And so We Have a Debt Deal

A few weeks ago I saw a political ad supporting the budget proposal by Congressman Ryan. One of the points made in support of his plan in that ad was simply that nobody eligible for Medicare now, or if I remember correctly, becoming eligible in the next ten years, would be impacted by the plan. (I may remember the number of years incorrectly.) My point is not to gang up on the Ryan plan, but rather to point out a basic problem with all our attempts to deal with budget issues: They all leave the actual solutions to the future.

If it’s a good idea, it’s most likely a good idea now as well as in the future. If I personally support, or would support, someone who would replace Medicare with a subsidy program, I should be willing to apply that solution to myself. But the method used in Washington is to put forward resolutions mapping out a future course over a period of years that may or may not (generally not) be followed by those future congresses. A similar approach was used in much of the health care reform bill. It phases in the unpopular parts over a period of time.

Recently I read a quote from Joseph Singer in which he suggested that Americans are ambivalent about government. I wouldn’t use that term. I find nothing surprising about it. It’s very human. Yes, it has distinctively American details, but at root it’s very simple. We want to get benefits, but we don’t want to pay for them. We want privacy in our own homes, but we want to make sure that the police can spy on people enough to catch terrorists (lacking, of course, any real idea of how much that might be). We want our social security to be secure, but we don’t want to pay enough to make it so.

And we have politicians who are willing to pretend. This pretense, in my view, is not limited by party. Each party has elements of the budget that must be protected, while there are other items that just must be cut because we don’t have the money to pay for them. Members of either party are willing to promise economic benefits without requiring their constituents to pay the cost. There are many ways to avoid requiring that the cost be paid. It can be done by borrowing, thus requiring that the constituents’ children pay the cost. It might be that a poorer district gets the money from the federal government, which moves money from a richer district in order to pay. It might even be that the cost is concealed. But the cost exists and must be paid sometime.

I entered politics by working as a precinct worker in the 1976 Republican primary in Maryland. I was just 18. What attracted me to Ronald Reagan was his $90 billion plan to eliminate the budget deficit. I support Reagan again in 1980. By 1984 I was no longer a registered Republican. I found that Republicans did not really believe in a balanced budget. Supply side economics took over.

Now there is a point to supply side economics. Lower taxes can increase productivity and thus revenues. But it is not a magical formula that allows you to buy anything you want, and expect lowered taxes to resolve the difference. At this point, I find the Democrats to be the best argument for voting Republican, and the Republicans the best argument for voting Democrat. And I do vote–every time in every race and on every issue.

So now we come to the current debt deal. When it was announced, I turned to my wife and said, “All that and we only got $1 trillion (Ah for 1976 and a $90 billion plan!).  Remember that further cuts are for the future, no matter what triggers we have in place to force them. In fact, I would suggest the triggers will simply make the political waters muddier when the time comes.

I view economics practically. I run a small business, and while I haven’t gotten rich, and have had many, many very difficult seasons, I’m still in business. My computer support business has been going since 1997 (though it’s only part time), and my publishing business has been going since 2004. When economic times get tough there are several things I can do.

• I can borrow money, which means I have to demonstrate just why such borrowing is going to make my business pay in the longer term.
• I can economize, which may mean either finding ways of doing the same thing at lower cost, or even eliminating some things I do. One thing I can assure you is this: Every expense gets examined for its productive potential in a difficult economy.
• You can increase revenues, of course, but that means bringing in more business, selling more goods, and that goes back to the first two points.

I’ve done all of those things during the previous recession, and I’m still here. I’m a practical economist. I hear about these people who understand what’s going on, and I’m sorry, but they don’t sound so much like they understand and their results aren’t that good. Recent experience with the banking industry makes me question either their motivations and goals on the one hand, or their competence on the other. Perhaps it’s both.

It’s fairly humorous to see the banking industry, regulated largely by its own, about to reduce the credit rating on the government that failed to keep them in line. But that’s another story.

So what I ask in a plan like this is just what it’s going to accomplish. What’s the end game? Who enforces the rules that are laid down? What happens that brings us out of this mess?

And the answer to all of those questions is: Nobody knows. We’re making a plan that reduces a $10 trillion or so deficit over the next ten years by, at the most, $2.4 trillion. What’s more, we haven’t asked fully what our priorities are. In business, I might borrow money to launch a new product. When I do so, we assume that a certain period of time after that product launches, it is expected to pay back the result.

Translated to the government’s activities, that would mean we need to ask what in the current government plan is going to result in new production on which taxes will be paid (at whatever rate), to increase the money going into the treasury and eventually reduce the debt. The answer is that this isn’t really a consideration. This is one of those survival plans. It keeps things going for between a few months and a couple of years, but it doesn’t do anything about how we’re going to get to a better place.

This is why I oppose across the board cuts and absolute limits such as “no new taxes.” We need to not only reduce spending; we need to make spending more intelligent. “No new taxes” might be fine with me, but when it makes it more difficult enact needed reforms to the tax system, then I think it gets in the way. Such solutions are ways of avoiding making difficult decisions and taking responsibility for those decisions.

I recognize that the final blame belongs to voters. We are the ones who send politicians to Washington who promise us things they, and we, can’t pay for. We’re the ones who keep sending them back when they fail. As much as I disapprove of many of the social policy goals represented by Tea Party candidates, on one thing I can definitely commend them. As a general rule they are doing what they said they’d do. Another voter habit is being shocked when politicians do what it was obvious they were planning to do. Of course, when they do what they say, we have some cause for surprise.

So what would I prefer? Considerations of electability aside (mine would be 0%), I would suggest:

1. The whole debt ceiling thing is a distraction. We should put everything on the budget itself. That allows us to place responsibility at one specific place. A business can’t budget on the basis that they will borrow in order to fund the budget; neither should the government. I know this takes away one more piece of leverage to reduce the deficit, but I believe there is only one possible answer to this problem–responsible budgeting. Anything else is a band-aid.
2. Everything should be on the table, including such essentials as defense and law enforcement.
3. Look where a change of spending strategy can accomplish our goals at lower expense. This would include:
• Defense – increased spending on mobile special forces and intelligence; decreased spending elsewhere; strategy change away from a war on terror that requires occupying foreign countries. A single terrorist can kill hundreds. Occupying other countries won’t stop that.
• Law enforcement – read “the drug war.” It’s costing us a bundle and it’s accomplishing very little. We need to review our drug strategy from the ground up. In addition, I think we could look at sentencing for non-violent crimes in general. Technology gives us more options.
• Social programs – some consolidation is in order to reduce the cost of delivering the needed help to the right people. The Earned Income Credit might provide a good basic example.
• Education – this is one of my favorites, so I must put it on the table. I like a good public education system and regard it as part of infrastructure. But there’s a great deal of waste, I think. Perhaps a reduction of the federal role of shifting money around.
4. Simplify and streamline the tax code. Make it easier to enforce and more fair. Eliminate loopholes at the same time. We debate a great deal about increasing rates for the rich, but eliminating some of the ways to avoid the rates might be more to the point.

These are ambitious goals, but I don’t think our problems can be solved without looking at all these options. I may well be wrong on what can be saved through some of these options. I’m suggesting putting them on the table. And yes, entitlement programs such as Medicare and Social Security need to be there as well. I just have fewer ideas about what to do with them.

 

Related articles

• US Budget Experts See Debt Limit Battle As Wasted Opportunity (forexlive.com)
• Simpson: Debt deal a timid baby step (cnn.com)
• US gets debt boost, but economic woes grow (independent.co.uk)
• The US National Debt Exposed (creditloan.com)