Governments going broke

Throughout history, those societies with a high degree of economic freedom have not only been more prosperous, but healthier and happier.

The opposite is true for those whose governments heavily interfered in business and commerce. 

And yet, despite all the evidence, all too many governments seem intent on reducing economic freedom these days. 

They do so by spending enormous sums of borrowed money and taking away the ability of individuals to make decisions for themselves.

This is not the path to prosperity or freedom.  It is a formula for misery and national bankruptcy.

Binge spending

Individuals who insist on spending more than they make not only go into debt, they eventually go bankrupt.  The same is true for governments.

At some point, both borrow more than they can ever pay back. They reach that point even sooner when income drops.    

The hallmarks of government overspending are easy to spot.  They include wasteful programs, record deficits and frightening levels of national debt.

Last fiscal year, the U.S. government saw its tax receipts fall by more than 16 percent, yet its spending rose by more than 18 percent. 

That spending included more than $1 trillion in borrowed money, much of it earmarked for pet projects in the name of “economic stimulus.”  Such spending pushed the federal deficit to a record $1.4 trillion.

Not surprisingly, Congress recently raised the overall federal debt ceiling by $1.9 trillion to a record $14.3 trillion. 

To be clear, the blame for such fiscal irresponsibility is non-partisan. During the recent Bush administration, Congress approved eight increases in the debt ceiling totaling $5.4 trillion. 

From Britain to India to Mexico, debt ceilings have recently been raised, often to unheard-of levels.  Clearly, debt ceilings do nothing to limit government debt if they are continuously raised.

Do the math

When consumers max out their credit cards (charge the limit on them), is it wise to keep raising their borrowing limit?

When government debts rise, economic growth lowers.  On average, nations with debts exceeding 90 percent of GDP have less than half the growth rate of when debt is less than 30 percent of GDP.

By its own accounting, the U.S. government has unfunded liabilities exceeding more than $100 trillion, more than the entire value of the nation’s economy. Those liabilities include Social Security, Medicare and pension benefits that the government has promised to its citizens but has no money to pay.

With the world’s third-largest population – much of it rapidly approaching retirement age – the United States is facing the real prospect of bankruptcy.  Many would argue it already is bankrupt.

Deadly deficits 

If citizens do not hold their governments accountable and insist on fiscal responsibility, the situation can only go from bad to worse – a frightening prospect for those whose finances are already under pressure.

To overcome large deficits, governments have few choices.  These include raising taxes, cutting spending and inflating the volume of currency to water down debts.

The Bank of England has already chosen the last option (called quantitative easing) by creating £200 billion out of thin air.

The debt level of the Greek government has led its Prime Minister to suggest raising individual income tax rates as high as 90 percent while cutting Social Security payments by 10 percent.

For award-winning TV newsman John Stossel, U.S. government overspending is cause for concern – and some grim humor.

“I’d say they’re spending like drunken sailors,” quipped Stossel, “but that would be insulting drunken sailors, who spend their own money.”