Anything to Avoid a More Specific Commitment to Fiscal Discipline
December 14th, 2009 . by economistmomCongress is so unwilling to make a specific commitment to longer-term fiscal responsibility that they’d give up another short-term deficit-financed spending spree to avoid the more permanent commitment to reform itself after the binge. From tonight’s “Capitol Briefing” at washingtonpost.com, Paul Kane reports (emphasis added):
House Democratic leaders, bowing to opposition from their party’s deficit hawks, have decided to move the final must-pass piece of legislation of the year without a long-term increase to the national debt and a large boost in infrastructure funding that was considered a jobs bill.
Majority Leader Steny Hoyer (D-Md.) said Monday evening that the proposal floated last week to increase the debt limit by more than $1.8 trillion had been discarded in favor of a more politically acceptable plan to give the Treasury a two-month extension on its current limit of $12.1 trillion, which it is expected to hit by New Year’s Eve. The plan calls for raising the cap by $300 billion to $12.4 trillion, according to a source familiar with the decision.
“We’re working towards a short-term debt extension,” Hoyer told reporters as he emerged from an hour-plus meeting in Speaker Nancy Pelosi’s office.
Conservative House Democrats had been demanding, in exchange for their votes to support a large debt limit increase, a [statutory PAYGO] law that would force new spending on government programs to be offset by other cuts in federal spending or increases in taxes or fees. Senate Democrats who are concerned about deficits, led by Budget Committee Chairman Kent Conrad (D-S.D.), had been seeking the creation of a powerful new commission that would be able to force reductions in spending [or increases in taxes].
It’s as if Congress is saying to its fiscal hawks: “Well if you’re going to be that way about the lousy debt limit increase and the (obvious) need for more stimulus, forget it!… We’ll ask later when you’re in a better mood.”
Hey, whatever works… it’s at least a tiny little “sanity pause.”
And it tells us a lot about how dramatically the near-term budget outlook has changed, when $300 billion buys you only two months time. (By the way, the average annual budget deficit over the past 7 years–and those have surely been record deficit years (FY2002-08)–has been $304 billion.)
Diane / All,
I’d be interested in any thoughts on the report/recommendations just out from the Peterson-Pew Commission on Budget Reform http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Economic_Mobility/40543%20FR_R1.pdf?n=7003
“and the (obvious) need for more stimulus.”
No. Disagree. The argument that more stimulus is needed is wrong, wrong, wrong. What is needed is economic growth that comes from job creation BY THE PRIVATE SECTOR. That is the ONLY long term solution that will work. The “more stimulus” experiment was tried (by Japan) and found wanting. Not that Keynesian economists are convinced by the evidence because the argument always becomes, “that was not enough stimulus.” Wrong.
Brooks,
I just read through the commission report. Thank you for posting the link. Some top of mind reactions.
1. Like many of these reports, it’s long on situation assessment and solution framework but very short on actual solutions. One of the benefits of the Concord budget exercise (of which I’ve been very critical on other grounds) is that it makes one think through specific policy changes.
2. I find the discussion of entitlements (mandatory spending) in the report, somewhat contradictory. The report makes the following assertions at different points.
—-The problem is primarily a spending problem and spending needs to be the larger part of the solution
—–Mandatory spending will grow as a percentage of GDP as a consequence of technology and demographics
—–Mandatory spending is the bulk of the spending we do today
If you actually cranked through the policy choices, maybe you could square that circle but it certainly wouldn’t be easy to do.
3. I expect it’s impact to be modest or lower because it simply refuses to put any hard choices on the table. It talks about hard choices and shows the math that requires hard choices but goes no further. In my view, there are two possible solutions here:
A. A multiple choice exercise where individual choices are sets of principles …. e.g., a choice set driven by revenue increases, a choice set driven by means testing all entitlements, a choice set drive by across the board reductions….that people must choose between. I recognize the answer is in the middle but there must be a dominant theme to each to drive the debate.
B. A sharp limitation on the role of the Federal government in our society. Perhaps the core of our problem is less the financial side and more the philosophical one. We could sharply reduce government spending if we decided the Federal government had no business being in the space exploration business as an example. We wouldn’t then need to debate the NASA budget, it would be zeroed out as not the government’s business.
In any event, I enjoyed the report for what it was but don’t feel like it advanced the dialog very much.
Murf,
I think if you read in context, Diane was reflecting a perspective of the House leadership. We may all disagree with that perspective (and I suspect many of us do) but it is an accurate (in my opinion) description of the leadership’s point of view.
We actually exceeded the debt limit temporarily back on November 30th, when it stood at $12.113 Trillion, but that’s only a tenth of a percent of the total, and what’s 13 billion between friends?
Since then, the debt has fluctuated within about $20 Billion of the limit, and I’m guessing that debt is still accumulating at its ordinary rate of about 3 to 4 billion per day, but that the Treasury is performing the routine accounting and budgetary maneuvers required of it every time it gets close to hitting the limit but Congress still dithers about raising it.
When Congress does raise the limit, there is usually a sudden spike in the debt which actually represents the unwinding of these maneuvers and their replacement with new debt issues. So 300 billion gets us through three whole months instead of only two, because you’ve probably got to count December as well.
That’s still a deficit rate of around $4,000 per American per year. If you treat treasuries like mortgages amortized over 30 years at 4.5%, that comes to a long-term income reduction (tax-rise or spending-cut) per individual of $240 per year in order to pay it back. I hope it’s worth it, but I have my doubts.
Steve,
Thanks for your thoughts. I only had a chance to read parts of it today and scan other parts, but I will probably read more thoroughly by tomorrow (Wed) night and discuss your points.
One question I do have for the moment is where in the report you see an assertion that “spending needs to be the larger part of the solution”. The closest I see so far is whatever implication one may read between the lines where they say:
Over the longer term, the problem is primarily on the spending side of the budget, resulting mainly from the aging American population and growing health care costs…That does not mean however, that the entire solution has to come from changes to the programs affected by these factors — primarily Social Security, Medicare and Medicaid — or spending in general. To the contrary, government health and retirement programs will almost certainly have to grow as a share of the economy because of demographic and technological factors, as well as changing preferences. Nonetheless, the numbers do suggest that since the long-term problem is a spending problem, policymakers should look to reducing spending as a very significant part of any package.
I suppose one could speculate that their saying the “entire” solution won’t be on the spending side, along with the other language, represents an implication that most of the solution should be on the spending side, but it’s less than crystal clear to me. Do you see some clearer statement to that effect?
Brooks,
I was interpreting the last clause “policy makers should look to spending as a very significant part of any package” as implying something about its relative size. Clearly very significant is not the same as most but, in context, it does appear there is a bias to spending restraint.
In general, as you go through the document, you will note it actually says very little about the real tradeoffs we face and how to resolve them. The paragraph you cite above is about the strongest directional statement that I could find in the entire document.
Steve, I was disagreeing with the statement, not Diane, although I think I could argue from the general nature of her posts that she agrees with the assumption.
murf: I was indeed being facetious. Needed to insert “rolling eyes” I guess!