Debt Ceiling Should Be More About Numbers Than Politics

Original Article

It’s unsettling that Washington has become so much more cavalier in the treatment of budgets and numbers than is the case in the private sector. Any business or family household knows that revenue intake has to offset spending over the long run in order to carry on and remain viable. Yet many in Washington ignore or deny the requirements of solvency that apply everywhere else. How can this be?

In his classic, “Modern Times,” British historian Paul Johnson explains that our age has been shaped by the misperception of Einstein’s theory of relativity. Johnson asserts that as that theory became popularized, “the belief began to circulate for the first time … that there were no longer any absolutes: of time and space, of good and evil, of knowledge, above all of value.” Thus, the misconstrued theory of relativity contributed to cutting society adrift of traditional moorings of absolutes in morality and undermined the certainty of numbers. It may have also opened the door to abdicating one generation’s sense of responsibility for the next.

But the United States is a resiliently sanguine and caring nation, even when optimism wanes during prolonged economic hard times. Once people really understand the nature and scope of the country’s structural budgetary issues, the majority is likely to become more flexible and willing to sacrifice some present benefits to save future generations from an insurmountable debt burden.

The fiscal cliff was but a diversion from the nation’s real budgetary problem. Republicans were united in requiring that spending cuts be a precondition for raising taxes, and struck the best bargain they could in the agreement of Jan. 1. There was of course concern that the Democrats and their media allies would paint the Republicans’ supposed intransigence as a reckless willingness to go over the fiscal cliff or jeopardize the nation’s credit rating.

But that was nonsense. House Speaker John Boehner may have failed fiscal hawks, but he wisely kept the budget cutting spending sequester (already agreed to by Obama at the time of the August 2011 debt ceiling agreement) off the negotiating table. The sequester may prove to be a hammer that drives the nails on terms for raising the debt ceiling in February.

As in the previous debt ceiling debate, there is risk of another downgrade of U.S. government bond ratings. But the Democrats may not get traction in framing the debate as they did before. The credit rating agencies remember all too well the high profile loss of their credibility after the massive 2008 defaults on mortgage securities they had rated AAA. Moody’s, Standard & Poor’s and Fitch know the debt ceiling is a secondary issue. This time around they view their proper role as watchdogs of the numbers behind the deficit spending and debt accumulation trajectory that hurdles the nation toward insolvency.

The numbers are startling. Total U.S. government debt in the form of IOUs to the Social Security and Medicare trust funds and bonds bearing interest to investors grew 53 percent from $10.7 trillion to $16.4 trillion during President Obama’s first term. This $5.7 trillion of new debt created in just four years equals the entire debt accumulated in the first 225 years of America’s history. The total debt load now is about 104 percent of U.S. GDP, a ratio Greece hit in 2007 – only a few years before its economy began unraveling.

Following the fiscal cliff compromise on Jan. 1, President Obama telegraphed that he sees the debt ceiling as nonnegotiable, bluntly stating that he “will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they passed.” There is blame on both sides of the political aisle. But with a heightened national awareness of the gravity of excessive debt, the sequester option which is now the Republicans’ prerogative, and Obama’s tax increase now levying painful withholding increases on all working Americans, the president has a weak hand to play in the upcoming debt ceiling discussions.

If Republicans take every opportunity to educate the public about numbers with graphs and charts, genuinely communicate their compassion for the next generation’s fiscal solvency, and if they remain united, the president and his allies may well find themselves on the defensive and unable to avoid significant spending cuts that should include long overdue entitlement reform.

Scott S. Powell

Senior Fellow, Center on Wealth and Poverty
Scott Powell has enjoyed a career split between theory and practice with over 25 years of experience as an entrepreneur and rainmaker in several industries. He joins the Discovery Institute after having been a fellow at Stanford’s Hoover Institution for six years and serving as a managing partner at a consulting firm, RemingtonRand. His research and writing has resulted in over 250 published articles on economics, business and regulation. Scott Powell graduated from the University of Chicago with honors (B.A. and M.A.) and received his Ph.D. in political and economic theory from Boston University in 1987, writing his dissertation on the determinants of entrepreneurial activity and economic growth.