the national deficit and national debt, not because they are extreme but because the government is failing to address the necessity of “keeping some powder dry” to offset unforeseen contingencies such as war, disasters of all kinds and deep, long-lasting recessions. In fact, the irony in all of this is that the deficits have gone way up during times of greatest prosperity. But the alternatives of reducing government services and benefits and/or greatly increasing taxes are neither popular nor acceptable. In the meantime, those who do not invest their money in income and capital growth assets because of their fears of Uncle Sam’s fiscal policies are destined for disillusionment.