The Deficit Ceiling Deal
As the details and ramifications of the deal become increasingly clear, few seem happy and there is bipartisan opposition and bipartisan support amidst all the claims and counterclaims.
There is no question that the deal is seriously flawed, but it may very well be the best that can be done at the present moment. This is because the problem is far deeper that than the differences among various demands by all the multitude involved. The real problem is that the process which developed the deal is not only seriously flawed, but flawed down to its very core.
This is not a plea for some theoretical perfect reality; as such a thing never has, and never will exist in this world. But while perfection cannot be reached, nor should it be ignored as a goal. The point here is that the process was so far away from any theoretical perfection, that it was doomed before it ever started.
At the core of any effort to solve a problem must be an understanding of the problem however imperfect. While there was general agreement that the debt ceiling was a problem, for many the problem was that a failure to raise it would limit government’s ability to spend. For others, reaching the debt ceiling is a symptom of a much larger problem, a government spending itself into insolvency. Thus for the former the cuts are too large, for supporters, they are a good down payment, and for opponents they are insufficient.
But right here we come across the first key issue. Bottom line: There are no cuts; at least not overall and government will continue to grow year after year, and will almost certainly grow faster than the rest of the economy. The fact is that politicians play games with numbers that would make the accounts at Enron and Bernie Madoff paragons of virtue and accuracy.
While the $2.4 Trillion in cuts may seem large, this is the projected savings over 10 years. Given that spending is done on a year by year basis, this is really at best $240 billion, which would be an almost respectable, 7% cut. But this not 7% from last year’s spending, but 7% from the projection for next year, meaning that even after the “cut” government will still be spending more.
To make matters worse, most of the cuts are in the out years, which means they are meaningless, as any agreement reached now cannot as a matter of settled constitutional law bind a future congress. When we look at the brave bold reductions in the increase that the congress will actually make this year, they are only $7 billion, roughly 0.19%. For someone earning $50,000 per year this amount of cuts would be asking them to reduce their weekly spending by $3.78.
Except that again this is a reduction in the rate of increase. From 2009 to 2010 government spending grew over 9% adjusted for inflation. Thus for the person making $50,000 the real equivalent would be asking them to accept only an increase of $85.64 instead of $89.43.
But it is worse than this, because while the “cuts” in Washington are only reductions in the built-in projected increases of the future, but the spending is now. So while the cuts projected over the next 10 years may, or more likely may not actually happen, the money will be spent starting immediately, and we will have to do this all over again sometime in 2013, conveniently after the election.
Since the reductions coming off of WWII, the federal government has never cut spending. Every year it has spent more than the year before and most of the time a lot more. From 1990 till 2007 federal spending grew from a little over $2 Trillion to $2.8 Trillion even after accounting for inflation. Democrats like to complain about all the money tax cuts have cost us. Yet over the same period revenues grew from about $1.7 Trillion to $2.7 Trillion. Thus even after accounting for inflation, spending grew by 40%, revenues by 60%.
There are many other problems with the language used. For example, there is not and never really was a danger of a default. Government revenues far exceed the amount of the debt service. In fact, despite all the fear mongering, government has enough money to service the debt, pay social security and Medicare, and the military for starters. More importantly, Social Security payments in excess of revenues would be seen as taken from the trust fund. This would bring down the debt, allowing the government to go out and borrow additional dollars without exceeding the debt ceiling. This last fact should reveal how much smoke and mirrors are involved in this debate and the illusory nature of the Social Security Trust fund.
Be these distortions, lies, demagoguery, or whatever, they hinder real debate and discussion to the point that people get fed up and simply want the issue settled regardless of how; which may in fact be the point.
For some, this is just Washington as normal. But that is the larger problem, Washington is broken. The founders sought to strike a balance between the need for government and the loss of freedom government action involves. But all too often the law and even the Constitution are simply ignored as both were here.
The Constitution puts the control of spending in the house, where they believed the people would have the most say. The president submits his budget proposal, which kicks off the process. The House and Senate then pass their own budgets, as required by law, and then through a reconciliation process the Government gets a budget. Appropriations bills are then written based on the budget with the people having their input through their elected representatives.
While this process has been weakened in recent years, it was basically tossed out with the swearing in of Obama in 2009. Rather than an orderly process of the House with 435 members, the Senate with 100 and the President, government was effectively run by 3 people: Reid, Pelosi, and Obama. They determined what legislation would be and then presented it in an all or nothing process, often with little or no chance to actually read the bill. Contrary to the law, they did not even try to pass a budget but simply ran the government on continuing resolutions. When Boehner became speaker earlier this year he did move the house back towards openness and debate when he restored the committee process and open rules.
The house passed a budget earlier this year, but this ultimately broke down. The Senate continues to ignore the law and has not even attempted to pass a budget. When asked about this, Democratic Senator Dick Durbin said it was because of a Republican filibuster, even though he knows this is impossible as budgets cannot be filibustered.
The house passed a debt ceiling bill and then even an second one, but the Senate did not put forth a bill till the very end, and the President never put forth a proposal. Thus in the end, government broke down. Rather than proposals that could be openly discussed and debated and amended, where the public could have some input, we went back to closed meetings and secret negotiations.
The broken process once again gave us a last minute deal in a take it or leave it situation. To make it worse, this secret set of negotiations did not even reach a total agreement but appoints yet another committee to do the rest of the work. So again we have to have to pass the bill to know what the law will actually say. Yet again, Washington is saying to the rest of the country: Trust us.
What really drives home the problem is that to balance the budget in six years is really not all that difficult. Government would only have to cut 1% per years for the next 6 years. Called the penny plan, it would work, but given all the squealing over reductions in the rate of increase, you can imagine what would happen if government actually tried to cut 1 cent for every dollar it spent. Instead we have tremendous debates over how much we will “promise” to cut the rate of increase in the future.
Meanwhile the debt grows, and the real debt ceiling approaches. Not the arbitrary date the Republican and Democrats have been squabbling over, but the real debt ceiling, the one that will come when those lending the government the money decide that the Government can’t control itself, and stop lending money.
