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Sunday, July 17, 2011

Risking Default of the U.S. Government: Other Priorities

In mid-July 2011, as several of the American states were in the midst of a heat-wave, the showdown on the debt-ceiling was becoming hot in Washington, D.C. The “heat index” on default was steadily rising with no end in sight. The refusal of republican representatives in the U.S. House to automatically increase the debt-ceiling had prompted unprecedented attention on what had been treated hitherto as a “housekeeping matter” of the U.S. Government. The attention can be referred to as a “fiscal moment.” Whereas a “constitutional moment” is one in which a citizenry’s attention is momentarily galvanized on a particular constitutional question, a “fiscal moment” is a window wherein heightened popular attention of the citizenry enables a societal recognition of what had been vaguely understood and recognized as a long-standing fiscal tendency or pattern.

The prospect of default by the U.S. Government was dire indeed. Talking to U.S. Senate leaders, Secretary of the Treasury Geithner said, as later recounted by Sen. Reid according to the Huffington Post, “default would result in a complete ‘loss of capacity to function as a government.’ If this country defaults on its obligations, it will be ‘much worse than the Great Depression, and it would make the massive financial crisis of 2008 look mild. It will make what we just went through look like a quaint little crisis.’” Sen. Reid concluded from the Secretary’s remarks, "Those who say this crisis would be a blip on the radar are wrong. Default would be a plague that would haunt our nation for years to come. Our credit rating would take years to rebuild. The country would never be the same." In the context of this awareness of an impending yet self-inflicted catastrophe, the failure of the “players” in the Congress and Obama administration to mitigate rather than exacerbate real differences of opinion within the citizenry was apparent.

Perhaps not coincidentally, the attention of a crisis announced and solved at the last minute would serve the interests of, and be practically irresistible to a politician. Add to the mix a perplexing tendency to acknowledge what the catastrophe would bring and yet assert other priorities—of value to be sure—over that of extending the debt ceiling. Allowing other priorities to get in the way of an agreement oriented principally to obviating default is so perplexing that it raises the question of societal dysfunction and compromised representative democracy. That is to say, are We the People mature enough to self-govern when so much is at stake?

An accumulated public debt of over $14 trillion (plus $68 billion among the states) points to a basic imbalance, ultimately of values and rooted in psychology and its related culture. External discipline, while a tacit admission of self-government, is necessary where such an imbalance is countenanced (and perhaps not even recognized at large until a jolting fiscal moment of self-serving attention). One means of external discipline is a balanced budget amendment. To better understand, the rationale for this crutch, I discuss the ailment that is compromising our self-governance. The sickness is most apparent where incredulous claims are represented as taken-for-granted facts of reason.

Even in the context of a U.S. debt of over $14 trillion, and especially when an upcoming solvency deadline was looming, the question of whether the rich should contribute more in taxes was being allowed—incredibly—to prevent an agreement that would obviate default. Rationally speaking, it does not make sense to believe that default would be catastrophic while objecting to a solution because those who can pay more would face higher taxes. If something is crucial, it does not make sense to hold up because someone who can do something refuses because it is not convenient. At the very least, this evinces a problem of priorities, if not garden-variety selfishness at the expense of the public weal.

Put differently, if averting catastrophe is not enough of an incentive for people who can afford higher taxes to let an agreement go through with revenue increases as well as spending cuts, then closing the budget gap can be expected to be nearly impossible politically. “We have a terrible track record, Republicans and Democrats alike, of promising to get our spending under control and never doing it,” Senator Coburn (R-Okla) said on July 17th.  He could have added that the politicians do no better at getting their revenue in line with what they have decided to spend.

During the Bush administration (2001-2009), for example, the federal debt went from $5 trillion to $10.5 trillion because neither the Iraq and Afghanistan wars nor the prescription-drug benefit program were “paid for,” while tax cuts reduced federal tax revenue. This disconnect between spending and revenue, as well as the convenient decisions to spend borrowed funds, suggests that some form of external fiscal discipline. President Obama’s disclaimer that no such discipline, such as in the form of a balanced budget amendment to the U.S. constitution, is needed rings hollow. Even beyond the fiscal policies of the Bush administration, the pattern of debt-ceiling increases belies Obama’s claim.

We as a people, and our elected representatives, do not have sufficient discipline (and priorities) on our own. A balanced budget amendment, with a two-thirds majority in both bodies of Congress and a presidential signature necessary to go into debt (e.g. for an emergency such as to fight an invasion), ought not be so dismissed out of hand by such a people just because it would require us to confront our long-standing habit of living beyond our means governmentally.

The denial concerning the need for imposed or external fiscal discipline is itself indicative of the psychology sustaining the budgetary problem. It is to be expected that those used to spending beyond revenue levels would object to external discipline, but for officials to claim that such discipline is not necessary borders on recklessness. To be sure, a few years of preparation and adjustment would be needed for the Congress and president to get the U.S. Government’s spending and tax levels closer into line, and it is unlikely that such a task would be accomplished. The likely refusal to close the gap even to forestall a jarring adjustment is itself a testament to the need for the amendment. Even then, I predict that we would allow other priorities, such as the interests of the wealthy as well as debates on the size of government, to get in the way.

In other words, we, the American people, are not even close to a mentality capable of suitably managing our Union’s fiscal matters. We are like a bike tire out of balance and yet we seem to refuse even to recognize it. If there is to be recovery from our comfortable brain-sickness, a jolt, such as that which a balanced budget amendment could proffer, may be necessary.

Plainly spoken, Barak Obama’s claim that external fiscal discipline is not necessary and the republican decision to put the Bush tax cuts for the rich, a desire for a smaller government, and the (putatively tax-cut-related) priority on economic growth above an August 2nd deadline on the debt-ceiling BOTH point to a serious underlying psychological (or, at the very least, political) problem inhibiting our collective ability to get the fiscal house of our Union in order. Given the magnitude of the problem, our distractedness and denial says a lot finally about us as a people and whether we are adequate to self-governing. If our representatives were inventing a crisis in order to be viewed in the end as the saviors after having stirred up attention on themselves, We the People could perhaps do much better; we might reconsider how we approach our exercise of popular sovereignty on election day. We blame one party or the other at our own peril, as we are the sovereign and are ultimately responsible as one people. Are we something more than distracted, blaming, angry, and selfish? 


Sources:

Eric Lipton, “Both Sides Confident on Deficit Talks Despite Impasse,” New York Times (July 17, 2011).

Michael McAuliff, “Tim Geithner: U.S. Debt Default Means ‘Lights Out’ and a New Depression, Treasury Secretary Warns,” [sic] The Huffington Post, July 18, 2011.