Why The Trillion-Plus-Dollar Federal Deficit Matters
Originally published: 12.01.10 by Terry Tanker
Last month I wrote about the upbeat message that economist Brian Beaulieu gave at the Nexstar Network’s Super Meeting held in September.
In short, Beaulieu said that we’ve weathered the worst economic crisis we will see in our lifetimes (if you are older than 40), and now’s the time to think big about how to grow your business. During the same presentation, Beaulieu, who works for the Institute for Trend Research, also discussed unemployment and the federal deficit, two dark clouds that will hang over our economy as it recovers into the middle of the next decade. He expects the unemployment rate to stay between 7%-to-7.5% into 2014, and government projections of our deficit hover around $1 trillion a year into 2019.
The good news is that Beaulieu sees these as challenges mostly for politicians, and there’s no need for them to dampen enthusiasm and action on the part of contractors planning for growth. Unfortunately, business owners won’t be able to escape all of the fallout.
As an industry, there’s not much we can do about overall unemployment. Obviously, contractors will hire new employees as needed, but we’ll have little impact on the national percentages. The deficit, however, is something that business owners could and should take action to reduce, Beaulieu said.
Why does the deficit matter to contractors? Most directly, an ongoing deficit will cause interest rates to move up, and based on how significant the deficit is, interest-rate hikes also will be significant — making it more difficult for hvacr contractors to buy equipment, plan new hires or training, and make other investments in their companies.
Building owners and homeowners, too, will put off major capital purchases. Additionally, the trillion-dollar budget imbalance will feed rising inflation, causing customers to choose between overhead/ basic goods and reinvestment in their buildings/ homes. And finally, and perhaps most scary, Beaulieu said that if the projections hold, by around 2019, the deficit could surpass 100% of GDP, which will drastically reduce our standard of living. (Greece’s deficit is expected to be about on 130% of GDP for 2010.)
Beaulieu isn’t the only one concerned about the deficit. Former Federal Reserve Chairman Alan Greenspan said in mid-November that the U.S. must act to rein in its massive budget deficits or face the risk of a bondmarket crisis followed by skyrocketing interest rates.
And Mark Zandi, chief economist at Moody’s Analytics, told the Associated Press: “If we get to 2013 and policymakers don’t look like they have a credible plan to deal with the deficit, then interest rates are likely to rise significantly, and that will jeopardize the recovery we have under way at that time.”
The government supposedly is working on ideas for reducing the national debt, but then again, they are the ones who got us into this hole. Beaulieu is urging contractors to support one of five ways he has identified for reducing the federal deficit:
1. Restore impoundment control to the President, which means President Obama and future presidents would be able to directly halt the funding of federal programs. This power was taken away by the 1974 Congressional Budget and Impoundment Control Act.
2. Force Congress to live in a pay-as-you-go system, prohibiting spending if the money is not in the budget.
3. Scrap income taxes at the federal level (see www. fairtax.org) for individuals and businesses. Says Beaulieu: “Can you imagine how many jobs would be created, how many empty homes would be filled . . . if we were to become the tax haven for the rest of the world?”
4. Hope for a “technological Hail Mary” that would give the U.S. a unique technology that could be licensed to the rest of the world. Although this is a long shot, we’ve done it before and have the resources to do it again.
5. Rebuild our culture from one of selfishness to one of selflessness, meaning do more to educate everyone about personal finance and the consequences of spending more than you make.
I agree with Beaulieu that it doesn’t matter if Republicans or Democrats are in power — both parties love to spend money; they just disagree on what to spend it on. Members of our industry won’t always agree on matters of government and public funding, but the federal deficit is something we can all rally around protest, and work to reduce. When the U.S. economy is stronger, we are stronger; and when it is weakened from an unbalanced budget, we all grow weaker — both as citizens and business owners.
Articles by Terry Tanker
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