Tuesday, October 15, 2013

The scare mongering continues on the debt ceiling and default

There is great wailing and gnashing of teeth over the potential for catastrophe if the debt ceiling is not raised, but whether the ceiling is raised or not, the underlying problem will remain to be reckoned with yet again.

We are warned against defaulting on the national debt, which President Barack Obama tells us will have the most dire consequences. However, default really isn’t an issue, as economist and former long-time Federal Reserve System Chairman Alan Greenspan explained: “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.”

While Mr. Greenspan’s statement is technically true, printing even more money to pay the nation’s debts has its own set of economic problems, and heaven knows we have enough of those already.

Another reason paying our debt service isn’t a problem is that even if the debt ceiling isn’t raised so that the government can borrow more money, there is more than enough money coming into the treasury each month to pay the interest on the debt multiple times over, although that has its problems, too.

But the best reason is contained in Section Four of the Fourteenth Amendment to the U.S. Constitution, which directs, in no uncertain terms, that "the validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." The Constitution commands the president to make good the debts of the United States, and that includes both what our nation owes to bondholders, and the sums promised in legislation to those receiving pensions set by law, according to legal scholar Garrett Epps.

What that means is that if the debt ceiling isn’t raised President Obama will be forced to make some tough decisions on what won’t receive funding so those mandated payments can be made, and since much of Mr. Obama’s popularity comes from spending money, there could be some uncomfortable and long days in the White House.

However, the scare mongering about the catastrophe facing the nation and the resulting public outrage will likely force an increase in the debt ceiling for the 80th time since 1940.

President Obama tells us this won’t increase spending, but since it does increase the limit on spending, does anyone really doubt that spending will soon increase, and before long the politicians will want yet another debt ceiling increase.

Sometimes there are compelling reasons for deficit spending, like WWII, the 9-11 attacks, and the banking crisis that threw the country’s economic system into crisis, but most times it is just a bail out from fiscal irresponsibility. Sometimes the ceiling has been raised by a small amount, other times by a large amount, and sometimes it’s been raised temporarily with provisions for a "snap-back" to a lower level.

“Weighing benefits against costs is the way most people make decisions – and the way most businesses make decisions if they want to stay in business,” says the eminent economist Dr. Thomas Sowell. “Only in government is any benefit, however small, considered to be worth any cost, however large.”

And that is the crux of the problem. People who are elected to represent the interests of the citizenry do not use common sense and basic economics when making decisions we pay them to make.

Trying to obtain benefits without considering either the cost or the likelihood of success not infrequently produces bad programs, and bad programs breed and multiply in Washington, DC, and live forever.

The federal government is simply too big, too powerful, too intrusive, too expensive, and too undisciplined, and as a result there are dozens of duplicate programs, and more than a few programs that do not, and never have, achieved success, but are still being funded. And there are billions going to fraud and abuse.

Attempts to reign in waste, fraud and abuse have mostly lacked serious action, and efforts to cut spending to match income likewise have accomplished little.

And atop that lackluster record we have the biggest deficit producer in history in the White House.

At the end of FY2000, four months before George W. Bush took office, the national debt totaled $5.67 trillion. At the end of the fiscal year that Barack Obama took office it had risen to $11.91 trillion. That number is skewed higher due to the $151 billion TARP program President Bush implemented, $147 billion of which was repaid after Mr. Obama took office.

At the end of FY2013 the debt stood just short of $17 trillion. Excluding FY2009, when both Mr. Bush and Mr. Obama held the White House, the president and the mostly-Democrat-controlled Congress added more than $5 trillion to the national debt, with average deficits of $1.163 trillion from FY2010 – FY2013.

It is way past time that government face up to reality and live within its means. The president and Congress must get rid of unproductive programs; eliminate, or at least significantly reduce, fraud, waste and abuse; shut down or downsize federal departments; and implement business-like fiscal standards. In short: do their job.

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