Tag: national debt

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.

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. 

Military Spending and the Budget Deal

The budget deal announced last night offers two sets of potential cuts in military spending.

The first set of potential cuts, created by the budget caps, target “security” spending. That includes the Pentagon, State, foreign aid, the Department of Homeland Security and Veterans (the discretionary portion of Veterans spending, to be precise). The deal caps “security” spending at $684 billion for this fiscal year and $686 for the next. That requires little pain; the 2012 security cap is only $5 billion below what we’ll spend on those categories in fiscal 2011. The White House claims that the caps will generate $350 billion in savings from base defense spending for ten years. They get there, dubiously, by projecting security spending at the capped level across the decade, even after the caps expire, and counting as savings the difference between that spending trajectory and what CBO now projects. They are also assuming that all the savings go to defense, even though Republicans will try to make the other security categories absorb the pain.

The second set of potential cuts, which occur automatically if the Joint Committee fails to reach its spending cut goals, target defense spending directly. This could add $500 billion in defense cuts over ten years, the White House says.

Assuming that is true, the maximum amount of defense cuts possible here is $850 billion. That is a cut of roughly 15 percent compared to planned spending based on the president’s February 2011 budget submission — not including the wars. It is roughly on par with the cuts proposed by the Bowles-Simpson Commission. The total savings are much lower, roughly half, if you compare the cuts to what we actually spend now, rather than the increases we were planning on in past planning documents.

And remember, that $850 billion is a maximum; it may not materialize. It will be lower, if, as hawks hope, the cuts fall on the non-defense elements of the security category. It will be lower if the Joint Committee finds other accounts to cut, avoiding the triggers.

Still, that possible amount is enough to make hawks apoplectic. We are sure to hear more complaints about “gutting or “hollowing out” the force. But let’s keep some facts about military spending in mind:

The Pentagon’s budget has more than doubled over the past decade, and current projections call for the Pentagon to receive more than $6 trillion from U.S. taxpayers through 2021. If its budget got cut by 15 percent, that would return us to roughly 2007 levels. That hardly seems like “gutting”. After such cuts, we would still account for more than 40 percent of global military spending, and our margin of military superiority over any combination of rivals would remain unrivaled.

The focus should now shift to strategy. The White House says the Pentagon’s ongoing roles and missions review will guide the first round of security cuts. The aim is to eliminate military capabilities that are unnecessary or provided by multiple services. We should go deeper, looking to what missions, allies, and possible wars, we can jettison.  The recommendations should guide not only the first set of cuts, but also the second. That means making recommendations for the Joint Committee on additional defense cuts and preparing for automatic cuts should they occur. There is nothing preventing those cuts from being achieved by retiring force structure required by needless missions—such as defending rich allies that can defend themselves.

We should also keep in mind that this deal hardly solves our deficit problem and does not exhaust the possible savings we should seek. Deeper military cuts are possible and could even enhance security given the right strategy.

The Debt Ceiling and the Balanced Budget Amendment

The Washington Post editorializes:

A balanced-budget amendment would deprive policymakers of the flexibility they need to address national security and economic emergencies.

A fair point. Statesmen should have the ability to “address national security and economic emergencies.” But the same day’s paper included this graphic on the growth of the national debt:

National Debt

Does this look like the record of policymakers making sensible decisions, running surpluses in good year and deficits when they have to “address national security and economic emergencies”? Of course not. Once Keynesianism gave policymakers permission to run deficits, they spent with abandon year after year. And that’s why it makes sense to impose rules on them, even rules that leave less flexibility than would be ideal if you had ideal statesmen. Indeed, the debt ceiling itself should be that kind of rule, one that limits the amount of debt policymakers can run up. But it has obviously failed.

We’ve become so used to these stunning, incomprehensible, 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 1980, after 190 years of federal spending, the national debt was “only” $1 trillion. Now, just 30 years later, it’s sailing past $14 trillion.

Historian John Steele Gordon points out how unnecessary our situation is:

There have always been two reasons for adding to the national debt. One is to fight wars. The second is to counteract recessions. But while the national debt in 1982 was 35% of GDP, after a quarter century of nearly uninterrupted economic growth and the end of the Cold War the debt-to-GDP ratio has more than doubled.

It is hard to escape the idea that this happened only because Democrats and Republicans alike never said no to any significant interest group. Despite a genuine economic emergency, the stimulus bill is more about dispensing goodies to Democratic interest groups than stimulating the economy. Even Sen. Charles Schumer (D., N.Y.) — no deficit hawk when his party is in the majority — called it “porky.”

Annual federal spending rose by a trillion dollars when Republicans controlled the government from 2001 to 2007. It has risen another trillion during the Bush-Obama response to the financial crisis. So spending every year is now twice what it was when Bill Clinton left office. Republicans and Democrats alike should be able to find wasteful, extravagant, and unnecessary programs to cut back or eliminate. They could find some of them here in this report by Chris Edwards.

In the Kentucky Resolutions, Thomas Jefferson wrote, “In questions of power, then, let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution.” Just so. When it becomes clear that Congress as a body cannot be trusted with the management of the public fisc, then bind them down with the chains of the Constitution, even — or especially — chains that deny them the flexibility they have heretofore abused.

Here We Go Again: ObamaCare’s Preventive-Care Subsidies Aren’t ‘Free’

In press release, a new video, and an elusive new report, the Obama administration is boasting about the “free” preventive services that ObamaCare provides to Medicare enrollees.

Here we go again.

First, these preventive-care subsidies are not “free.” They are costing taxpayers dearly by adding to America’s $14 trillion national debt.  There is no such thing as a free lunch.  And there is nothing “free” about ObamaCare.

Second, ObamaCare supporters have claimed that more preventive care would reduce health care spending, but research shows that it will not.

Third, I hope someone is keeping track of all the taxpayer dollars this administration has wasted trying to convince the American people that they’re wrong to dislike ObamaCare.

Finally, if the $250 checks that ObamaCare sent to millions of Medicare enrollees didn’t make this law popular among seniors, I doubt these indirect subsidies will.

Debt Ceiling: Political Games

Back in January I noted that some analysts believe that the statutory debt ceiling should be eliminated. They view the potential for political brinksmanship as creating an unnecessary risk that financial markets will get rattled if there’s a chance the government won’t make good on its debt obligations in a timely manner. I argued that “forcing policymakers to spar publicly over fiscal policy is healthy, especially at a time when analysts generally agree that the country is headed toward an economic catastrophe if Washington’s mounting debt isn’t brought under control.”

I maintain that view four months later, but an article in Politico illustrates the absurd political shenanigans that accompany debt ceiling deliberations.

Sen. Bob Corker (R-TN) is building bipartisan support for a plan that would cap federal spending at a declining percentage of GDP over ten years. Spending as a percentage of GDP would eventually be reduced to 20.6 percent, which is equal to the average from 1970 to 2008. No tax increases.

Corker has been touring his state pitching the plan as part of a deal to raise the debt ceiling. Democratic Senators Claire McCaskill (D-MO) and Joe Manchin (D-WV) have endorsed it, as has Sen. Joe Lieberman (I-CT) who caucuses with the Democrats. Good news, right? Not according to Republican apparatchiks.

From the article:

“Corker’s heart may be in the right place on this legislatively, but it would help if he was more focused on winning back a Senate Republican majority, than hurting the feelings of vulnerable Democrats who recognize the political cover this affords them,” said one senior GOP aide. “McCaskill, Manchin and others can vote for it, and campaign on it, knowing full well that Harry Reid and Chuck Schumer have enough votes to kill it.”

On Tuesday, Corker got into a squabble with the National Republican Senatorial Committee, which ridiculed Manchin for backing the plan by saying it had “zero chance” of passing because it was opposed by Reid. An angry Corker believed the NRSC was squashing the plan’s growing momentum, and had a series of phone calls with NRSC officials expressing his frustration. A spokesman for the NRSC later said that the political committee shouldn’t have “underestimated Sen. Corker’s legislative skills and certainly hope he is successful in this effort.”

Sad as it is, that’s the way it works in Washington, folks. Hey, nevermind that Corker is at the very least planting on Democratic soil the idea that a debt ceiling deal should be focused on reducing spending and not tax hikes. Nope, what’s really important is making sure that Democrats do the wrong thing in order to bolster Mitch McConnell’s Senate Majority Leader prospects. After all, spending and debt didn’t go through the roof when Republicans controlled the House, Senate, and White House, right?

Pardon my sarcasm and obvious contempt, but this is the sort of nonsense that I repeatedly experienced during my days as a Senate staffer. Americans tend to get all hot and bothered over this or that politician, but much of what “gets done” in Washington is actually carried out by party operatives, sycophantic staffers, and lobbyists. All of this leads to a refrain I increasingly end media appearances with: Why do we give these people so much control over our lives?

Robert Kagan for the Defense

The calls for cutting the federal budget continue to build in Congress as the new GOP members try to make good on their promise to rein in the deficit.  And, right on time, the latest issue of the Weekly Standard features an article by Robert Kagan critiquing the chorus of calls for cuts to military spending. 

I think Kagan’s critique is reasonably fair, certainly more so than others of the recent past.  But his basic premise, that national security spending is unrelated to the national debt, simply is not true.  At the The Skeptics, I address this:

It is of course true that entitlements and mandatory spending pose the greatest threat to the nation’s fiscal health, but $700+ billion [in defense spending] isn’t chump change. The question of what we should spend on the military ought to take into account the trade-offs, an argument that Dwight Eisenhower advanced in his farewell address just over 50 years ago, and that Charles Zakaib and I highlighted last week. (See also James Ledbetter’s discussion on this point.)

Actually, it is a question of fairness, but not the one that [Kagan] proposed. Because security is a core function of government (I think one of the only core functions of government), it would be a mistake to treat military spending as synonymous with spending on, say, farm subsidies. But Kagan’s writings presume that other countries’ governments do not – and should not – see their responsibilities in the same way. Kagan contends that American taxpayers should be responsible for the security of people living in Europe or East Asia or the Middle East. Or anywhere in the world, really… It simply isn’t fair to ask Americans to pay for something that other people should pay for themselves. For reference, the average American—every man, woman and child—spends two and a half times more on national security than the French or the British, five times more than citizens living in other NATO countries, and seven and a half times as much as the average Japanese.

Justin Logan is in the process of authoring a lengthier response for publication, but in the mean time click here to read the full post at The National Interest.