The Positive Side of Budget Cuts
Published: Friday, 22 Feb 2013 | 1:24 PM ET
By: Ivory Johnson, CFP, ChFC, Founder, Delancey Wealth Management, LLC
Americans have witnessed three decades of economic success through the prism of cooked books and lofty promises – $85 billion in unceremonious budget cuts would be a rude awakening. Two roads diverged in a yellow wood and it looks like Congress might choose the sequester.
Voracious demands for small government notwithstanding, the United States economy experienced 13 straight quarters of gross domestic product growth until the military cut spending by 22 percent in the 4th quarter and broke the streak. Should the sequester take effect, 800,000 defense workers will be furloughed and other privileged dominoes are liable to lose their balance. (Read More: Voters Tune Out as Budget ‘Sequester’ Cuts Near: Poll)
It has always been quite the preposterous assumption that we can cut spending and grow the economy at the same extraordinary rates as when houses were used as ATM machines and C students lived like they got A’s. The government owes $16.5 trillion, borrows another $1 trillion each year and must satisfy the will of a voting populace intent on receiving $1.8 trillion in annual tax breaks for buying a house, medical insurance or saving for retirement.
There is, however, a silver lining to it all: Americans might rediscover the things that really matter in life.
Television ads, shopping malls and product placement marketing defined our success; credit cards only allowed us to buy it. Sure enough, consumer debt as a percent of disposable income jumped by 75 percent from 1980 to 2010, just as the economy became increasingly addicted to consumer spending, growing from 62.5 percent of GDP to 70 percent during the same period.
(Read More: Obama Warns Sequester Will Cause Job Losses)
What a terrible bargain.
Despite being the richest nation on earth, the United States is also the most anxious, with nearly a third of Americans likely to suffer from an anxiety problem in their lifetime. If one were to ask patients with a terminal illness what they regret not doing, it’s doubtful that anyone would mention a bigger house, a nicer car or a walk-in closet. With few exceptions, the luxury cars don’t make us happy; it’s the person in the passenger seat.
In some ways the Congress has the difficult task of tempering our material expectations without dampening our will to be great, to be responsible and to build something for our children at the expense of ourselves. What a delicate balance to maintain, to foster innovation and full employment while also satisfying debts accumulated over the last five administrations.
These things are imminently possible. Domestic industries are destined to evolve and workers will become better trained, but it takes time and it requires patience and it demands sacrifice and it means that some of us will not have as much stuff in the meantime. Petulant free market panderers may argue in favor of laissez faire economics, noting its many favorable qualities, but if capitalism were more than just a caricature of itself we wouldn’t be so concerned about these budget cuts in the first place.
Prehistoric humans lived shorter lives in part because younger generations, in dire need of shelter and lacking the requisite knowledge to build a house, ultimately displaced their elders. The American taxpayer, having demanded its cake and austerity measures too, is once again faced with a scripted day of reckoning.
We might find ourselves better off after all.
Ivory Johnson, CFP®, ChFC, is the founder of Delancey Wealth Management, LLC and has over 20 years of investment experience. He can be followed onDelanceyWealth.com. Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Delancey Wealth Management, LLC, A registered investment advisor and separate entity from LPL Financial.