Balanced budget might be the cure for what ails us

"Budget deficit" is a widely used term these days. Almost everyone claims to have one, from your Aunt Tilda who is living on her pension and Social Security income to the governor of California struggling to keep afloat one of the top 10 economies in the world.

In reality, of course, we have no shortage of budgets. When most of us use the term "budget deficit" -- I've been known to do it occasionally -- what we mean is "not enough revenue to cover all the things we want."

Sometimes that's called a "revenue deficit," but that's not exactly accurate either. Regardless of total revenue, a "deficit" only occurs if you want to spend more than that.

Budget crises occur when spending gets out of hand. And that's has generally happened in the boom years leading up to the current recession. As long as the economy was "exuberant," as Alan Greenspan liked to say, there was more to spend every year. And spend we did.

Even though the current economy has slowed revenue growth or even created declines, revenue has not gone away. Despite the credit meltdown, stock market collapse and jobless increases, governmental entities that create budgets still have income, and in most cases it is nearly as much income as before the recession hit. However, the fact that income isn't growing rapidly, coupled with the customary spending increases of the good years, has created this beast that wants to gobble up way more than the food dish holds.

Big government, big gap

It's interesting to observe that budget constraints become exponentially less of a factor as spending grows larger. That's why small governmental entities like school districts, towns, counties and states struggle to budget no more than they expect to take in. In most cases, there are legal constraints that require balanced budgets. But the federal government -- the biggest spender by far -- routinely spends more than is available from all revenue sources. What we've borrowed in excess of what we've taken in is called the national debt.

The national debt is not to be confused with the national deficit. The debt is everything the federal government owes on what it has borrowed plus interest. The deficit is the amount the government budgets -- plans to spend -- this year in excess of revenue -- what it expects to take in this year.

State governments, including Missouri, are bound by their constitutions not to spend more than they get. This limit is sometimes skirted by massive bond issues for things like highways, in which case the state's future ability to spend the revenue it gets is limited by the cost of paying off the bonds over a period of years. This time-honored exception to the "don't spend more than you take in" rule usually requires voters' approval, and it gives the state (or county or town or school district) access to money when there's an urgent need instead of waiting.

Waiting to spend

Another mechanism state government has for keeping spending in line with revenue is called withholding. It's the same thing a prudent family does with its own budget. Let's say a two-income household takes home $50,000 a year after deductions. That's the amount the family can expect to spend without running up big credit-card balances or borrowing. But if one of the wage earners thinks there's even a remote possibility he or she might be laid off, it would be smart to hold off on spending all of that take-home pay. This might mean putting off a vacation or waiting to buy another car. If the layoff occurs, the family budget is intact. If both wage earners still have jobs well into the year, they might feel more comfortable going ahead with a major purchase.

In Missouri, the legislature appropriates spending. But the governor has the authority to withhold some of those appropriated funds for several months to see if projected revenue materializes as expected. If so, the funds can be released. If not, they aren't made available for spending.

The federal government, however, has a long history of spending far more than it plans to take in. This is why "pork-barrel spending" -- appropriating dollars for projects that may or may not be essential but have far-reaching political ramifications -- is such a big deal.

Ordinary taxpayers who live within their means and set aside some of their earnings for a rainy day or future needs have a hard time understanding a federal budget that seems to take no heed of revenue. And many of these taxpayers measure their disgust by the multimillion-dollar spending on those strange projects that always get mentioned when pork is in the spotlight.

Government's lubrication

But when the government is spending trillions of dollars, mere millions or even billions of pork is little more than a blip. Pork is the lubricant that makes legislative deal-making avoid a lockup like the current credit crunch.

Does this make pork spending OK? The answer depends on your tolerance for political reality. Pork is a part of the process, and it's not going away.

Instead of focusing on a small bit of the federal budget, it makes more sense to look at vast spending programs designed to stimulate something so fluid and cantankerous as "the economy." Wizards, both financial and political, claim to have a plan to set the economy on a sound course -- by which they mean, of course, a return to exuberance and carefree spending.

But economies tend to right themselves. Costly intervention can as easily exacerbate a recession as cure it. Bailouts usually have short-term consequences. Stimulus dollars quickly become entitlements.

And while pushing for trillions of dollars to stimulate the economy, President Obama says he can cut the federal deficit -- not the debt, which would continue to grow -- in half, but it might take a few years.

Too much tinkering can be bad for the economy. Giving Americans hope can cure a lot of financial woes. Might balancing the budget be a way to lift us out of this dark hole?

jsullivan@semissourian.com