Tuesday, December 01, 2009

Stop us before we spend another few trillion

Recognizing that voters are getting mighty concerned about all the government spending that is going on, some in Congress are making noises about trying to develop some new method of budgeting to reduce the deficit. However, acknowledging that they don't have the willpower themselves to stop spending, they want to create something akin to the Base Closing Commission that could do the deficit-cutting for them.

The Democrats still haven't taken care of 7 out of the 12 major appropriations bills that they must pass to keep the government running. Add in all the spending involved with increasing the fighting in Afghanistan and the proposed health care reforms.

If you are wondering why this increasing debt is a ticking time bomb, go read Niall Ferguson's essay in Newsweek. It's a depressing, but prescient picture of what lies down this road we're traveling.
In other words, there is no end in sight to the borrowing binge. Unless entitlements are cut or taxes are raised, there will never be another balanced budget. Let's assume I live another 30 years and follow my grandfathers to the grave at about 75. By 2039, when I shuffle off this mortal coil, the federal debt held by the public will have reached 91 percent of GDP, according to the CBO's extended baseline projections. Nothing to worry about, retort -deficit-loving economists like Paul Krugman. In 1945, the figure was 113 percent.

Well, let's leave aside the likely huge differences between the United States in 1945 and in 2039. Consider the simple fact that under the CBO's alternative (i.e., more pessimistic) fiscal scenario, the debt could hit 215 percent by 2039. That's right: more than double the annual output of the entire U.S. economy.

Forecasting anything that far ahead is not about predicting the future. Everything hinges on the assumptions you make about demographics, Medicare costs, and a bunch of other variables. For example, the CBO assumes an average annual real GDP growth rate of 2.3 percent over the next 30 years. The point is to show the implications of the current chronic imbalance between federal spending and federal revenue. And the implication is clear. Under no plausible scenario does the debt burden decline. Under one of two plausible scenarios it explodes by a factor of nearly five in relation to economic output.

Another way of doing this kind of exercise is to calculate the net present value of the unfunded liabilities of the Social Security and Medicare systems. One recent estimate puts them at about $104 trillion, 10 times the stated federal debt.
Read the rest.

Congress is going to have to vote to raise the debt ceiling over the $12.1 trillion where it stands now. Not a fun vote, but without it the government can't issue more debt. So some are proposing attaching a proposal to create commission for looking at how to decrease the deficit. Such a commission would be allowed to propose cuts that would go through automatically unless Congress could get a three-fifths majority to amend those proposals.
Separately, Senate Budget Committee Chairman Kent Conrad, D-N.D., and Sen. Judd Gregg of New Hampshire, the panel's top Republican, have proposed creating a deficit reduction task force that includes congressional and administration officials. Congress could be required to vote quickly on its proposals, amendments probably wouldn't be allowed and it would take a three-fifths majority to win approval, virtually requiring bipartisan support.
I always find it bitterly amusing when Congress admits that they just can't help themselves in voting for more spending and so they need some extra gimmick to stop them. We've seen similar proposals before. You might remember the Gramm-Rudman Act of 1985 to force automatic sequesters to require across-the-board percentage cuts of all federal programs if the president and Congress couldn't agree on spending cuts. Congress soon found ways around that. Then they imposed the Budget Enforcement Act in 1990 to cap discretionary spending. That worked for a while until they found ways around that. Both parties are guilty.

The truth is that the problem is not the discretionary spending, but the mandatory spending. And now they want to add in a massive new health care program. Voting for a new little deficit commission might make them feel better, but how about exercising more control when the time comes to vote on that new entitlement?