Sunday, July 31, 2011

Final Words on the Debt Ceiling Debate

Pogo said "We have met the enemy and he is us." He may have been talking about the current debt ceiling talks.

My view is simply this; Why even have a debt ceiling?

It doesn't cause our politicians to behave differently. Having a debt ceiling that is increased every few years is like me promising myself that I'll gain no weight and will eat only the right stuff forever more. Then I just go ahead, as always, and break my promises and then make those same promises again, and again and again. Insanity is often defined as doing the same things over and over and expecting a different result. This debt ceiling debate has been insane. Who are we kidding? For a very similar point of view, see economist Thomas Sowell in Notable & Quotable.

It's not the promise that matters; it's the subsequent behavior. On this our track record is abundantly clear. We will raise the ceiling and then go on spending like a bunch of drunks until we raise it again. Hence, the debt ceiling itself is meaningless. Not the debt but the ceiling itself.

That's because there is absolutely no doubt that we'll need to raise the debt ceiling again in a couple of years, if not before. Regarding when we'll need to raise it again, the only meaningful fact to be ascertained now is by how high we raise it this time, because the politicians certainly won't do anything in the near term to reduce our deficits, regardless of what they now say.

Pogo puts it all on us, and he's right. We'll get the government we deserve and not the one we want. It's really up to us. All of us.

So when we hit the new ceiling in a year or so, history teaches that we can expect to repeat the charade - er - fraud - er- process every few years thereafter. That's been our habit, and habits are hard to break. In other words, we haven't limited ourselves to doing what's good for us in past debt ceiling raises, and there is no reason to believe that this time will prove to be different.

And unless we the people are willing to address entitlements, taxes, encouraging entrepreneurs, the size of government, debt repayment, regulations, drilling for oil and such sometime soon, eventually our economy will collapse and things will implode. Only then will seriousness prevail, and it won't matter who's to blame. Pogo already told us about that.

To make this entire homemade silliness and tragedy even worse, the brilliant politicians have concocted something called a "baseline" budget. This simply means that they mislead us about budgets. To put it bluntly, they lie at the beginning of each year's budgeting process by increasing the "baseline" by a factor for inflation.

As an example, if 3% is adopted as the baseline inflation estimate, this year's $100 becomes $103 for next year's budget discussions. If we then decide to spend $100 next year, or the exact same amount we intend to spend this year, the politicians will say we've reduced spending by 3%. Some politicians will give themselves good guy credit for fiscal prudence by cutting the budget by $3. Meanwhile, other self proclaimed "good guys" will say that the bad guys are to blame for heartlessly gutting spending by $3, or 3%.

The truth will be that they did neither. This entire debt ceiling stuff is absolute nonsense.

Using Washington speak, if I budget, predict or otherwise believe that I'm going to gain five pounds this year, and I instead somehow manage to hold my weight the same, I tell myself that I lost five pounds. Try telling that to the scales.

We will have real and genuine deficits each year in the foreseeable future of at least $1 trillion, even after the economy improves. This year the deficit will exceed $1.6 trillion.

As for the economy, we will have high unemployment and high fiscal deficits due to ongoing slow economic growth. As a result, our already mountainous debt load will continue to grow, and our financial condition will become steadily worse. Accordingly, whether we raise the nation's debt ceiling once, twice, three or thirty times doesn't matter. And baseline cutting won't matter either. As Tennessee Ernie Ford sang, "Another day older and deeper in debt".

Our debt is merely a symptom which reveals our ongoing reckless and irresponsible behavior as a nation. We've changed for the worse.

We're in this world of hurt because of our past behavior. During the good years we borrowed to build and buy things we couldn't afford. We spent the borrowed money by borrowing from future consumption. As George Allen said about the NFL Redskins, "The future is now." It's payback time. So now we'll all pay for the "run ahead" spending of the past.

This concept of borrowing to spend now is not a permanent condition. It can't go on forever. At some point spending "reverts to the mean". That's what is happening, and that's why the economy will stay in the slow lane.

Stated another way, if in an effort to goose the economy we again incentivize people to buy today with newly borrowed money or government "stimulus" funds, it won't work, other than perhaps politically. If we buy something today, we won't buy the same thing tomorrow. We've merely accelerated our purchase. At this point future government "stimulus" attempts would be dangerous and only make things worse. And they are bad enough already.

So in a matter of days, I believe that the current debt ceiling sideshow theater will come to an end. And as a nation we'll fail to heed Pogo as we return to spending what we don't have and borrowing to pay for that spending.

The deficits and high debt levels won't magically go away, nor will high unemployment, nor will slow economic growth for years to come.

John Maynard Keynes is dead. It's time to bury Keynesianism, too.

Thanks. Bob.

1 comment:

  1. Agree with your post Bob. I agree that "And unless we the people are willing to address entitlements, taxes,......". The problem, it is difficult for the people to truly understand the facts as you have pointed out in your example on 3% adopted baseline inflation applied to budgets. How can the people ever get past the BS sound bites the politicians spew? In addition, if they do understand the facts, the majority of the people align with one of the two major parties, and hold fast to the respective platforms. Maybe that leaves the independents (swing voters) to decide?

    Not sure how much sarcasm is in your remarks regarding having a debt ceiling? Have measurements and take them seriously. With no debt ceiling, wouldn't the debt be even higher?

    Anyway, no matter what, too much spending is the issue. Compounded by Government spending being terribly inefficient!