Common Sense Defense

Forget about the chart (courtesy of The Wall Street Journal) at the top of the page for a moment.

Imagine you are a reasonably successful. Married with two children with a nice house in the New York suburbs. You are making $150,000 a year. On the surface, life appears pretty good.

Unfortunately, though, mortgage and real estate taxes are taking about half of your take home pay. And, the bank just informed you that the monthly payments on your variable rate jumbo mortgage will soon increase by $400.00. Although you clear $95,000 each year after taxes, over $55,000 goes towards the house.

You are failing to save any money for your future (for college and retirement planning). Housing expenses are too high relative to your income. Common sense suggests that you re-structure your finances by moving to a lower priced house. While emotionally painful, you would be able to increase your savngs rate.

Now, lets go back to the chart above. The same lack of common sense applies to the government -- just add more zeroes. The 2007 Federal Budget stands at about $933 billion. Of this total, a gigantic $530 billion goes towards defense, State Department operations and Homeland Security. The analogy extends further. Long-term financial needs such as energy, health care, education and infrastructure spending are being shortchanged because there is so little left after defense spending. Common sense suggests that we re-structure our budget; cut defense spending by $100 billion and invest the savings in our future. At the very least, we could provide health insurance for every child in America.

Push aside moral questions about the Iraq War or the need to protect us against terrorism. Look at the facts. On military alone, we annually spend about 7 times more than China or Russia -- and 70 times more than North Korea. Hawks would argue that on a percent GDP basis, China, Russia and North Korea spend more. But at some point, percentages are no longer meaningful because our absolute spending level is so huge.

Given the choice presented to our illustrative family, many would opt out of moving and unfortunately live with the consequenses of under investing in their future. The sames goes with the Federal budget. It is highly unlikely that the Government will reduce military spending to fund long term investments.

It's too bad common sense doesn't prevail when it comes to financial planning -- especially when it comes to government spending.