August 04, 2020

Workers should remember debt on Labor Day

Well, it’s Labor Day again. Time to relax and pat ourselves on the back for how hard we have labored and how much we have provided for ourselves and our nation.

While that’s a noble thought, earlier generations were far more entitled to such thoughts than present ones. Fact is, a large portion of the benefits and pleasures we enjoy as a nation today are more the result of excessive debt creation and deficit spending.

As a result, we have many backbreaking “labor days” in store for us in order to pay it all back. Let me explain.

In any budget there is what comes in and what goes out. You can only spend what you earn. Well, not quite.

There is debt. This is where we pledge our future earnings as collateral for a loan to be received in the present. It’s an IOU.

Through debt, we can not only have the money that we earn to spend but also whatever we have borrowed. Such debt temporarily increases our standard of living beyond that which would normally prevail.

Check out some facts.

Our national debt now approaches $12,000 for each person in this country.

A family of three, therefore, owes $36,000 as a result of all the money spent on them, or the collective nation, for which they have not labored. This is the debt of the citizenry because the citizenry has enjoyed the benefits.

You think not? Well, most of the federal budget goes for transfer payments. This is when the government “pays” for something the people want. The government taxes another and transfers the cash to someone else.

When one citizen wants the “government” to pay for something without their laboring for it, it means some other citizen must work twice as hard to carry the load.

Even so, as a nation we have already spent in excess of our income and now owe roughly $12,000 per person besides. That’s without interest.

Now let’s see what our labor is worth. If you average rich and poor alike, it is perhaps $19,000 per person per year, which works out to be around $76 per working day.

Which means our family of three would have to work on Labor Day for free for the next 473 years just to pay off its debt.

Try it another way. At a national savings rate of 4.2 percent of 1988 disposable income it would take 100 percent of our savings for the next 61 years to pay off that debt. That’s how much benefit we already have enjoyed without laboring to pay for it.

Oops, I forgot state of Maine debt. At the end of 1988 it was on the order of $1,300 per person or $3,900 for a family of three. To pay for this debt either extend those years of savings to pay for past excesses to 68 from 61 or work on Labor Day for free for the next 524 years rather than 473.

I think you get the point; enjoy Labor Day but also note the benefits and bounty we already have enjoyed that was in excess of what we earned.

Someday we have to pay this back at the expense of future “labor days.” I don’t know about you, but I’m getting older and work seems harder. What’s a nation to do?

Paul Jarvis is a stockbroker in Bangor with A.G. Edwards.

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