Tag: debt ceiling

The Real Dysfunction: A $17 Trillion National Debt

Gentlemen may cry default, default, but there will be no default. (With apologies to Patrick Henry.)

Once again the media are full of talk about dysfunction and default, as the partial government shutdown threatens to linger until the federal government hits the limit of its borrowing capacity, possibly on Oct. 17. The parties in Congress are still far apart on passing a budget bill to keep the government running, and Republicans are also promising not to raise the debt ceiling without some spending reforms.

If in fact Congress doesn’t raise the ceiling by mid-October—or by November 1 or so, when the real crunch might come—then the federal government would be forbidden to borrow any more money beyond the legal limit of $16.699 trillion. But it would still have enough money to pay its creditors as bonds come due. The government will take in something like $225 billion in October, but it wants to spend about $108 billion more than that. You see the problem. If it can’t borrow that $108 billion—to cover its bills for one month—then it will have to delay some checks. 

Now the U.S. Treasury isn’t full of stupid people. Back in 2011, when the debt ceiling of $14.3 trillion was about to be reached, the Washington Post reported:

The Treasury has already decided to save enough cash to cover $29 billion in interest to bondholders, a bill that comes due Aug. 15, according to people familiar with the matter.

You can bet they’re making similar plans today.

Back in that summer of discontent I talked to a journalist who was very concerned about the “dysfunction” in Washington. So am I. But I told her then what’s still true today: that the real problem is not the dysfunctional process that’s getting all the headlines, but the dysfunctional substance of governance. Congress and the president will work out the debt ceiling issue, if not by October 17 then a few days later. The real dysfunction is a federal budget that doubled in 10 years, unprecedented deficits as far as the eye can see, and a national debt bursting through its statutory limit of $16.699 trillion and heading toward 100 percent of GDP.

And Next Year There Will Be an Eighth Budget “Showdown”

The Washington Post’s David Fahrenthold counts six budget “showdowns” in Washington over the past two and half year. The looming battle this fall over funding the government and raising the debt ceiling will be number seven. That led Fahrenthold to examine what the six showdowns have accomplished with regard to the size of government. 

In sum: we had big government two and half years ago and today we have…big government.  

Some left-leaning pundits are in a tizzy that the Washington Post would dare run an article that doesn’t speak of “draconian” spending cuts to “popular programs.” Instead, Fahrenthold looked at four measures and concluded that little has changed: federal spending is slightly down, the number of federal employees is slightly down, the number of regulations is up, and the federal government still has a lot of real estate. 

Fahrenthold’s sin (one of them) is that in pointing out that spending has gone flat after the bipartisan spending explosion of the 2000s he didn’t recognize the alleged virtues of increasing government spending to “stimulate” the economy. I’m guessing Fahrenthold didn’t get the memo that a journalist writing for a mainstream news outlet is supposed to supply a quote from some macroeconomic forecasting Nostradamus like Mark Zandi.    

I do wish, however, that Fahrenthold would have explicitly differentiated between the size and scope of government. When it comes to the scope of government activitybasically, what all Uncle Sam doesI don’t know how anyone could argue that it has receded in the past two and a half years. Or the past ten years. Or, well, you get the point. 

The Fiscal Cliff and Congress’s Dysfunction

The words “default” and “dysfunction” are again showing up on the front pages as the debt ceiling suddenly looms along with the Taxmageddon deadline. Treasury Secretary Tim Geithner’s letter to Congress, raising the specter of “default” and “extraordinary measures,” set off much of the new hand-wringing. Journalists and pundits lecture Congress about its “dysfunctional” failure to raise taxes and promise to cut spending.

But as I told a journalist who was very concerned about dysfunction the last time the debt ceiling began to bite, the real problem is not the dysfunctional process that’s getting all the headlines, but the dysfunctional substance of governance. The real dysfunction is a federal budget that has doubled in 10 years, an annual deficit of some $1.5 trillion, and a national debt bursting through its statutory limit of $14.3 trillion and approaching 70 percent of GDP.

We’ve become so used to these unfathomable levels of deficits and debt—and to the once-rare concept of trillions of dollars—that we forget how new all this debt is. In 1981, after 190 years of federal spending, the national debt was “only” $1 trillion. Now, just 30 years later, it’s more than $16 trillion – and all that debt rung up during a period without a major war or Great Depression. Here’s a graphic representation of dysfunction (through mid-2011; now you can visualize the blue line bursting through the $16 trillion level at the top of the chart):

National debt

Those are the kinds of numbers that caused the rise of the Tea Party and the election of members of Congress who vowed to stop out-of-control spending and debt. It’s too bad that Congress hasn’t been able to rein in spending without the pressure of a debt ceiling or a “fiscal cliff.” But it hasn’t. And so if fiscal conservatives in Congress can use those deadlines to put some caps on the money-shoveling, more power to them. 

“A Closed ‘Super Congress’? Oh, I Don’t Think So.”

That was my inner conversation when I heard that the “Super Congress”* (or “Super Committee”) created by the debt ceiling deal might operate behind closed doors.

Congress is free to create any committee it wants, of course. Congress determines the rules of its proceedings. But ordinary committees and subcommittees are too opaque. A “Super Committee” should lead—not lag—in transparent operations.

In a forthcoming report on government transparency, we’ll be looking at the kinds of things committees should be publishing in computer-useable formats, and in real time or near-real-time: meeting notices, transcripts, written testimonies, live video, original bills, amendments to bills, motions, and votes. There are ways that many of these documents and records can be optimized for transparency, including by flagging agencies, programs, dollar amounts, and so on in the texts of published documents.

That’s why I’m glad to see transparency stalwart the Sunlight Foundation calling for a transparent Super Committee. “Congress pushed through the ‘Debt Ceiling’ bill with almost no transparency,” they say. “Let’s make sure the new ‘Super Congress’ committee created by this bill operates in the open.”

The things they highlight, reflecting priorities of transparency groups across the ideological spectrum, include: live webcasts of all official meetings and hearings; the committee’s report being posted for 72 hours before a final committee vote; disclosure of every meeting held with lobbyists and other powerful interests; Web disclosure of campaign contributions as they are received; and financial disclosures of committee members and staffers.

The legislation creating the Super Committee calls for some minimal transparency measures: public announcement of meetings seven days in advance; release of agendas 48 hours ahead of meetings, and:

Upon the approval or disapproval of the joint committee report and legislative language pursuant to clause (ii), the joint committee shall promptly make the full report and legislative language, and a record of the vote, available to the public.

By my read, that’s a requirement to release the language the committee is voting upon after the vote has been taken.

I don’t see public access to the language of such an important document as conducive to the public overseeing the committee’s work. Some may argue that the committee will be pressure-cooker enough if it operates in closed sessions. Delicate political balances require important decisions to be made out of the limelight. This is how massed power in Washington fully manifests itself: major decisions about the direction of the country that people cannot even know about until the decisions are finalized. I’m not havin’ it. Kudos, Sunlight Foundation, for pressing an open Super Committee.

*Many are calling the committee “Super Congress.” It’s a joke I … don’t quite get. So I’ll go with “Super Committee.”

More Cost Data and Better Debt Insight

Data-transparent government is still a ways off, but some small steps forward are underway. To wit, my project WashingtonWatch.com, which is adding new data going to the costs of bills in Congress.

As detailed in an announcement that went up this morning, many more bills on the site will have cost estimates associated with them, the product of research being done at the National Taxpayers Union Foundation. Some bills spend pennies or less per U.S. family. Some spend $5,000 per family and more. Wouldn’t you like to know which are which?

The site has also begun displaying national debt information on a per-family, per-person, and per-couple basis. Your individual (official) debt—just for being an American—is about $45,000 dollars, your real debt far higher.

I’ll have much more to say on government transparency in the coming months. In the meantime, people may do their part to avoid the next calamitous debt ceiling debate by following the day-to-day, month-to-month, and year-to-year in Congress using resources like WashingtonWatch.com. Shrinking our disastrously run and bloated government is a long game that starts with small steps. Channel your outrage productively, friends.

Debt Deal Signed, Fights over Military Spending Next

The legislation signed by President Obama yesterday, as a solution to the debt ceiling debate, includes the possibility of cuts to military spending. But as Chris Preble points out, the legislation guarantees no defense cuts. Republicans will try to dump all the required cuts on non-defense areas. And the White House has already distanced itself from the prospect of any real defense budget cuts, as did Secretary of Defense Leon Panetta. Both support only the first round of cuts, which will at best halt Pentagon growth at roughly inflation.

On The Skeptics blog, I take a more detailed look at deal’s likely impact on military spending. I also examine its political effect, arguing that it will cause at least four political fights.

The first concerns war funding. As Russell Rumbaugh notes, hawks will be tempted to shift the Pentagon’s bill into the war appropriations (overseas contingency operations, officially), which the bill does not cap. That problem is not new, but the bill worsens it. We’ll see if the White House and Congressional Democrats fight to stop it.

Second, for the two years while the security cap is in place, the bill pits security agencies and their congressional advocates in zero sum combat. For obvious electoral reasons, no one will go after veterans. Defense hawks and top military officers will push to make DHS and State eat the minor cuts required. House Republicans negotiated to expand the security category for this reason. DHS, State and the subcommittees that pass their appropriations will fight back. Republicans and thus the House will tend to the first camp; Democrats and the Senate to the second. So the fight will occur in the appropriation committees, conference, and probably White House-Hill discussions. The paucity of cuts limits the carnage, of course.

Third, if the legislation remains in place after two years and a single cap covers all discretionary spending, the fight will shift and become more partisan. To get under the cap, Republicans will push domestic spending cuts. Democrats will prefer defense cuts. The 2012 elections will determine the institutional contours of this fight.

The fourth fight will center on the Joint Committee, with the most interesting conflict among Republicans. Democrats will likely advocate taxes and more defense spending cuts. Even if they can get a deal including taxes with Republican committee members, the House is unlikely to pass it. Democrats’ most attractive option may then be sequestration. Anti-tax Republicans will accept that outcome but clash with neoconservative Republicans happy to raise taxes to pay for military expenditures.

Those that see this plan as a disaster for defense ought to explain why hawks, like Rep. Buck McKeon (Chairman of the House Armed Services Committee), Rep. Bill Young (a leading House defense appropriator), and Senator John McCain, support it. They evidently prefer this deal to any available alternative and are gambling that they can protect military spending from the knife.

My guess is that defense spending will be level in 2012, growing roughly with inflation, but get hit by sequestration, meaning real defense cuts in 2013. After that, who knows? The political dynamics will then be quite different.

An original version of this post appeared on the National Interest.

Debt Deal to Slow the Economy?

The Washington Post reports that spending cuts in the budget deal threaten to slow the economy. The article quotes a number of economists who seem to harbor a rather extreme Keynesian bias in their thinking.

The deal would cut discretionary spending by just $21 billion in 2012, or just 0.6 percent of total federal spending that year. And that’s after federal spending has risen 22 percent since 2008 ($2.98 trillion in 2008 to about $3.63 trillion this year). Even if you believe that government spending helps the economy, it seems rather bizarre to claim that a 0.6 percent retrenchment after a 22 percent increase would hurt.

The other thing to note about these spending-cut worries is that, for Keynesians, it is the total amount of deficit spending that is the amount of economic “stimulus.” We’ve had deficit spending of $459 billion in fiscal 2008, $1.4 trillion in fiscal 2009, $1.3 trillion in fiscal 2010, and $1.4 trillion in fiscal 2011. That is a colossal amount of “stimulus.”

In fiscal 2012, we’ve got even more “stimulus” coming, with a projected federal deficit of about $1.1 trillion, per the CBO March baseline. So a spending cut of $21 billion will reduce the giant Keynesian stimulus in 2012 by just 2 percent. And yet the Washington Post says that this will “endanger the anemic economic recovery,” according to “many economists.” 

Those “many economists” who believe in Keynesianism might be more believable if their theories hadn’t so obviously failed in recent years. Despite the enormous deficit-spending “stimulus” of recent years shown in the chart, U.S. unemployment remains stuck at high levels and the recovery is the slowest since World War II by numerous measures. (See cites in my testimony here.)

Biggest stimulus, slowest recovery. Keynesianism isn’t working.

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