The Scalpel or the Cleaver

As most are no doubt aware, Washington is in turmoil. The widespread tax increases and budget cuts agreed to by Congress and the president, known as the "fiscal cliff", are imminent. The harsh ramifications of the measures were intended to spur agreement on addressing the ballooning deficits rung up by the government over the last 12 years. The tax increases and budget cuts intended to motivate Washington to take the debt in hand have failed. We are teetering on the cliff.

Odds are we will not go over the cliff. The benefits of the "sequester", as the agreement is called, are slight. All that is gained is a modest reduction in the growth of the debt. That is a gain that will not improve the lives of Americans any time soon. Against that we have the consequences if the measure is ever allowed to kick in. Jobs will be lost. Services Americans have become accustomed to will be reduced or eliminated. Defense spending will be cut. Government workers will be furloughed. Our borders will become less secure. Medicare spending will be cut. Many other government programs will have their funding reduced. Given the choice between the theoretical good of reducing deficits over time and imminent pain, you can be confident that Americans and their elected representatives in Washington will decide that the present is more important than the future and will choose to avoid the pain.

What is frequently lost in the commotion over addressing the monstrous deficits our government has been running are the consequences of adding to the debt. The nation is preoccupied with the effects of the proposed spending cuts. This is understandable. It is human nature to pay little mind to the future. The present is real. It can be seen and touched. The future lies in the imagination. It consists of possibilities, not certainties. The country might go bankrupt or it might not. The economy could catch fire, or it could wind up in the tank. The consequences of the sequester, on the other hand, will be real. They will be felt concretely by those who have become dependent on government funds, whether directly, as in the case of those who receive money from the government such as contractors, farmers, and federal employees, or indirectly as in the case of those who sell things to people who are paid by the government. The benefits of cutting spending are abstract. They will only be realized in the future and even then indirectly in the form of a healthier economy. They are mere numbers representing money that no one will ever see.

Against this we have the creeping doom that is the national debt. As the debt rises, so do interest payments. Last year, the government ran its fourth consecutive yearly a deficit of well over $1 trillion and pushed the national debt to above $17.6 trillion. The interest paid on the debt last year was $296 billion.With every new dollar the government borrows, that amount goes up. That is what this is all about. Borrowing money is easy, well, it has been anyway. It is paying it back that kills you.

It is to be excused if many in this country have come to confuse the arguing over spending cuts and tax increases with attempts to address the issue that is the cause of all this turmoil, the growing national debt. The root of the problem is that for years the government has been spending far more money than it takes in. That is fine with many Americans. They are getting government at a discount.

Even though the imminent financial crisis in Washington has been averted, we have only gained a respite. Amidst the relief of the deal's passage, it needs to be pointed out how little was really achieved. What we have is a commitment to reduce deficits by roughly $4 trillion over the next ten years. Given that we have run trillion dollar plus deficits for six of the last seven years, we should hold our celebration. Even if the deal is adhered to over the next decade, and that is by no means certain, we will still be piling up hundreds of billion of dollars in new debt each year. Without the cushion of a surplus, one war, one market swing, one economic downturn, would erase the gains of the deal and put us right back on the brink of financial collapse. Then there is the ticking time bomb that is social security. Nothing has been done to stave off the crisis that will bring..

America is doomed to repeat this scenario over and over again in ever worsening ways. Even if Congress and the president cobble together a deal, as they most certainly will, that will only tide us over to the next budget battle. Unless things change and the government starts showing some black ink, we will eventually have to put away the scalpel and bring out the meat cleaver. Then we will not be facing cuts. We will be facing amputations.