I really hate being picky about the way Progressives operate, but the lousy education that our unionized public schools offer their students proves that the low-information voter is being swindled. I think, even for Progressives, that is going a little TOO far.
As someone who has spent a life working in a financial role, the misuse of the words “debt” and “deficit” drives me insane. Those two words are NOT interchangeable. They are NOT describing the same thing at all. They are related, just like the words “cause” and “effect” are related.
Deficits create debt. Seems like a pretty simple concept, doesn’t it? Deficits occur when you run out of money before you run out of bills and you have to borrow money to cover the bills that your paycheck can’t. The money that you borrow becomes your debt.
As an admittedly simplistic example, let’s just suppose you have rent, a car payment, maybe a student loan payment, you tend to be one of those people who likes to eat occasionally, you have the latest cell phone, the latest iPad, the hottest new video game, maybe a couple of kids who also are downright annoying in saying they’re hungry all the time, a wife who likes to buy a new dress occasionally…well, you get the idea. Now you add up all your bills for the month and it comes to $5,000. Then you add up your paychecks and they only come to $3,500. Oops! You have a deficit of $1,500. What to do, what to do.
Well, you put the $1,500 on your credit card, and you pay your bills. You’re also created the first part of your debt.
Now let’s assume that this goes on for six months. Every month you spend $1,500 more than you bring home. Every month you add that $1,500 to your credit card. Everything is running smoothly now, right? Except that your credit card company has added a $50 interest charge over and above the $1,500 they loaned you. The next month, though, you owe them $3,050 (another $1,500 plus $50 in interest for the first month) and they tack on about $102 in even more interest. But everything is great. They keep lending you money so you can keep all that cool stuff that you’ve wanted, and that you’re obviously entitled to.
After six months, you open your credit card statement and you get a letter from the 1st National We’re-Too-Big-To-Fail Bank, telling you two things: (a) you owe them a total of $10,500 (the $9,000 that you put on your credit card PLUS the $1,500 that they added on for you in terms of interest on your debt) and (b) they’d really appreciate you paying it off – NOW!
So you contact your bank and tell them that they need to give you more time. And you get lucky, you’re told that they’re willing to work with you.
So you come up with a plan, and after using a really sharp pencil to trim the spending you’re been doing, you tell the bank that you’re going to reduce your spending by $100 a month. Wow, congratulations, you’ve cut your expenses a whopping 2%, right?
You were spending $5,000 a month plus interest for your friendly banker, and now you say you’re only going to spend $4,900 plus some interest for that same friendly banker. But, you still only earn $3,500.
The monthly deficit might go down slightly because of the draconian cuts you’ve made to your spending (ok, I’ll plead guilty there to sarcasm) but it does nothing at all to reducing your debt. As I said at the beginning, debt and deficits do not mean the same thing, but they are related in the same way cause and effect are related. Deficits create debt. But always keep in mind that although an increase in deficits will always increase your total debt, simply reducing that deficit will never, ever (cross my heart) reduce your debt. If you want to decrease your debt, you have to become acquainted with a new word – surplus!
Even with your new spending plan, including those heroic cuts that you’ve made, you are still going to run a deficit each and every month. You spend $4,900 a month and still only bring home $3,500 you are still going to be short by $1,400 a month. Oops again.
So you go to your boss and convince him or her that you really, really need a raise. In a weak moment your boss agrees to a 10% boost in your pay. So now you will bring home not just the $3,500 that you had been earning, but an added $350 for a total of $3,850. Problem solved? Well, actually, the answer to that would be – NO! In this example you would still be running a deficit each month of $1,050 a month. And that means that your debt will increase every month, even though your deficit might be reduced slightly because of the cuts you’ve made and the raise your boss gave you. Unless. Of course, you look at the raise you just got as a justification to spend even more. In that case, all bets are off and you probably work for the Obama Administration.
The key question for the student – Are you any better off, or has your bankruptcy merely been delayed a couple of months?
Knowing all the basics now, the next question should be: So what do these financial terms mean when they are used by the government?
Well when they use the term deficit, they mean exactly what the rest of us mean – they ran out of money before they ran out of bills, entitlements or pork barrel spending. When they talk about draconian cuts, they are really talking about still spending more than they took in from taxes, but not quite as much more than they wanted to. Still they will still spend more than they spent the year before. Debt is the money that we borrowed from China and other fools around the world to pay for things we, as a nation, really don’t need to survive and are for the benefit of those who support the current elite establishment, those benefits coming in terms of actual cash (can we all say “Solyndra”) or in terms of votes for re-election.
I feel confident that everyone reading Canada Free Press is aware of this problem, even if it’s at an instinctive level. But please use this very simplified example to try to get your low-information neighbors, your co-workers, your brother-in-law or any thumb-sucking Progressives that you might encounter (particularly those who call themselves journalists) to get the point across that the draconian (their word, not mine) cuts that Democrats in Congress and the Administration have made won’t change the trajectory of our total debt at all. It will still grow each and every year and they, yet, are treating that debt as if it was just some sort of an insider’s joke.
Please think of this essay as a public service. If the tens of thousands of CFP readers use it as a club to hammer home some understanding of fairly simple concepts, we might have a very slim chance to succeed in delaying bankruptcy almost indefinitely. You might even just print out a few copies and hand them out. I’m pretty sure the editors here at CFP won’t mind too much.
Originally published at Canada Free Press