A Spender’s Memoir

Visa Credit Card

Image by Images_of_Money via Flickr

Consumers know that it is psychologically easier to spend with plastic than it is with cash.  Cash seems more real, does it not?  Why is that?  I would say that the difference is the time factor.  With cash, the money is instantly subtracted from one’s net worth, whereas with credit, the effect is delayed.  Compulsive shoppers achieve immediate purchase gratification while delaying the pain of payment.  They live from paycheck to paycheck and when income falters they can descend into unmanageable debt.

It occurs to me then that the national debt and the budget deficit are very much like the credit-card problem the average consumer has.  Both Congress and the Executive have had a compulsive shopping problem that is driven and exacerbated by their constituency, the electorate.

The time problem with money is well-known and we have tried to fix it.  One method, which ought to have worked but didn’t, was PAYGO.  A review of PAYGO is instructive of the problem.  In fact, it is a veritable memoir of how we got in this mess.

What is PAYGO?  PAYGO in the U.S. “. . . is the practice of financing expenditures with funds that are currently available rather than borrowed”.  Also from the Wikipedia page,

 It compels new spending or tax changes to avoid adding to the federal deficit. It should not be confused with pay-as-you-go financing, which is when a government saves up money to fund a specific project. Under the PAYGO rules a new proposal must either be “budget neutral” or offset with savings derived from existing funds. The goal of this is to require those in control of the budget to engage in the diligence of prioritizing expenses and exercising fiscal restraint.

PAYGO was originally enacted in 1990, and it even included provisions for increasing taxes to compensate for extra spending.  If the budget projected additional spending for the following year, PAYGO required a “sequestration” of “non-exempt” mandatory programs to compensate.  What a concept:  living within our means.  Wow.

It was actually working for a while; by FY 2000 the federal surplus was 2.4%.  Yes, surplus.  That’s not a misprint.  But, by 2002 there was a deficit of 1.5% of GDP.  So, what happened?  Well, for one thing the dotcom bubble slowed the economy.  Also, Congress and president Clinton, apparently giddy from fiscal success, changed how they spent money.  Again, from Wikipedia,

Beginning in 1998, in response to the first federal budget surplus since 1969, Congress started enacting, and the President signing, increases in discretionary spending above the statutory limit using creative means such as advance appropriations, delays in making obligations and payments, emergency designations, and specific directives.[4] While staying within the technical definition of the law, this allowed spending that otherwise would not be allowed. The result was emergency spending of $34 billion in 1999 and $44 billion in 2000.

The PAYGO statute expired at the end of 2002. After this, Congress enacted President George W. Bush’s proposed 2003 tax cuts (enacted as the Jobs and Growth Tax Relief Reconciliation Act of 2003), and the Medicare Prescription Drug, Improvement, and Modernization Act. The White House acknowledged that the new Medicare prescription drug benefit plan would not meet the PAYGO requirements.

After PAYGO expired, budget deficits predictably returned:

In the first 6 years of President Bush’s term, with a Republican controlled Congress, the federal debt increased by $3 trillion. The public debt continued to grow after Democrats gained control of Congress in 2006, and the deficits averaged $1.25 trillion annually for the next 4 years under the Democratically controlled Congress.

Congress tried PAYGO again in 2007, but under pressure because of the Alternative

Alternative Minimum Tax

Alternative Minimum Tax, via Wikipedia

Minimum Tax and the Great Recession, effectively abandoned it less than a year later amidst a flurry of exceptions, exemptions and excuses.  By 2009 the budget deficit had grown to $1.42 Trillion dollars.  Central to the problem of course are the big entitlement programs, Medicare and Social Security.

What happened seems clear.  We made a law not to spend excessively, our income declined (the economy), we got cheated (the housing crisis), we ignored our own law, and now we are in a deep debt-hole.  Climbing out, I submit, is not just a matter of erasing huge chunks of spending as the Tea Party would have it – the economy is an engine that must have fuel.  The challenge is to give it just enough fuel that it will return to running on all cylinders, but not to starve it and cause it to stall.

Click on PAYGO for its Wikipedia link.

About Jim Wheeler

U. S. Naval Academy, BS, Engineering, 1959; Naval line officer and submariner, 1959 -1981, Commander, USN; The George Washington U., MSA, Management Eng.; Aerospace Engineer, 1981-1999; Resident Gadfly, 1999 - present. Political affiliation: Democratic.
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16 Responses to A Spender’s Memoir

  1. johncerickson says:

    I would like to see some form of nation-wide concept that would create jobs, boost technology, and help with our international leadership – much like the (admittedly jingoistic) lunar landing program JFK laid out in the early 60s. Whether an actual space program, a national high-speed rail system (my personal favourite, as it touches on technology, environment, infrastructure, and traffic congestion), or some widespread “green” initiative, I feel that some program, requiring multiple Administrations to complete, could help pull the nation out of the doldrums and unite the country – assuming any consensus could be found in today’s divisive political scene.


  2. Jim Wheeler says:

    Good thought, John. Sometimes my native pragmatism blinds me to the psychology of crowds. The glamour of the space program was second only to war in its inspirational value. But, I do have to qualify that – the enthusiasm was amplified by a justifiable Cold War paranoia.

    I for one would sure vote for the train, but somehow I think the train would be overshadowed by Lady GaGa and the next sensational murder trial. Call me cynical – it would be accurate. 🙂



  3. sekanblogger says:

    Great post and comments….all spot on.
    Wish I could add something, but Jim’s post reflected my thuogts already.


  4. ansonburlingame says:

    To all,

    My first reaction, nitpicking I suppose was the statement my Jim, “…we got cheated (the housing crisis),…”. Who exactly “cheated” and who exactly is “we”? Banks we encouraged, rather strongly, by the federal government to lend more money to people for homes. The end result was that many people, for many reasons, could not sustain their ability to repay those loans, both principle and interest. That with concurrent rising home values caused the bubble to burst. In that respect “we” all suffered. My home value has gone down a good 40% or so since 2007, at least. But I don’t feel cheated by anyone other than perhaps the government actions over a decade or so that laid the framework for the bursting bubble. For sure I don’t blame my own lending institutions which were and are not “fly by night lenders”.

    But on the other hand the blog, in its “tone” does not imply the problem is small or that there is an easy way out of the mess. Many, particularly liberals try that tactic all the time. “If we only raised taxes on the rich…..” type of logic.

    The question thus becomes had we stuck to a firm compliance with PAYGO, could our current mess have been avoided? Jim seems to think yes it seems. I think maybe. And of course none of us will ever know for sure, now.

    So then comes the question of will PAYGO get us out of our mess today. I think not, at least on its own. First, we the people do not have the “guts” to demand that our representative stick to PAYGO. Look at the screams from Joplin liberals over our disaster aid. If I suggested a form of PAYGO, which I have so suggested (cut elsewhere for our aid), I get blown away from liberal comments on the EC blog. There will always be an “emergency” for people to demand the money no matter where it comes from.

    Second and probably more important, PAYGO assumes that our budget today is “OK” as long as we don’t exceed the budget by piling on more debt in a given year. Well a $3.5 Trillion budget with income of only around $2.1 Trillion is NOT ok with me. We must first and simultaneously RAISE the revenues AND cut the spending to balance the budget. And we CANNOT or WILL NOT do either of those things, individually or together.

    If we EVER get to a balanced budget THEN PAYGO will work if we stick to it.

    But the first and harder step is required, in my view before PAYGO becomes a hope for a sustainable solution to our mess.



    • Jim Wheeler says:

      First of all, Anson, thanks for reading my post and pondering its meaning. I can tell that you did.

      By cheating on housing I am referring to massive-scale and downright illegal behavior by large mortgage companies who absconded with billions of dollars in the bundled mortgage business while reaping huge bonuses and blatantly ignoring rules and regulations for processing mortgage paper. They actually hired people to do nothing but sign bogus signatures on papers all day long – 60 Minutes did a segment on it. It is one of the high crimes of our times. Several high executives have recently been sentenced to prison for it. These crimes have put thousands of people out of jobs and screwed up the whole industry, all in the name of personal greed.

      Renew PAYGO? I agree, not practical at the moment. I was thinking about the same thing, and here’s the analogy that occurs to me. The nation is like a person who has lost his job and has had to take a part-time job instead, so his income is sharply down while he has many of the same expenses. He has been putting everything on his credit card, which maxes out August 2. He could try to make a sensible budget (PAYGO), but when he puts the numbers down on paper he sees that there is no way to make his part time pay match his needs, even if he pares the needs to the minimum. He asks the landlord to lower the rent and he refuses. He asks his part-time employer to raise his pay, and HE refuses.

      The reason PAYGO failed, as I see it, is that Clinton began cheating, small-time, and then Bush II came in and cheated big-time, including 9/11, the tax cuts, the Drug prescription plan and the two wars, all of which didn’t fit the PAYGO budget. So here we sit. At least, that’s the way I see it.



  5. Jennifer Lockett says:

    There’s an interesting article, complete with numbers, on MSNBC
    It’s actually comprehensible… mostly


    • Jim Wheeler says:

      That is another good summary.

      You know Jennifer, a really odd thought occurred to me. Maybe I’ve seen too many Hollywood thrillers, but what if this whole thing is a tight little conspiracy among just the top leaders of both parties? Just think about it. The debt crisis is real, but it presents an opportunity. The core problem is out-of-control entitlement spending, Social Security, Medicare and Medicaid, and a broken tax system. The rich are on a crusade against any tax hike and the middle class is holding on to Social Security and Medicare for dear life, and woe betide any politician who gets in the way. How can the leaders fix that and not offend their respective bases? Answer: let the crisis play out before the world audience and then at the last minute, both sides compromise with great reluctance. The world is saved and both political parties are heroes. Whaddya think? 😆


      • Jennifer Lockett says:

        Throw in a debonaire leading man and I think you’ve got a sale-able script!

        The only thing that makes me count against it is that I just don’t think our government is competent enough to pull off a wide-spread, entrenched conspiracy!


      • johncerickson says:

        Naw, George Clooney with the hideous mustache from “The Men Who Stare At Goats”. I HAVE to like that movie, or my goat buddy Blackjack will never speak to me again! (That’s him with me in my Gravatar. Not sure if I introduced him here.)


      • johncerickson says:

        There is an actor, i one of the nighttime crime shows if I recall, who’s also done commercials, who looks somewhat like a gangly Obama. He has the perfect ears for it, too! No clue as to his name, but he’d make a great Obama.
        Can we find ANY actor who can play down to the level of Joe Biden? 😉


        • Jim Wheeler says:

          You know, John, I used to have a low opinion of Biden too. He’s notorious of course for speaking too candidly. But Biden comes across as smart, honest and hard-working in Woodward’s last book, “A State of Denial”, and he hasn’t seemed to flaunt his ego as VP, or at least that I’ve seen. And heck, nobody’s perfect.


  6. Jim Wheeler says:

    John has a point – Clooney would be good – as a Boehner. How about Denzel Washington as Obama?


  7. ansonburlingame says:

    Sadly to all,

    A national crisis, in my view the biggest one ever faced by America, and we jokingly (I assume) deminish it to a conspiracy theory, complete with the Hollywood hero that will get us out of it. I suppose humor lightens the load of concern, but I don’t come here for humor most of the time. I come here to hear new ideas.

    I of course believe and have written for a long time now that the seeds of our crisis were planted long ago in the New Deal. Right programs or wrong programs for the “moment” in time (Depression) being beside the point. It was the process of dependency on government (starting with old people and SS) that has lead us to ever more dependency, particularly now for the middle class. And in order to be “fair” we EVEN “give” tons of scarce dollars to “rich” people in the form of Medicare and SS. Stop giving ANY of that money to “rich” people (means test both programs) and you will save more money than all the “cuts” currently being debated in DC, probably.

    But for sure our dependency has become so great that such means testing will not be enough, either. It would just be a start.

    No group of conspirators can sustain such a conspiracy for 70 years in a free society. And it took about that period of time for the “conspiracy of communism” to fall in the Soviet Union, a very closed society. And Gorby was no Hollywood actor. He was a shrewd politician that became overwhelmed by the simple laws of economics that brought down the Soviet Empire. Putin is also a very shrewd and tough politician trying mightily to rebuild that Empire. But the simple laws of economics prevent his achievement of “super power status” for Russia today.

    Obama is also a shrewd politicain and a “good” American, meaning loyal to America. But he too is violating some of those same economic laws (don’t spend more than you make) with results still to be determined for some.



    • johncerickson says:

      Anson – I won’t speak for the others, but for me, I felt that the whole “conspiracy theory” was,as you say, just some much-needed comic relief. If I made it sound like I was minimising the crisis or making light of peoples’ problems, then I apologise for that.
      And I don’t really think any of us were taking the conspiracy theory seriously.
      I definitely agree that the LEAST we can do is enact means testing. In my involvement with a church charity, I have seen some people taking free food, while driving a new Chevy Suburban, new enough that they could trade it in on a small, fuel-efficient car AND get money back on the deal. They are rare, but they do occur.
      And yes, means testing is not THE answer, simply a starting point. The ideal would be a top-down audit of our government spending – why do we subsidise “big oil”, why are we giving aid to Russia and China, where is all the pork like the infamous Alaskan “bridge to nowhere” coming from and going to, and so forth. Will that happen? Doubtful.
      As I said in my first comment on this post, what we need is a vision like JFK’s to unite the country behind some large-scale project, unite the various factions in the country to work together for America rather than working against each other, and if nothing else, restore some good feelings to being an American. The flaw in my argument is that we need someone like JFK to initiate it. (Mind you, that statement comes from a lifelong GOP voter and conservative.) And sadly enough, I don’t see such a face on the horizon.
      So forgive me a little chuckle at Jim’s humourous “conspiracies” – it’s a nice change from the usual “gloom and doom” from the political arena.


  8. ansonburlingame says:


    I was not trying to be critical of humor. It is needed, particularly in tough times. But sometimes I believe liberal seriousness borders on humor as well. Sadly, I might say also.

    I agree with most of what you said above, except in your call of a “national project” similar to going to the moon for a way out of our economic circumstances. It will not work in my view simply because government no longer has the money to launch such a massive project, of any sort. Obama has hopes that some form of “green energy”, driven by government “investment” will help, a lot he hopes. Again, I do not believe it wil or would work today.

    There is the now overused observation of $2 Trillion dollars in private money sitting on the “sidelines” today, far mor money than government could ever hope to spend for “investment” purposes. Government now spends more, much more than it current ly has JUST to sustain entitlements and defense in large part. NOTHING is available through taxes to even sustain that spending, much less “investment”. We cannot tax our way, alone, out of a $1.5 Trillion deficit, as you have heard me say or seen me write on numberous occassions.

    But I do agree that JFK (or Reagan) – like leadership, to capture the hearts and spirits of a vast majority of Americans is a way forward. But again, sadly, as I look around our political landscape today I see no such leadership, in Congress, the Executive Branch, the military, the intelligence community, or other parts of the vast government bureaucracy. Name one man or woman that would achieve the goal of the left and right political wings, together, having the respect and confidence to gain the support of 60-70% of such folks or all Americans together. We are simply too divided for such a man or woman to succeed today.

    Why is that you ask. I believe the problem(s) economically have become so huge that the only way out is very, very tough and unpopular decisions have to be made. When such decisions are made, they usually are decisions centered around War and Peace, historically, at least in a democracy. Some “force” beyond popular opinion, a quest for the “easy” way out is required, again in my view.



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