In future planning and engineering economy the concept of sunk cost is important. A sunk cost is an expenditure or action that has occurred in the past and while it may have contributed to the present situation for the future, sunk costs have no relevance other than perhaps to give some historical background.
Effectively, where we are is now and how we got to now has no relevance. I think it is about time to apply this kind of thinking to our country”s future. We are where we are, and no amount of blaming is going to help. The country is in a hole, now it is time to climb out.
At present our country is faced with a national debt of more than $14 trillion. Because of the level of the economy and its unique requirements we face substantial operating deficits. And at present, our country”s spending level is roughly 25 percent of its Gross National Product; while its revenue is roughly 15 percent ? less than any other developed country. Not a favorable basis for reducing the operating deficit. And without operating surpluses there can be no reducing the national debt. It”s just that simple.
No one likes unnecessary spending; no one likes paying taxes; no one likes continuing deficits and no one wants to have an ever increasing national debt.
The big problem is that the only tools the country has to improve the current situation are the management of spending and revenue. Even worse, at this point no one knows what the correct priorities and amounts are for spending nor do we have any idea what fair taxation is.
Certainly cutting a fixed percent of all spending is not the answer at least until the public is willing to accept a lower level of service from both public and private organizations. As spending of all sorts is reduced, sadly jobs are lost and the country ends up having to spend more for things like unemployment while losing the revenue from those now without jobs. Too, the spending then can be cut. Discretionary spending is little more than 20 percent of the total federal budget.
Theoretically, defense spending is discretionary, but too often is held off the table. It should not be. The easiest way to restore balance is simply to raise the taxes of those who can afford it as was done after WWII. But at present no matter how it might help things, suggesting a tax raise is as impolitic as it is correct.
There are two 800-pound gorillas in the budget process, plus the servicing of the national debt: Medicare and Social Security. The people of the country have to face reality and recognize that changes in these simply have to be made. And understand that most of the problems are because the government did not want to increase the revenue to offset the increase in expenses because of improved and expensive medical technology and the fact that people are living longer. The country has, long ago, decided that both Medicare and Social Security are essential parts of American life. The problem now is the need to make them function more efficiently and raise the premiums to offset the losses. In the case of Medicare, some of the end-of-life attitudes are going to have to change as are the coverage of non-essentials, second opinions and the fact that limited resources need to be rationed.
One way to come much closer to reducing the operating deficit is to cut defense spending. We now pay more for defense than the next 10 countries in the world combined.
Frankly we already have all the military assets we need and there are many ways to realize savings. Our biggest weapon is not even defense connected. It is our economy and the reality that if China, for example, attacked us or the EU, its economy would crash for lack of customers. Perhaps the saddest fact is that we also have the world”s highest levels of paranoia and ego.
My personal view is that our priorities for funding management should emphasize what is best for the United States and increasing unemployment. Then we get to play the fun game of facing the reality of raising revenue if we are ever going to get to operating surpluses and reducing the national debt. The important thing is for us to get out of the hole we are in and stop worrying who dug it.
Guthrie Worth
Lakeport
