The U.S. Senate just sent President Obama a bill that suspended the latest U.S. debt limit until may. The bill will allow the U.S. to exceed the existing debt limit and continue borrowing until May. That means the government can keep writing checks on its overdrawn account for another three months. In return, the president agreed to accept House Republicans' demand that the Senate produce a budget the spring. The Senate has not passed a budget in nearly three years. That is partly because they do not have to and partly because they have been unable to agree on one.
Senate Majority Leader Harry Reid of Nevada stated "a clean debt ceiling allows the United States to meet its obligations". What he didn't mention is that the new debt ceiling solves nothing. All it really does is just buy us a little more time. That is a position that might not garner the ranker of conservatives so much if it could be agreed upon exactly are the government's obligations and to what extent it is obliged, that is where the real conflict lies. When, for example, the government decides to take on the responsibility of bailing out industries, regulating the diet of school children, providing health care for all Americans, or finding new sources of alternative fuel, those responsibilities must be funded. Then it must be decided how well it should be funded. Because the government has historically been unwilling to walk away from responsibilities it has taken upon itself, its financial obligations accumulate. The unwillingness of government to retrench is a problem that has many causes. People quickly come to depend on government spending for their well being. Bureaucrats become dependent on government programs and agencies for their jobs. Politicians come to rely upon spending money to preserve their positions and increase their stature. Washington becomes reliant on federal spending to manipulate policy.
As important, according to Reid, the senate's action is a demonstration that "the full faith and credit of the United States will no longer be used as a pawn to extract painful cuts to Medicare, Social Security, or other initiatives that benefit the middle class." Perhaps our government's faith and credit will be preserved for the time being it will once again be in jeopardy when the next need to borrow more money comes up and the struggle over spending resumes. When that happens we will be right back where we started. Neither side, especially the democrats, want that. That is why Obama and congressional democrats want Congress to write a blank check to tide things over. That is why republicans want concrete proposals from the president to reduce spending before they agree to more spending.
If budget negotiations are starting to seem like a game of chicken it is understandable. Time and again Washington has raced to the edge of the financial cliff only to hit the brakes at the last minute when catastrophe loomed. Time and again the brakes have been hit only when children, the poor and the vulnerable were held hostage. We are fated to replay this situation over and over until the government somehow gets spending in accordance with revenue. You do not need a Nobel Prize winning economist to tell you that you cannot continually spend more than you take in and get out of debt. Despite all the rhetoric about "investing: in the economy" and "priming pumps", we have yet to see a return on the money that has so far been spent. Without a return, "investing" and "priming" are just euphemisms for spending.
The single greatest problem facing those who would cut government is that there are too many people in the United States who depend on federal spending in one way or another. Farmers, single mothers, factory workers, teachers, arms manufacturers, indeed, almost all Americans, have become dependent on government spending. The government needs to spend if it to keep the economy moving. As important, spending has become an essential tool for government control. With federal spending comes federal regulation and with that the power to manipulate. That is the real prize. The power to control and shape society is priceless. Progressives will eagerly drive the nation trillions of dollars into debt to obtain that pearl.
Those progressives willing to overlook the debt should consider this: in 2011 the government spent $227 billion in interest on the debt. So far in the 2012 fiscal year it has spent $104 billion. In the 2013 fiscal year it is expected that the government will spend $139.1 billion on education and $132 billion on labor. Those who profess themselves champions of children and the working man should ponder not only what magic could be achieved if the money we spend on interest was spent on programs directed at aiding the "99%", but also how many people could have been fed and clothed? How many people could have been provided shelter and health care? How much more could the government have spent on natural resources and the environment than the paltry $43 billion that it budgeted? There is a common, and dangerous, inclination on the part of many to conflate government spending with "justice", "opportunity", and "equality". If you compile the numbers on federal spending you will quickly find it is nothing of the sort. The great majority of government spending has little to do with helping anyone except tangentially as in the argument that paying interest on the debt allows the government to accumulate more debt so it can theoretically help more people.
It is predicted by some in Washington that deficits will be going down in the future as government stimulus spending winds down and the cost of bail outs dissipates, but that is by no means certain. Once people get a taste of government spending they are loathe to give it up. But even if we accept the optimistic projections that deficits will decline there remains the larger, and more dangerous problem of the debt. As long as there are deficits, no matter how small, the debt will keep going up. All of the talk in Washington about reducing the deficit should be considered in light of the larger picture, the debt. It is a waste of time talking about the debt as long as we operating under historical deficits. Even if somehow Washington was able to pass a budget with a surplus, applying that surplus to the debt is a long way from certain. People win office in this country by spending money on their constituents, not by stiff arming them in order to pay off banks and foreign creditors. If you are a politician and you tell grandma she can't have an increase in her social security because the bankers have to be paid you had better prepare yourself for a new line of work.
Congress should take a break. It is not as if a balanced budget were anywhere in reach. Besides, the debt isn't going anywhere. We have two years before the next elections and things are going the democrats' way. Let's just up the limit on the nation's credit card and move on with our lives. There will still be tens of millions of potential hostages when the next budget battle comes up. It is my hope that Congress will take some time to put budgetary politics aside and let financial reality seep in. Unless it does, we will just keep stumbling from one budget crisis to another.
What undid the Soviet Union was that the Kremlin frequently subordinated economics to politics. Domestic policies were commonly crafted for political ends in disregard for financial facts. The Soviet economy was guided by the politburo, not the market. If the politburo decided that more architects were needed or that more of a particular commodity was required, the order went out for more. If a particular sector of the economy was sagging, edicts were issued to shore it up. We know how that worked out. Had the Soviet Union been able to borrow money indefinitely to keep itself afloat, it might never have collapsed, but it couldn't. When the Soviets faced a financial cliff they had no choice but to go headlong over it. We may still do the same. Being a democracy does not make us immune to ideological error and the laws of economics.
Yes, let's take a little time off. But rather than use the time to devise strategy and gin up support for the next battle, let us use the time to bone up on economics and read a little history. If we spend the time wisely, we might yet still come out of this in good shape.
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