Tuesday, July 26, 2011

The government must pay its bills on time. Period. Then you can cut future spending and deficits.

Okay, I hope this is the last time I have to do this. I’m going to reconcile the debt crisis plans and try to craft a “Compromise” that can pass. Right now.  Here it goes.

But just wait! Let’s address all the major points made by the two sides.

Point 1:  There are two crises. One is that the government must pay all the obligations it already has. The other is that the federal government must reduce future spending to reduce the deficit and bring the debt under control.  This was one of Obama’s main points last night.

That is correct.  The ratings agencies are concerned about both problems.  It is necessary to both pay the current obligations on time and to reduce spending on future obligations.  But  some House Republicans are trying to hold the government’s ability to pay current obligations hostage to its own agenda.
That is what is so dangerous.  I won ‘t repeat all the arguments made in the media.  But it is obviously damaging to the economy and to ordinary people for the government to suddenly become “deadbeat”.

Point 2: The government has more money to pay the bills for a while without a debt ceiling extension.

 That is partially true.  I noted this with links at the end of yesterday’s posting. It’s likely that government could get through August, and could continue making entitlement, military, federal salary, and certain other payments indefinitely, as well as bond payments to Wall Street (and to countries overseas like China).  But quickly, many contractors would not be paid. Many programs essential to national security would be stopped. Possibly critical infrastructures (power, Internet, communications) could be jeopardized without continued payments.  The ability to respond to natural disasters is reduced. National security is jeopardized, and the likelihood of terrorist attacks increases greatly.  With prolonged default, there is a definite risk of lawlessness, looting, and various breakdowns.

Part 3: The government could still borrow without an extension.  

That’s also a “maybe”.  There are several arguments floating (from law professors, mostly at universities in “red states”) that the president can borrow separately to repay the Social Security Trust Fund, that he could invoke the Fourteenth Amendment, or simply “do it” and challenge the GOP to stop him with improbable “troll” litigation. In fact, the requirement to pay existing bills, as apart from the ability to appropriate new spending, sounds so fundamental as to invoke constitutional questions that deserve court attention.

It would be a good idea for the administration to develop a formal legal position on this and publish it, by the end of 2011.

Part 4: There need to be immediate and large spending cuts, as well as more cuts over time; cuts proposed by the Democrats are not “real”.

That’s largely true.  Ratings agencies now demand this.  That means layoffs of contractors and some federal employees, but these parties must be paid for work already done.  In “retirement”, I am a part-time federal employee, and I have no problem with accepting the idea that my position could be one of those that goes.
 
Part 5:  Massive entitlement reforms, including means testing,  even for existing retirees, are essential to a deal.

Not quite true. Today’s “numbers” don’t support the idea that Medicare and Medicaid are overwhelming the budget.  But they are likely to in the future, particularly with the explosion of Alzheimer’s.  Means testing (and enforcing filial responsibility laws more closely, which no one has mentioned yet) may satisfy the “moral” agenda of many “conservatives” but it won’t make a large difference in the budget right now. Rand Paul is exaggerating the benefit of entitlement reform in some of his speeches.
Of course, it is necessary to make adjustments to these programs with future retirees, and that’s why I’ve been with the GOP on privatization for future retirees, which I think can work.

Part 6: A balanced budget amendment is essential.

Sovereign governments do need a reasonable ability to borrow and run moderate deficits during periods of recession. But an amendment that limits deficits in some way is appropriate.  The real problem is that it takes a long time to pass, and many states will not ratify it because they need to depend on the federal government.

There’s nothing wrong with Boehner’s idea of a vote on it in the fall.

Part 7: There is a partisan ideological divide that is growing.

True.  And it is dangerous. (Some time back, I reviewed a film called "Gerrymandering".) Some radical politicians may see a chance to force a change in power or “purification”.  The moral thinking of some social conservatives (the “natural family” and “demographic winter” crowds), and the “social contract” applies, and may indeed be affecting their motives.  That’s why a total social breakdown in case of prolonged default is a threat.  This is indeed one of the most disturbing points. Some politicians seem to want a revolution. There are parallels in history – Germany in the 1930s provides a warning, how an obscure party took over a country, threw people off the bus and started world war, over a particular “ideology”.

Part 8:  The deficit is out of control.

True, and this is a mathematical observation, based on the rate of change (a “derivative in Calculus) of the deficit.  It’s a mathematical chart a lot like that for global warming in Al Gore’s “inconvenient truth”.  This is another “inconvenient truth”.

Out of control deficits ultimately will provoke the kind of social crisis I mentioned above, as in Point 7.

Part 9: Obama is responsible for the deficit and isn’t serious about reducing spending (a persistent quote of Boehner).

Nope.  Most of the explosive deficit growth in Part 8 came from the bailouts, TARP, and rescue of the auto industry, which all began under Bush.  Properly managed, ObamaCare should not add to the deficit if health care costs themselves are brought under control.  True, some of Obama’s budgets his first year were generous, and he could have negotiated his debt extension sooner.

Part 10:  Some of Reid’s cuts are from the phantom zone.

Nope. If you can save a trillion dollars by bringing troops home prudently, I’m all for it. The problem is we don’t know that something else won’t happen that could require emergency spending. Maybe a coronal mass ejection leading a geomagnetic storm and massive power failure for months over half the country. Maybe nuclear terror.  I think it’s reasonable to count about $1 trillion from war savings, but insist on about $3 trillion in domestic savings over ten years.

Part 11: It’s unacceptable to have a debt on the vote ceiling again next year.

The ratings agencies are with the Democrats on this, and Boehner was wrong not to admit this or address it last night. The GOP must listen to the ratings agencies.  It really would be better if we did not have to update the debt ceiling, but could control new expenditures automatically. True, that’s the appeal of a constitutional amendment (“cap and balance”), but, as I said, it takes too long.

I really didn’t have a problem with a shorter extension, but we ought to listen to S&P and Moody’s on this.

Part 12:  You need revenue enhancements.

The president is right. Most mainstream Americans think that super-rich should pay more, and that closing abusive loopholes will not hurt job formation.  On the other hand, a family making $250000 a year is not “rich”.  And there is a moral argument that “rich” seniors should pay for their own medical care whereas working people should not.  The reported unwillingness of the “TP” to accept any revenue enhancements simply reflects ideological determination, that a safety net is not a public responsibility but belongs and families and as a personal obligation of private citizens.

Part 13: A reasonable bargain exists.

True. Ezra Klein proposes one today in the Washington Post (link).  I think Congress should spell out the details of immediate (next six months) and longer term (next ten years) cuts in terms of entitlements, contracts, and federal employees in various agencies.  There certainly will be layoffs. But the key to making an agreement work is to publish the details of the cuts (and of the people affected) as quickly as possible.  I notice that Reid apparently won't do entitlement cuts, but I agree with Boehner that some entitlement cuts should be put back into the compromise package now -- and wealthier seniors (and their families, under filial responsibility) should pitch in something on means testing of entitlements (esp. Medicare claims) now, after all, it's "the next generation's turn". It may not be possible to spell all of them out and pass them by Aug. 2, but much more detail should be available before the start of the next FY on October 1.

In general, the “compromise” is to follow a plan like Reid’s, but to publish more much details on non-defense cuts and particularly entitlement cuts, implement some means testing (outside of the value of contributions already made from FICA and Medicare taxes, as noted above), and publish this, and make all the longer term changes in entitlements.  (The publication of details answers Boehner's complaint of a "blank check").  There should be a vote on a “modified” balance budget amendment by Oct. 31, 2011.  And, to listen to the ratings agencies, we should never go through a debt ceiling exercise again.
 

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