The Fiscal Cliff and the Basics of Bookkeeping

January 22, 2013

Revenues and expenses were some of the first concepts I learned in my first high school bookkeeping class.  It was axiomatic that every good business’s balance sheet has column “A” equal to or greater than column “B” at the end of the day, month, or fiscal year. Unless you are tight with your local banker and have an established line of credit, the balance sheet has to, well, balance.

Now introduce politics into the accounting equation for running a government and you might just wind up with a balance sheet that doesn’t balance. Every political stripe wants to promote its agenda of programs and strategies all for what may be well-reasoned and morally imperative.

We are long removed from the times and circumstances of 100 years ago when the federal deficit was a ridiculously low adjusted $483 million.  Historically, we can point to so many national and world events that account for some of this experience.

Veronique de Rugy from George Mason University provides some interesting information about government deficits in the following chart:

Obviously deficits aren’t anything new. Time magazine’s Claire Sudduth wrote:

“Deficits aren't always bad: excess government spending can help alleviate the pain of an economic downturn by encouraging business and curbing unemployment (this is the theory behind the New Deal and Obama's stimulus package). But that doesn't mean that deficits are good, either.”

When we look at Niagara Falls, it’s obviously a very beautiful natural resource.  In the west we might say it represents a terrible waste of precious available water that, if diverted, could dramatically increase crop yields per acre in eastern Colorado.  Yet for a Buffalo, NY area resident, the idea of diverting the Niagara River flow would be seen minimally as a tourism disaster or potential international conflict. There are usually at least two sides to any story and talk of deficits is no different.

The real issue is how we might engage a conversation about government deficits that is not as polarized as the recent fiscal cliff wrangling.  Can our Congress rationally, within the things that Americans think are really important, discuss whether they have the money in their pocket or whether they have to pull out the plastic?

America is at a political and economic crossroads, which if not resolved, puts us and future generations in the proverbial barrel about to roll over the Niagara Falls brink.

Do you have any ideas for how our Congressional representatives (US senators and US representatives) can find real solutions to these enormous issues? Share your thoughts by leaving a comment.