OPINION:
Deficit reduction’s political potency is sweeping America - everywhere except Washington. It is coming not from the federal government, but from a fundamental change in the electorate’s view of debt in their own lives. As America’s families reduce their debt, they are demanding their governments do likewise. Far from a fad, it has become for them a way of life.
America’s families have long been highly leveraged. And as a result, the U.S. consumer and the U.S. economy drove the world’s economic engine.
Being highly leveraged was highly logical for America’s families. They were part of the world’s biggest, strongest and most highly diversified economy. Their per-capita income was the highest and seemingly unassailable. Their homes were a hedge against inflation - a great investment, highly liquid and great collateral for more debt.
U.S. companies were also highly leveraged and, of course, so was the U.S. government. All this debt was supported by the leading currency and securities, which were the world’s safest investments.
Middle-class Americans, while not as profligate as Washington, were hardly fiscally conservative. So they really did not call on their government to be. The pleas for federal fiscal prudence - often analogized as a need to return to how America’s families handled their finances - fell on largely deaf ears because Americans weren’t handling their own finances that way themselves.
Now in just three years, everything has changed - particularly in middle-class America. Those calls for fiscal conservatism are now resonating because America’s families are more than three years into the practice themselves. They have been doing so to a greater degree than Washington has even begun to contemplate.
According to the Congressional Budget Office (CBO), the government’s nonpartisan estimator, the federal deficit is 3 percent below last year’s level. Three percent would be laughably small were it not so lamentably inadequate in the face of historic peacetime deficits - almost a trillion dollars so far this year alone.
For a middle-class family, 3 percent is the equivalent of saving $6 off a $200 weekly grocery bill. That would mean switching from name brands to generics on a handful of purchases. It was the sort of savings they made in the first week of their fiscal constraints. They have long since taken that action up and down the length of their shopping list - and that was just for starters.
America’s middle class is cutting big chunks from everything as jobs are lost, hours and wages reduced, and homes foreclosed. The new race now is to get out of debt. It is a sea change for a generation, just as the Great Depression was two generations ago.
America’s families no longer have patience for Washington’s inane squabbling when their first - their only possible - reaction was to cut spending. Reducing costs resonates because it is what they have had to do. Liberal demands for more revenue have all the soundness of “winning the lottery” as a fiscal solution in their lives. Today, there is no more money to be had, so checkbooks aren’t opened, belts are tightened.
America’s families see Washington’s approach as a nonsolution - a phony promise with no connection to reality.
They see Washington still stuck in an extended debate in the checkout line at the grocery store. This is where America’s families started more than three years ago, when they realized they needed to take some items out of the shopping cart and put them back. Washington still does not get it.
Virtually nothing has been pulled from Washington’s shopping cart. According to the CBO, so far this fiscal year, spending is up 4 percent from last year at this time. The deficit reduction Washington has achieved has come from an almost 9 percent increase in tax revenue, including a whopping 24 percent increase from income taxes. In other words, Washington’s deficit reduction has come from America’s middle class, the same folks who have been making cuts for more than three years.
Only in Washington are there still Americans who today feel comfortable spending money they don’t have. The capital has fallen fundamentally out of step with America and its new fiscal values. While Washington continues to march to a different drummer, it still cannot pay the piper. It’s no wonder America’s families are refusing to foot the bill anymore.
J.T. Young served in the Treasury Department and the Office of Management and Budget from 2001 to 2004 and as a congressional staff member from 1987 to 2000.
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