Pay now, pay later, it'll hurt

If we ran our family budgets the way the federal government runs the national budget, we would end up bankrupt. That's the argument from critics in the United States and Europe, rightly horrified by mountains of debt of a size our brains can scarcely comprehend.

The problem with that line of thinking is that the national economy and our home budgets are two completely different operations.

In fact, if we ran the federal budget today the way one runs a responsible family budget, we might just send the economy into a catastrophic tailspin. That's particularly true at this moment, when the U.S. and, indeed, the global economy, have barely managed to climb out of the abyss.

We should certainly worry about the size of the deficit and about how much money the United States -- American taxpayers -- owes its creditors. For just this year the deficit will exceed $1.5 trillion.

If you add the deficits accumulated over the years, all the money the federal government has borrowed, pays interest on and must repay, that number totals a breath-taking $13 trillion. No calculator I own has enough digits to write it: 13,000,000,000,000. The rounding excess I've left out is larger than many countries' annual expenditures. If you spent a million dollars every day it would take more than 35,000 years to accumulate expenditures of this size. The Treasury says that America owes almost a trillion dollars to China and about $250 million to a group it calls "Oil Exporters," which includes the likes of Saudi Arabia, Libya and Venezuela.

This seemingly insurmountable debt and its geopolitical and economic consequences unquestionably are reason for profound worry. We must take action to slash the annual deficits and start bringing down the debt. Everyone agrees that a reckoning awaits us, as it does every Western economy that has spent far beyond its means.

The bitter disagreement, or at least the first of what promise to be acrimonious arguments -- centers on when we should begin the arduous job of cutting spending and/or raising taxes. The question reminds me of old academic debates in college economics courses. The question of when we tackle the deficit will have a potentially life-changing impact on all Americans and, ultimately, on the entire world.

On one corner of the debate stand European governments and conservative Americans in the mold of Wall Street Journal editorial writers, who argue the time to start slashing is now. The just-completed (at a cost of $1 billion) G20 summit in Toronto vaguely signed on to this view. On the other corner stands Nobel Prize-winning economist and New York Times columnist Paul Krugman and his ideological soul mates who warn cutting now will trigger a full-fledged economic depression. Krugman argues this is the time for the government to spend even more, as some in the administration propose, in order to bolster a flagging economic recovery and a stubbornly high unemployment rate.

After economists studied the Great Depression they concluded that the government took all the wrong measures in the 1930s, making a desperate situation worse. Those lessons helped after the 2008 financial meltdown, when bailouts and stimulus packages prevented an even greater disaster. But now the economy has stabilized enough, and the Greek debt crisis has scared policymakers enough, that people want to see the government roll up its sleeves and start cutting.

When you hear the arguments from those who say we need to cut now, and those who say cutting now will invite catastrophe, they both sound convinced of the rightness of their views. The fact, however, is that both sides offer their best educated guess about how the economy will respond. Businesses are not spending or hiring because they, like us, know that higher taxes are coming, and they, like us, wonder how reliable this semi-recovery really is.

In the long run, the future holds painful spending cuts, sharp tax increases and spectacular political battles. In the meantime, what should we do? My sense is that the government has spent enough on major stimulus programs. It's time to let the private sector get back to work. Contact Ghitis, who writes about global affairs for The Miami Herald, at fjghitis@gmail.com.