President Barack Obama‘s State Of The Union address highlighted his vision for 21st century America that is built to last. It has the components that are targeted at creating jobs, reduce deficit, revive economy, improve checks and balances on government and businesses, and improve access to education, healthcare and other vital services. This plan is in sharp contrast with Republican formula which is based on the assumptions the cutting spending, taxes and regulations will solve all of our problems. No doubt, these factors are key to any effective and practical economic and financial planning. But, the problems are not as simple as being proposed by Republican presidential candidates. If these problems were so simple, then, no nation or even no individual would have never run into financial problems. All of us, even if we just deal with personal finances, family budget and day jobs or businesses, know that the issues are far more complicated then this simple equation and they are getting more and more complicated, day by day. We do not live in an era, in which our only needs to be fulfilled were food and sex. We have to deal with mortgages or rents, car payments, leases and related expenses, grocery, clothing, jobs and businesses, education, healthcare, finances, utilities, relatives, friends, co-workers, neighbors and a whole array of things, none of these can be avoided on routine basis. We all know that we cannot be one day late on any of our payments. Otherwise, we will have to bear the consequences, ranging from losing home or car or a service or job or having a lower score on credit report, resulting into higher cost of credit and inability or reduced and more expensive ability to get things like buying or renting a home or apartments, buying or leasing a car, getting student loan for yourself, spouse or kid, buying furniture or even get a job. We have to satisfy all these demands and needs on regular basis, even though we all know that cutting spending and budget is the best way to go.
These problems are obviously far more complicated and are on a much larger scale, when it comes to running the largest economy in world. Cutting spending and budget may not always be the available options. Just like when you have to decide between cutting spending vs. having a reasonable place to live, cutting spending vs. going to work, cutting spending vs. education of your kids, cutting spending vs. healthcare, cutting spending vs. having decent, weather appropriate clothing. You simply cannot just decide one day that we are not going to pay rent or mortgage anymore or not going to make car payments anymore or not going to pay for kids educational expenses or not going to pay for healthcare or not going to buy clothes anymore. If you must cut spending, you have to find ways to save money while you still have these basic necessities available for you and your family. It certainly does not mean that you can be lavish and could spend more then you can afford or you need to.
Indeed, you can spend as much as you want, if you can afford it. But if you are on budget, you have to tighten your belts. You may have to give up expensive brands, designer clothes, big ticket stores, big car and big home. But, things like kids’ education and business investments, which may not give a return, right away, you still invest and spend money on them because you know that this will be good for you, your kids and your family, in future. Government has to make similar decisions, too. There is waste and lavish spending that can be cut, right away. But, then, there is pending like healthcare, education, infra- structure, retirement, research, development and business financing which cannot be cut too much. The reasons for this are same as are in our individual, family, work and community life. These are the investments in future and are critical to the sustainability of any vital structure.
Take unemployment benefits, for example. During an economic recession or depression, unemployment rises, which results in reduced revenues for businesses and hence even for unemployment. To break this spiral, government provides unemployment benefits to laid off workers, so that a certain level of spending is maintained, which may spur hiring of new workers by businesses. To pay for these benefits, government has to balance between running increased budget deficits, hence increased deficit financing from printing more money, and increased borrowing. This increases the deficit and value to money causing inflation. Other option is to tax businesses and workers to pay for these benefits or a combination of deficit financing and taxes. Increased taxes on businesses reduce the chances of these businesses hiring more workers and increased taxes on existing workers reduce spending, which in turn reduces business revenues, resulting into decreased chances of hiring by businesses. Resultant government policies need to take all these factors into account and they are never a simple as no unemployment benefits at all or everyone keeps getting full unemployment benefits for ever. Responsible government policies must keep a balance between all these factors, and available and workable options.
This is why, like any individual, family or business, extreme approaches are not workable or recommended for governments, in any case. These extreme approaches may sound very simple, effective and ideologically satisfying, but, practically they are sheer disaster. Governments must balance the debt and deficits, with investments in future, revenues and taxes.
Therefore, it doesn’t matter what corporate, commercial media or lobbies owned politicians are telling us, we must not analyze any government policies on ideological extremes. Cut spending, reduce deficit and no taxes may sound very appealing, at first, but, we must understand that every responsible government has keep a very fine balance between all these contributing and affecting factors and principles.
Same is the case with public works projects. They increase the debt and deficits. But, at the same time they increase consumer spending, business revenues and hence employment.
Conquer the web with ExcitingAds!
Browse our Blog