Debt and the ticking clock
I have been watching the progress (what little there is) on the debt ceiling, and I have to say I’m feeling a little apprehensive.
There is now less than a week before the US government hits its hard limit on borrowing, and I know it can take a government a little while to run through a legislative process even if it’s in a hurry. This leads me to be a little worried that you guys might not make it, and that would be bad.
How bad? Well, without the ability to borrow the US government would be forced to close its primary deficit (that’s the deficit without accounting for interest) immediately. That means the government is going to have to break a lot of its promises without notice. For an example of what this would entail, I direct you to this piece by Megan McArdle. The trouble is that there are any number of things that I can agree the US government shouldn’t do, but that doesn’t mean I think it should stop doing them immediately. For instance, I happen to think that saving some money by giving up on the wars (or whatever the hell they are) in Afghanistan and Iraq (and Libya), but that doesn’t mean you can cut funding to these endeavours at a moment’s notice. What would happen to the troops, you can’t just say “well, we can’t afford to support you so we’re cutting you loose – good luck!” Even a hasty withdrawal would take months, and you wouldn’t have that kind of time. Equally I believe it will be necessary over the next decade or two to enact reforms of Social Security and Medicare so as to prevent them from engendering a fiscal crisis. But the reason why I want to see those reforms is because the alternative is to cut these programmes suddenly as part of emergency austerity in the future. So the last thing I want to see is emergency austerity being enacted now. For decades people have planned their lives around the promise of Social Security and you can’t just yank it away from them at a moment’s notice. Cuts must be gradually implemented over decades so as to give people time to adjust.
For that matter, you can’t rise taxes on a dime either. New regulations must be drafted, computer systems must be altered. New documents and, in some cases, forms must be printed. This takes time, it can take months. If a deal isn’t reached and the US defaults it will have to be all spending cuts, and the cuts will have to fall on the narrow segments of government money that can be stopped at short notice.
I didn’t find the President’s speech (and the Speaker’s reply) very comforting either. Both speeches created the impression that they realised a deal wasn’t going to happen, and they were just trying to pin as much blame on the other side as possible once all hell broke loose.
Let there be no doubt this is stupid. The debt limit makes no sense as a policy. For one thing, it’s an attempt to constrain a variable with no degrees of freedom. The Budget stipulates that the government spends $X. The tax codes produces $Y in revenue. It is an inevitable fact of mathematics that $(Y-X) must be obtained from somewhere. If the legislature doesn’t want the executive to borrow the money, it is incumbent on the legislature to explain what the executive should do instead. Secondly it is an attempt by the legislature to constrain itself, which doesn’t work.
Budgetary control is the most fundamental power of the legislature – the British Parliament used it to discipline kings for centuries. A legislature than cannot even pass coherent Budgets is unfit to govern. And I have to place the burden of blame on Republicans here. Is the government spending too much? Yes. Does it need to cut down? Yes. Does it need to do it right now? No. The whole point of fiscal responsibility is to avoid the type of crisis that this situation is threatening to unleash. That’s like curing an astigmatism by poking out your eyes.
But it doesn’t really matter who’s fault it is. What matters is fixing it. Any time now would be good guys …