Wednesday, July 27, 2011

Government for the government

Presently, the national soap opera, which is to say, the debate over the debt ceiling, is providing much amusement. In order to hike the debt ceiling, the Republicans are holding out for meager "cuts" and--where have we heard this before?--no new taxes. The Democrats would like the debt ceiling to be raised more; they would also like even less significant reductions in future spending, coupled with increases in taxes, but only on the infernal rich--except, apparently, for the bankers who have been given billions of dollars in bailouts. This is to over-simplify the narrative somewhat; there appear to be at least a handful of Republicans who are seemingly serious about making actual reductions to the deficit, which hampers speaker Boehner's hope for a united front.

Missing entirely from the dog and pony show is any genuine concern for the fate of the American people. The Democrats would like to avoid having to raise the debt ceiling again before Obama attempts to win reelection. The Republicans would prefer that the American people are reminded often of Washingtonian profligacy so that blame is pinned on the president and his party. These stances make a certain amount of political sense, but they are indefensible from any other perspective.

If we consider the situation without pondering any political implications, a few things become clear. First, the United States is deeply indebted. Our ratio of debt to GDP is roughly one. It's good to be suspicious of GDP insofar as it takes into consideration government spending--government programs devoted to digging holes and refilling them would boost GDP--but the ratio between debt and GDP is a reasonable indicator of a nation's solvency. There is no magical ratio, up to which debt is tolerable, or beyond which debt is assured, but given ours at present, it is exceedingly likely that we will never be able to pay back our debt.

While it is certainly possible that I am wrong in thinking thus, it would be exceedingly imprudent to assume that U.S. solvency is assured. If default is not inevitable, it nonetheless must be considered a real possibility. Our debt problem is not new. It came into being with the creation of the Federal Reserve, the subsequent abandonment of the gold standard, and the slew of social programs which were enacted from FDR onward. The actions taken by the last several Congresses--such as the wars in Afghanistan and Iraq, legislation related to Medicare, TARP, stimuli, and so forth--have exacerbated the problem. This current Congress, then, can continue in the ignoble tradition of that venerable institution, or it can take actions which lessen the debt burden. This step would not be unprecedented, but it would be the first such action pursued in many decades.

What would such a step entail? We are told that a failure to raise the debt ceiling will ensure that the U.S. defaults. This is not true. Tax receipts are sufficient to cover interest payments on the debt with money leftover. Should the Congress fail to authorize an increase in the debt ceiling, only foolish and pernicious action by the President would lead to default.

Contrary to the nonsense emanating from Washington then, an increase in the debt ceiling makes default more likely. It is not in the interest of the American people to be burdened with more debt. Instead, the United States Congress must pass a budget which ensures that they are not dependent on debt to make ends meet. The Federal Government is projected to take in 2.1 trillion dollars in fiscal year 2011. This should be sufficient to cover our expenditures. To ensure that this is so, Congress need only do its job: make the cuts necessary to restore solvency. Instead, both parties are taking purely political positions which will do nothing to alleviate the debt crisis.

It is true that making these cuts will be difficult. Present revenues are insufficient to cover Social Security, Medicare and Defense. Hence, even if we scrap every other Federal program, we will need to trim one of the big three to eliminate the deficit. Yet, far from getting better, the problem will become more acute each and every year. Boomers will retire--senselessly I might add, given the nation's impending bankruptcy--putting more stress on Social Security and Medicare. Nor is Defense likely to be willing to take a haircut. Judging from right-wing talk radio, cuts to defense are as intolerable as tax hikes; the Democrats, meanwhile, under our Nobel Peace Prize winning president, have wars going with six countries--Afghanistan, Iraq, Pakistan, Libya, Yemen and Somalia. So the cuts will be difficult to make. Yet this, precisely the task to which our representative are supposed to be devoted, is furthest from Washington's mind.

I cannot say that I see a way out of this mess. We will certainly not grow out of it. Even supposing generous--read: dubious--rates of growth, our entitlement programs and our Empire are too expensive for an aging populace, dependent on Mexican migrants to replace aging boomers. The recession has technically ended, but it continues a world impervious to Keynesian economists.

In all probability, Washington will continue to try to avoid making any hard decisions; we will take on ever more debt, and the parties will try to blame the respective other; the Federal Reserve will purchase any treasuries the Chinese prove unwilling to take; the government will still be able to pay its bills; the people are compelled to make ends meet with depreciated dollars. So it works out for everyone, unless one happens to be a member of the American populace.

It is not the decline and fall that saddens me; as we well know, all good things come to end. No, the tragedy of the American experiment is that we have given no resistance to this great evil. Indeed, we have given it our sanction by continuing to vote for and elect people who care not a whit for us. If this indifference is not painfully obvious now, I cannot say when reality will impinge upon our splendid little fantasies. This grand experiment cannot continue if we are to be governed by those who concern themselves only with the attainment and retention of power. When one puts aside the minute political difference, this, more than anything, unites the two parties. The people are without a voice in Washington.

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