The Great Debate

Now that federal government shutdown has been averted, it's a good time to examine what's at stake for most of America in the crucial next round of budget talks.

Not doing anything to reduce the size of government debt will be catastrophic. Not much quibble there. But acting hastily and cutting the wrong things can be even more costly to social and economic welfare.

Neither the Republican nor the Democrat's budget plans for 2012 will meet the major challenge of sustaining social programs while cutting the most egregious waste.

Since the GOP budget proposal has been published, let's eye that first. The 2012 budget template, released by Paul Ryan, Republican chairman of the House Budget Committee on April 5, cuts $6.2 trillion from government spending over the next decade. Some clarity is needed here in the semantics of this plan. Cutting is not the same thing as "improving" or "reforming."

One of the hallmarks of the Ryan plan -- a GOP campaign document for 2012 -- is cutting top personal income-tax rates from 35 percent to 25 percent. As part of his "path to prosperity" theme, he estimates that along with other cuts and a lower corporate tax, this will create 2.5 million private-sector jobs, lower the unemployment rate to four percent by 2015 and add $1.5 trillion to real Gross Domestic Product over the next decade.

That whole Age of Frugality thing didn’t last long, did it?

U.S. real personal consumption grew in February at a respectable 0.3 percent clip, the fifth straight such monthly rise, a fact widely greeted as news that the recovery is on course. The fly in this tasty soup, however, is income, which in real terms didn’t increase at all, not even by one tenth of a percent.

American’s did this neat trick — spending more while earning the same — the old fashioned way: they cut back on luxuries … like saving.

Savings as a percentage of disposable personal income fell to 3.1 percent from 3.4 percent the month before and down from a recent peak of 6.4 percent in May 2009. In fact, the last time the savings rate was lower was October 2008 when a market maelstrom was convincing so many people, apparently falsely, that something rather dangerous and important was wrong with the economy. In real terms, consumption is only very slightly below where it peaked in 2007.

–James Saft is a Reuters columnist. The opinions expressed are his own–

Rest in peace, Great American Consumer. We will not see your like again.

“Cash-for-clunkers” aside, consumers seem bent on actually paying back debt rather than racking it up, a change that if sustained, as it is likely to be, will dampen economic growth not for months but for years, and not just in the U.S.

Outstanding U.S. consumer borrowing fell by a jaw-dropping $21.6 billion in July, according to data released this week by the Federal Reserve, five times more than analysts expected and the second largest monthly drop since the end of World War II.

There's something scary about big numbers. It's one reason we in the media often like to put the biggest number we can find into a headline.

So it was no surprise that most media outlets went gaga over the Obama administration's projection that the nation's debt will grow by $9 trillion over the next decade. And sure enough, critics of the administration's efforts to reform healthcare were quick to seize on that scary number as another reason to advocate doing nothing.

But without wading into the muck of the current debate over healthcare reform, it's worth taking stock of just how much hypocrisy there is when it comes to the subject of government spending and those big bad deficits.

It’s not surprising that men and women handle their personal finances differently. Yet, data collected by the employee benefits company Financial Finesse shows that men trump women when it comes to managing their wallets.

Out of the 3,500 U.S. workers polled, 90 percent of men said they pay their bills on time each month compared to only 74 percent of women. Also, 71 percent of men said they have a handle on their cash flow so they spend less than they earn each month, while only 53 percent of women could claim the same.

Manisha Thakor, a Houston-based finance expert for women, explains that women tend to be less educated in personal finance.