In the seven or so years that I’ve been doing radio in Bozeman, the National Debt has gone from $7 trillion to over $15 trillion. In that same amount of time, the G.D.P. (Gross Domestic Product) increased about $1 trillion. To put that into perspective, suppose your household debt increased 8 times while your income increased only 1.5 times.

I think that would put a little bit of a crimp in your lifestyle. When I started radio our debt to GDP ratio was around 65% — today it’s about 103%. In other words, for the first time since World War II, we are borrowing, and spending, more money than we are taking in.

When exactly does debt hurt?

If Bill Gates and I both buy our own private Gulfstream jet planes, which of us will have the tougher time making the payments? If you said me — you would be correct. So, it’s not really the size of the debt that’s the problem, it’s being able to service that debt, and that is the root of the problem. Government can operate at a loss while private industry cannot. Private industry has to live within its means. It can acquire debt but it must be able to manage that debt without putting the company in jeopardy and reducing investor confidence.

We keep hearing a common refrain, that we should operate government more like a business. That we should not be spending money we don’t have, on things we don’t need. In a previous article I spoke of a $253,000 grant from the Stimulus Act of 2009 being used to study votes in Africa. It would be pretty hard to make a case that a lot of jobs will be created with that grant.

We Balance Our State Budget; Shouldn’t Government Do The Same?

It’s been over three years since congress has approved a national budget. Never mind that one is required by the Constitution. The difference between the budget of the State of Montana and the budget of the United States is a matter of semantics. They are sort of alike, but not really. Montana, like most states, actually has two budgets. They have an operating budget and a capital budget while the US puts everything in a single general fund and appropriates the money as congress decides. Under this system the government can run deficits that state governments cannot.

The operating budget covers the general expenses of running the government of the state of Montana. Things like keeping the lights burning, paychecks going out, stamping out license plates and collecting property taxes, along with all the other services of the various departments that citizens require.

The capital budget does things like fix bridges, repair highways and other capital projects as needed. Sometimes it’s necessary to borrow money, or float a bond issue, to acquire the funds to build a school or fix those bridges.

What Should Our Debt to GDP Ratio Be?

In my opinion, in order to have a strong economy, both at home an abroad, our debt to GDP should fall somewhere between 40 to 60%. This still gives the federal government the flexibility to borrow without doing harm to the economy or creating fear and inflation. So on a $15 trillion dollar GDP (Income) an ideal debt level would be between $6 and $9 trillion. Obviously staying to the lower side would be preferable. And again, keep in mind, it’s not so much worrying about paying off the debt, but being able to manage the debt.

How is Debt Managed?

By managing it, the US pays the interest on the debt. The debt is constantly going up and down based on when bonds become due, and when new ones are sold. In addition, there is the value of goods and services we produce here, and around the world. To simplify everything, all we need to do to manage the debt, is to keep the interest payment on our debt at a manageable level. And that’s what we’ve been doing for years until 2009.

The last time America was debt free was in the 1830’s. Ever since then we have borrowed money to make things happen in this country. We borrowed for the Louisiana Purchase, the national highway system, and the space program. Should we have waited on all those things until we could pay cash for them? If we did, there’s a good chance we would still be putting coins in the piggy bank hoping we could afford them someday. So debt does have its place, and used properly, both in your own home and in the halls of congress, it can move us forward to a better more prosperous nation. Think about how, and for what, your money is being spent. If you are unhappy with the use of your tax dollar, then let your state and federal representative know, by phone, email, letter or in the voting booth.

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