The kitchen table conversation about what we can afford

March 1, 2013 at 11:40 AM Leave a comment

An elderly couple I know had a division of labor at their house many years ago: Ed was responsible for financial planning, saving for retirement, etc.  Marge was responsible for day-to-day bill paying.  One day, when times were tough and the bank account thin, they received a notice that they were overdrawn. 

            “How did this happen?” Ed asked Marge.

            “Well, it could be those checks I wrote to charity,” Marge said sheepishly.

            “But did you check to see if we had money in the account?” Ed asked.

            “No, I assumed we did—because we still had checks,” she replied.  “Ed, you should have seen those people—they needed coats, and groceries.”

            The reason I bring this up is that I think our country’s finances currently work a lot like this.  We continue to write checks, because there are checks left in the checkbook, not because there are sufficient funds to pay them. 

And, we are doing it for the best of reasons: because we are trying to assure our neighbors get things we feel are human rights, namely health care for the elderly, the disabled, and the poor.  We are scrimping on repainting the house, fixing the water heater, and funding the kids’ college accounts, all to write checks for more health care.  It is borne out of compassion, and many of us feel pretty noble about that.  We’re not going into debt for ourselves, but for the benefit of the sick and the needy.

But compassion or not, there is a day of reckoning when we realize that we can’t continue to spend what we don’t have and aren’t likely to earn in the future.  Many of us think that day is today.  Or maybe yesterday.  In any event, with the debt we’ve incurred, the interest payments alone would be enough to worry Ed and Marge that they’d never catch up.  They’d know that they just didn’t have that many raises left in their working lives. 

The sequester, taking effect at midnight absent a miracle, is an attempt to deal with something like Ed and Marge’s predicament.  While we as a nation made pledges to charity (and bought a big house) based on the thought that we would have ever increasing incomes, the reality is not so rosy in a tough world economy.  Generous people that we Americans are, we’ve taken no raises in the aggregate for ourselves in this last decade; all of our raises have gone to paying interest on our past generosity and increasing that generosity through more health care spending.  The president’s Council of Economic Advisers projects that on our current trajectory, that trend will continue through at least 2040.  As a result, our standard of living has stagnated and will continue to do so in the next quarter century.

Ironically, the sequester makes cuts to almost everything but the main thing that is putting us deeper in debt: Medicare and Medicaid.  If we are ever to stabilize our debt, we’re going to have sit down at the kitchen table, and figure out what proportion of our income will go to health care to reflect the compassion we feel for our neighbors.  But what’s left must still allow us to fix the water heater, paint the house, and start putting money into the college fund again.  We can figure out that number, just like Ed and Marge did.

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