Tuesday, May 24, 2011
Anti "debt ceiling rising" crowd quite vociferous: draconian cuts and sacrifices are possible
Is it irresponsible for the US not to raise its debt ceiling right now?
You see Alan S. Binder (May 19) in the Wall Street Journal arguing that responsible democracies always tell investors how they will pay back their debts. And May 16, the WSJ warned that the $14.3 debt ceiling was reached, meaning that right now the federal government has to stop issuing securities in certain pension plans. After Aug 2, there is a crisis. The main article is by Damian Paletta and Carol E. Lee, link here.
Yet, I get beaucoup emails asking me to join the tea party bandwagon to block extension of the ceiling in August. What’s the answer to default? Immediate, draconian spending cuts. (Freedom Works has a typical article and chart here.). I’m told that this generation of baby boomers must make real sacrifices now – today – to stop the shameful passing of trash to great grandchildren. (And, guess what, not everybody will have great grandchildren – the generativity problem).
To be truthful, there are probably three ways to counter the default without raising the ceiling. One is raise revenues dramatically, mostly on taxes on the rich. It worked during the Clinton years. Another is defense cuts – mostly contractor abuse – harder to sell politically now that Al Qaeda is on the run. And the big daddy is entitlements. Seniors paid for a lot of their Medicare and social security benefits with FICA and other taxes, but not all of it. You could start means testing now. States could enforce filial responsibility laws, too.
I remember the great financial crisis for New York City in 1975, and the “Ford to City: Drop Dead” headline in the New York Daily News. In the end, unions had to give in a bit.