If the US Can't Begin Serious Spending Reductions Now, When Will It?

Feb. 21, 2013
Unrealistic economic growth expectations won’t solve our fiscal woes; instead, we need to move ahead with government spending reductions.

Here are a few facts. Retail Sales in the U.S. in January were up 6.2% year-over-year. By way of comparison, the average of the last 10 years is 3.7%. January was up a healthy 5.0% year-over-year without the inclusion of automobiles. The seasonal decline off the Christmas high was the third mildest on record. Even when we consider inflation, the growth rate is above the 10-year average. Consumers have a solid balance sheet and they are spending - good news for the U.S. economy.

Yet despite the consumer-driven economic expansion, Alan Krueger, chief economist at the White House, recently warned that the recovery could be set back by federal spending cuts scheduled to begin on March 1. (First, let's be clear. The recovery is over, and the U.S. is in growth mode with GDP rising at record high levels).

He seems to be basing his fear on a CBO estimate that says the country's rate of growth could be shaved by 0.6% if the cuts are enacted, and this could lead to 750,000 fewer jobs created in the coming year. The reality is that we have to face the music sometime if we are ever going to get our federal budget deficits and national debt under control.

The hesitancy to embrace even this minimal amount of austerity raises the question of when will the U.S. begin to cut costs and thereby stave off the eventual financial collapse of our nation. Small changes now can have a huge impact later.

You may be thinking that the answer is found in a 4% growth rate. I have heard this answer espoused by both sides of the aisle, but neither proponent has offered a plan as to how this would be accomplished except by government enablement.

Here is a quick reality check: the average growth rate over the last 20 years is 2.6% (adjusted for inflation). Waiting for a 4% growth rate to take care of our national balance sheet is simply refusing to deal with reality and a lack of understanding regarding our operating environment. Business leaders need to grasp the fact that a 2.0% to 3.0% growth rate is the new normal. Accepting this fact and planning accordingly will be the most successful way forward.

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