Tuesday, February 5, 2013

In the Water, In the Air: Tuesday, February 5, 2013.

Tuesday, February 5, 2013.  "Getting serious" on debt; mature discussions about priorities.

AT FORBES.COM, ED POZZUOLI encourages both President Obama and Republicans to "Get serious on debt":

Back in 2006, before he became president, Obama had this to say about America’s staggering debt burden: “America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.” I couldn’t have said it better myself, Mr. President. On the other hand, as hard as the Democrats fight to prevent reasonable reforms to entitlements, Republicans need to bring reason to the debate regarding the defense budget. Economic integrity is the real national security issue now. The debt needs to be tamed—now is the time to get serious about it.

(Ed Pozzuoli, Forbes.com, President Obama's Economy Continues to Fizzle, Feb. 05, 2013.)

But what if taming our debt is not a matter of "getting serious"?  We've been pretty serious about the debt for a very long time now--decades--with not much to show for it.  If we furrow our eyebrows more deeply, and orate in even more somber tones, are we really likely to do much better than we have so far?

Perhaps instead of trying to work harder, we should look for ways to work smarter.  Under the Solvency Amendment, balanced budgets would tend to become nothing more than the natural outcome, over time, of establishing spending-side and revenue-side policies under our ordinary and familiar law-making process.  We would no longer have to puzzle out some way for us to escape our deficit spending.  Instead, we'd start out with our budgets balanced by default, and we would merely have to guard against being dragged back in... a situation in which we would have the wind at our backs for once, instead of blowing us backward.

NICK GILLESPIE AT REASON.COM discusses "a pattern that I recently christened 'the Ziggurat of Doom': Spending ratchets up under Republican presidents and then the gains are consolidated by Democratic leaders."  (Nick Gillespie, reason.com, Don't Be Surprised When the GOP Cuts Defense Spending, Feb. 05, 2013.)

Just another reminder, in case we needed it: To the extent that our spending contributes to our debt, the blame for our debt rests upon all of us, regardless of party, ideology, or creed.

MEANWHILE, AT TIME, CHRISTOPHER MATTHEWS notes that despite our deficits and debts, the Federal Government has enormous assets:

. . . One aspect, however, of the debate of American creditworthiness that doesn’t get discussed is what assets the federal government owns. After all, a borrower’s assets should be one of the main factors in determining the wisdom of its borrowing,  but when talking about the U.S. government’s debt burden, it seems to get left out of the conversation entirely. . . . According to the report, the U.S. government owns:

    More than 900,000 separate real assets covering more than 3 billion square feet;
    Mineral rights, on and offshore, covering 2.515 billion acres of land, more than the total surface land in Canada;
    45,190 underutilized buildings, the operating costs of which are $1.66 billion annually; and
    Oil and gas resources on and offshore worth $128 trillion, roughly 8 times the national debt of the country.

(Christopher Matthews, Time, The Federal Government’s $128 Trillion Stockpile: The Answer to Our Debt Problems?, Feb. 05, 2013.)

The assets of the United States may well be interesting to consider in relation to our debts.  The eating of seed-corn is generally inadvisable, though.  We would presumably have to be in pretty dire straits to consider spending these assets to any substantial degree.

In his conclusion, Mr. Matthews notes that "the financial crisis and demographic shifts that have caused our budget problems are either temporary effects or problems that could be solved by a mature discussion about priorities."  That is exactly what the Solvency Amendment would lead us to--or, more precisely, would not allow us to escape from: a mature discussion about our relative priorities as a country.

UNDER THE SOLVENCY AMENDMENT, deficit spending in the future would depend upon (to mix some metaphors) a battle of the experts in the court of public opinion.  The testimony that would be brought to bear on one side of that battle has been well recounted elsewhere so far: austerity will harm the economy, and stimulus will help.  

The following passages from the Staff at e21 give a glimpse of some countervailing testimony that might be brought to bear on the other side:

. . . To both [John Makin (of the American Enterprise Institute) and Paul Krugman (of the New York Times)], the only argument against larger deficits is the potential for rising interest rates, which undermines the government’s access to finance and potentially crowds out private investment. . . . This framework completely ignores the possibility that low interest rates and depressed economic activity are themselves the result of unsustainable debt accumulation. . . .

'. . . [W]hat if the subpar economic performance and low interest rates are themselves caused, in part, by the unsustainable fiscal policy? In this case, the expansionary fiscal policy would continue to depress economic activity until it led, eventually, to a public debt or currency crisis.'

Unsustainable fiscal policy must be reversed at some point.  Until it is, households and businesses are left to speculate about whose ox is to be gored, which increases the risk associated with new irreversible investment, increases savings rates, and leads to more conservative portfolios. The result is slower growth and lower interest rates on putatively risk-free securities, as households and businesses save more and allocate more of that savings to cash and cash equivalents. In this framework, large cuts to government spending are stimulative because they reduce the future taxes necessary to stabilize and reduce future debt ratios.

At current rates, U.S. net debt levels (total debt excluding Social Security and other trust funds) are scheduled to exceed 100% of GDP by the end of the next decade. The current treatment is not working; dialing back on the dosage will have little effect in the short-run and result in much improved long-run prognosis for the patient.
(e21 Staff Editorial, Upping the Dosage Would Kill the Patient, Feb. 04, 2013.)

Under the Amendment, clashing expert testimony would be evaluated by the people, and the people would then decide which testimony to give the most weight to.

Because that's how we roll, in a democracy.

FINALLY, GLENN REYNOLDS AT USA TODAY recounts a recent poll "in which only 22% of likely voters feel America's government has the 'consent of the governed' . . ."  (Glenn Harlan Reynolds, USA Today, A Revolution in the Works?, Feb. 04, 2013, citing Rasmussen Reports, 22% Believe Government Has Consent of Governed, June 24, 2012.)

As American Solvency discusses in detail, with respect to fiscal matters, that remaining 78% of likely voters is not wrong: right now, America is effectively spending in deficit without the consent of the governed.

Happily, there is a solution to that problem...

Have you heard about the Solvency Amendment?

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