CHARLESTON, W.Va. -- Americans have some tough decisions to make. We have been living it up for more than 40 years, enjoying a standard of living that could not have been sustained without massive borrowing by all of us, personally as well as by the government. And now we face the stark reality that we simply can't continue borrowing forever.
Without borrowed money, our standard of living will plummet. Inevitably. A lot.
The average standard of living is falling already, even as we keep on borrowing in an effort to sustain it. Real wages haven't kept up with rising costs for years, and people feel hard-pressed to pay for really valuable things like college educations and health care.
We're told that nearly 40 percent of the federal budget is paid for with borrowed money obtained from the sale of Treasury Bonds, which increases the National Debt. And that debt is already uncomfortably high. But that borrowed money is also essential: It feeds into our economy and provides jobs. If the federal government stops borrowing, many jobs will dry up. Obviously, that would lower the average standard of living still more.
What else may happen if the average standard of living continues to fall? Actually, there are only a few ways that it can fall, none of them pleasant:
* Unemployment increases. Government jobs are perhaps most affected, because most people are unwilling or unable to keep on paying taxes sufficient to avoid layoffs of teachers, policemen and firemen. But jobs in the private sector disappear also, as the economy slows.
* Wages fall. Real wages fall as jobs disappear and workers are forced to accept lower paying employment. They may also have to pay a larger part of the cost of benefits like health care and insurance -- benefits formerly paid for largely by employers. And wage increases have not really kept up with the cost of living for a long time.
* Taxes increase. Taxes will have to increase if essential government services are to be maintained without borrowed money as the economy shrinks. Both Jimmy Carter and Bill Clinton balanced the budget with tax revenues of about 12 percent of the gross domestic product, not counting Social Security taxes. The tax cuts initiated by George W. Bush dropped those revenues to about 8 percent of GDP, and the budget deficit skyrocketed into the wild blue yonder.
For years, starting with the Reagan presidency, it was claimed that reducing taxes would stimulate the economy and tax revenues would actually rise along with the GDP, lowering the federal deficit. Actually, the national debt roughly doubled on Reagan's watch, both in absolute dollars ($2 trillion to $4 trillion), and as a percent of the GDP (33 percent to 56 percent).
Economists universally agree now that this idea -- the central theme of Reaganomics -- was false.