It’s the spending

In the weekend edition of the Wall Street Journal, Stanley Drunkenmiller nicely sorts out the debate over governmental debt limits and governmental financial responsibility.

Mr. Druckenmiller is puzzled that so many financial commentators see the possible failure to raise the debt ceiling as more serious than the possibility that the government will accumulate too much debt. “I’m just flabbergasted that we’re getting all this commentary about catastrophic consequences, including from the chairman of the Federal Reserve, about this situation but none of these guys bothered to write letters or whatever about the real situation which is we’re piling up trillions of dollars of debt.”

He’s particularly puzzled that Mr. Geithner and others keep arguing that spending shouldn’t be cut, and yet the White House has ruled out reform of future entitlement liabilities—the one spending category Mr. Druckenmiller says you can cut without any near-term impact on the economy.

Let’s personify this.

Think of a person who can’t control they’re spending.  They consistently spend more money than they make and over a few years rack up a crazy amount of debt.

As they near their credit card limits, they call their card companies and stamp their feet and tell them that bad things will happen if the card companies don’t raise their credit limits.

Most of us can clearly see that the source of the problem in this situation is the person’s inability to control their spending.   It’s not their credit limits.

We also wouldn’t expect the credit card companies to raise their limit because we realize that will do nothing to solve the problem.

Yet, we have such a difficult time transferring this analogy to our government.  The very people who spent beyond control are stamping their feet to raise the debt limit.  That doesn’t seem smart.  As Drunkenmiller points out, we should deal with the source problem, spending.

Dave Ramsey would say, “act your wage.”

Now, some clever people will say that the government situation is different in two respects.  First, the government can forcibly tax us more to pay its debts, while it is unlawful for individuals to steal from others to pay their debt.

Second, they will say the government is essentially its own creditor, in terms of setting a debt limit because it sets the debt limit on itself.

In my opinion, both of these differences make the government situation even worse than the personal situation.  It  says the folks who cannot responsibly control spending have the power to steal whatever necessary to continue their bad spending habits.  At least on the personal level, the law and the credit card company act as checks against this irresponsible behavior.

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