Tuesday, December 23, 2008

The trouble with budget surpluses

The trouble with a government (or any big organization) running a budget surplus and sitting on a big pile of cash is that people start asking questions like, "Why don't we do something with that money, especially since there's so much to fix?" At that scale, having some cash ready for a rainy day is not an excuse that people are able to handle, especially when the quoted figure is in the billions of dollars. Surpluses may seem like a lot of money, although when divided on a per-person basis, they seldom amount to much at all.

In this deficit-infested time, it's easy to rail against profligacy in our budgets. I'm not trying to engage in what-ifs here. I'm suggesting a way we can avoid this same problem in the future.

We've been told that it's wise to save up for the future, to have some cash on hand just in case — folk wisdom that was reinforced by the big collapses this year. We also know that it's hard for most people to hear about a surplus in the billions of dollars without wanting to spend it on something.

If an even moderately sized government were wise and careful in its spending, it would quickly accumulate a large surplus. That large surplus would then get people dreaming about capital improvements, social services, and other goodies that drain the public purse.

Those who advocate for smaller governments would say that the problem could be solved by striking the problem at the root — shrinking the government and therefore its potential to accumulate large sums of money. But pools of large capital certainly have their advantages, and whether by conscious choice or mere political expediency a large government must stay large, it could do better to quote the figures based on the population of the governed; that is, on a per-person basis. This might make billion-dollar surpluses less distasteful to the vast majority of us, whose visceral reaction to large dollar amounts placed before us is to spend imprudently.

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