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CURL: Econ 101 for dummies

- The Washington Times - Sunday, September 18, 2011

Here is the situation the United States is in right now: Tax revenue 2011: $2,170,000,000,000 (that's trillion)

Annual budget: $3,820,000,000,000

New debt: $1,650,000,000,000

Total national debt: $14,271,000,000,000

Latest budget cuts: $38,500,000,000

To make sense of the numbers, just remove eight zeroes and pretend it's a household budget:

Income: $21,700

Expenses: $38,200

New debt: $16,500

Outstanding debt: $142,710

Budget cuts: $385

So, there it is. Simple. If you make $21,700 a year and you spend $38,200 a year, you got a problem - a $16,500 problem. Sure, you could be bold, like Congress, and trim out $385 (for comparison, that's like a guy who buys a pack of Dentyne Ice once a week at the gas station trimming back to a pack every other week). But that would only cut our new debt to $16,115 - not really a long-term solution. (It isn't even a short-term solution: That's like cutting your overspending by just over 2 percent. Forget it, just get that extra pack of gum.)

But here's what's worse: You've been doing it for nearly nine years. You've spent nearly twice your income for nearly 10 years, and you've dug one big ol' hole.

Now, you've got a few solutions. You can trim back your lifestyle by about half. Two weeks at the beach, oceanside, for $7,500? That's out. No more beach. Dinner out twice a month all year long, at a $100 a pop? Gone. There's another $2,400. But you're still $6,600 short. So cut the cable-TV bill, no more data plan for the cellphones, set the thermostat at 74 in the summer, 68 in the winter. And forget those $5 lattes. In fact, it's bag lunch and a lot more mac-and-cheese for dinner. And no, you can't buy even one of those "As Seen On TV" products. Not one.

Those cuts might just get you there. But wait, you've still got that giant pile of debt you're hauling around, year after year. Sure, you'll break even for this year, but what about that $142,710 debt? To clear off all your debt, in, say, 10 years, you'd have to pay off $14,271 a year (and that's at 0 percent interest - you got that, right? Sure, with your credit rating, no problem.) But you've been living like a 38-thousandaire. No way you can suddenly live like a 74-hundredaire.

OK, then, pay it off over 20 years. That means you've got $14,565 to spend each year. But wait: You now spend $38,200. To do that, you'd have to cut your budget - each and every year for 20 years - by more than half, 62 percent.

After pulling your hair out, you decide to check with all your friends and family members - especially Uncle Barack, who went to Harvard (unlike your own kids, who will have to make do with community college). Uncle B. says you got it all wrong: You gotta spend that $38,200, PLUS another $800. (Woo-hoo, lattes for everyone!) And next year, add another $500 on top of it all. That'll stimulate everything - no, you won't make more money, you'll just add more debt, but, hey, you'll be stimulated, for sure. Everyone will be!

Yes, this is the State of the Union, circa 2011. And where are the candidates advocating that America cut its budget by a third (as this fictional household would have to do)? Where are the candidates saying that it's going to take even more than that - the 34 percent cut simply balances the money in/money out equation. We're $14 TRILLION in debt. To pay that off - even in 20 years - would take nearly a two-thirds cut in the annual budget - again, 62 percent.

But never you fear. Uncle Barack is dropping by Monday to lay out a longterm debt-stabilization plan that would cut this family's total debt by $2,000 - over the next 10 years. Phew. So, in 2021, their debt will drop from a whopping $142,710 all the way down to $140,710.

Yeah, its community college for the kids. And seriously, no more lattes. On the other hand, maybe it's time to give Uncle Barack's advice a pass and turn to a professional, someone who really understands how personal finance works.

• Joseph Curl covered the White House and politics for a decade for The Washington Times. He can be reached at jcurl@washingtontimes .com.

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