Pay now or later, it will hurt

Opinion: July 9, 2010 at 12:00a.m.

If we ran our family budgets the way the federal government runs the national budget, we would end up bankrupt. That’s the argument from critics in the United States and Europe, rightly horrified by mountains of debt of a size our brains can scarcely comprehend.

The problem with that line of thinking is that the national economy and our home budgets are two completely different operations.

In fact, if we ran the federal budget today the way one runs a responsible family budget, we might just send the economy into a catastrophic tailspin. That’s particularly true at this moment, when the United States and, indeed, the global economy have barely managed to climb out of the abyss.

We should certainly worry about the size of the deficit and about how much money the United States — American taxpayers — owes its creditors. For just this year the deficit will exceed $1.5 trillion. If you add the deficits accumulated over the years, all the money the federal government has borrowed, pays interest on and must repay, that number totals a breath-taking $13 trillion. No calculator I own has enough digits to write it: 13,000,000,000,000. The rounding excess I’ve left out is larger than many countries’ annual expenditures. If you spent a million dollars every day it would take more than 35,000 years to accumulate expenditures of this size. The Treasury says that America owes almost a trillion dollars to China and about $250 million to a group it calls “Oil Exporters,” which includes the likes of Saudi Arabia, Libya and Venezuela.

Cause for concern

This seemingly insurmountable debt and its geopolitical and economic consequences unquestionably are reason for profound worry. We must take action to slash the annual deficits and start bringing down the debt. That’s not just the view of patriotically attired tea partiers or fiscally conservative Republicans. Everyone agrees that a reckoning awaits us, as it does every Western economy that has spent far beyond its means.

The bitter disagreement, or at least the first of what promise to be acrimonious arguments — centers on when we should begin the arduous job of cutting spending and/or raising taxes.

On one corner of the debate stand European governments and conservative Americans in the mold of Wall Street Journal editorial writers, who argue the time to start slashing is now. The just-completed (at a cost of $1 billion) G20 summit in Toronto vaguely signed on to this view. On the other corner stands Nobel Prize-winning economist and New York Times columnist Paul Krugman and his ideological soul mates who warn cutting now will trigger a full-fledged economic depression. Krugman argues this is the time for the government to spend even more, as some in the administration propose, in order to bolster a flagging economic recovery and a stubbornly high unemployment rate.

Learning experience

After economists studied the Great Depression, some concluded that the government took all the wrong measures in the 1930s, making a desperate situation worse. Those lessons helped after the 2008 financial meltdown, when bailouts and stimulus packages prevented an even greater disaster. But now the economy has stabilized enough, and the Greek debt crisis has scared policymakers enough, that people — thinking about what they would do if their family budget creaked under heavy debt — want to see the government start cutting.

When you hear the arguments from those who say we need to cut now, and those who say cutting now will invite catastrophe, they both sound convinced of the rightness of their views. The fact, however, is that both sides offer their best educated guess about how the economy will respond

Frida Ghitis writes about global affairs for The Miami Herald. Distributed by McClatchy-Tribune Information Services.