Perspectives on the debt fight

As I’ve said before, I have not followed the all-consuming debt ceiling drama closely enough to comment on it. Is it a showdown on whether we can stop the growth of the federal leviathan? Or does it boil down to partisan maneuvering on both sides? If you have views on the meaning of it all, and can express them with reasonable brevity, please share them with us.

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James R. writes:

It’s dwindled to being little more than partisan maneuvering on both sides, though to be fair there is on the Republican side a large plurality of representatives who sincerely insist upon doing something about “the Federal Leviathan.” However a decent faction within that plurality only want to do so in order to preserve the Leviathan, so it won’t collapse from its own bloat, and thus will be able to continue to do all the things it’s currently doing.

That last part may imply I’m an anarcho, but I’m not. However the federal government does many things it is not authorized to do, which it is not good at doing, and which thus become socially destructive. In these talks no one is even pretending to advocate the position advocated by the “Contract With America” Republicans of fifteen years ago of closing Departments and ending programs. They’re all simply talking about trimming the growth in order to make the whole thing more sustainable, but leaving the beast intact. [LA replies: I don’t remember that the Contract with America had anything to do with closing federal departments and ending programs. It was a very modest proposal.]

But beyond the aforementioned sincere plurality, a majority of Republican representatives are timid folk and want the criticism to go away. They’ll be happy to take any deal they can call a success, even if virtually all of the “cuts” are scheduled in the “out years” and thus never materialize. The problem is that the Speaker has to please not only this faction but the faction of sincere cutters, and the Democrats are being wholly demagogic, insincere, and irresponsible (Reid hasn’t produced a budget outline in over two years), all the while getting praise by the official press for being the responsible actors in all of this. In other words, exactly as you would expect.

James R. replies to LA:
It wasn’t part of the 10 bullet-pointed “first 100 days” section, but the Contrac-With-America Republicans of the Gingrich era promised to try to close four Cabinet Departments: Energy, Education, Commerce, and HUD (see this, towards the bottom). Of course nothing like that happened, but this gang isn’t even claiming that this is a goal.

N. writes:

The Debt fight is mainly Kabuki theater. Various players strike poses, deliver speeches, while in plain sight various props are moved around by people we are not supposed to notice.

The real issue is entitlements. Too much money has been promised to too many people for too long. It cannot go on forever, and therefore it won’t. No politician wants to be involved in any vote on reducing the growth of entitlements, never mind an actual cut.

“Kicking the can down the road” works, until it doesn’t; we see in Greece what happens when it no longer works.

Thucydides writes:

To try to put this in perspective, the federal government will collect about 2.1 trillion in revenue this year, and will spend about 3.7 trillion. This gives an expected deficit of about 1.6 trillion. The President talks about having the “rich,” which at $250K per family covers just about every successful two earner family, pay for a return to fiscal responsibility.

The insanity of this can be grasped by the fact that the entire U.S. federal income tax this year will bring in about $890 billion. So if you doubled taxes on everybody, it would cover this year’s deficit, but then the spending is set to soar each and every year as more boomers go into Social Security and Medicare. Of course, doubling the taxes would not in fact produce the revenue, as the economy would tank.

Thank heavens for the debt ceiling; without it, nothing would even be discussed until such time as calamity occurs. The debt ceiling is not the problem, it is the spending. But proposals to raise the ceiling with matched cuts, which are provoking such angst among the spenders, don’t begin to address the problem of the pile up of national debt. Contrary to popular rhetoric, governments never repay debt; they just roll it forward. However, the limit is reached when debt has built to the point that interest charges consume the budget leaving no room for other spending. This can be put off for a time by low interest rate manipulations, but at the price distorting capital market signals and causing misallocated investment (which was what happened in the last episode of extended low rates which led to the housing bubble).

The “cuts” of perhaps $2 trillion, which will mostly be accounting gimmicks, even if bona fide only amount to $200 billion per year—but the deficit is 1.6 trillion (1,600 billion).

In the larger reality, we are coming to the end of the universal entitlements state; there is simply not enough income being earned by working people to have the government pay a retirement income (social security) and furnish medical care to everybody, without taxes being raised to the point they kill the economy, and debt ballooning to the point that interest charges consume the tax base.

Historically, the way out has been hyperinflation. Not so easy here, because entitlements are indexed. Further, much of the federal debt is very short term notes and bills, and thus can’t effectively be devalued.

We are facing a future of very poor economic performance and a lot of suffering for many.

James R. writes:

N.’s reply on the Debt Cealing Crisis reminds me of this brilliant sketch by the often insightful, often wacko, almost always hillarious W. Banzai. (Whole “Allegory of the Euro” here ).

Paul K. writes:

As I see it, the president and the Democrats care very little about the deficit (as they demonstrated during the past two years), and the establishment Republicans care very little about it (as they demonstrated under George W. Bush), but the 100-or-so Republicans elected with Tea Party support care a great deal about it, and they have thrown a wrench into the political machinery. Thus, they are the prime target of this president’s ire.

In a press conference he gave on July 22, Obama dismissed the concerns of those unwilling to raise the debt ceiling in these words: “[F]or us to be more worried about what some funder says, or some talk radio show host says, or what some columnist says, or what pledge we signed back when we were trying to run, or worrying about having a primary fight—for us to be thinking in those terms instead of thinking about those folks [people dependent on government spending] is inexcusable.”

The president cannot excuse representatives who are honoring some “pledge” they signed when they were trying to get elected. I mean, really, who cares about campaign promises? They’re just what you say to get elected. After that, it’s supposed to be business as usual.

Posted by Lawrence Auster at July 26, 2011 07:35 AM | Send

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