Debt Ceiling — shut up, then put up.

Posted by Nolan Miller on Jul 14, 2011

Filed Under (U.S. Fiscal Policy)

OK.  Here’s my deal on the debt ceiling fiasco.  As I and many others have pointed out before, behind all of the political posturing about tax increases, the budget deficit and the national debt are two very different visions of what the correct role of the U.S. government is.  Republicans favor smaller government, perhaps one with spending as small as 14 – 17 percent of GDP, while Democrats favor larger government, with government spending running in the range of 22 – 24 percent of GDP according to President Obama’s budget proposals from this spring, and possibly even larger since these proposals were already being influenced by Republican pressure.

Currently, the federal government spends about 24 percent of GDP each year.  From this starting point, the two parties’ positions on deficit reduction and the debt ceiling become clear, as does the fact that they’re really not about deficit reduction or the debt ceiling at all.  Republicans want to shrink the size of government.  Phrasing this in terms of fiscal responsibility, it means that the deficit gap should be closed by decreasing spending.  Democrats want to maintain or increase the size of government.  Phrasing this in terms of fiscal responsibility, it means that the deficit gap should be closed by increasing revenue.

Now, while this disagreement between Republicans and Democrats is fine in the long run, it makes much less sense in the short run, especially in light of the serious economic crisis we continue to endure.  For the next year or two, spending decisions should be driven by the short term concern of keeping the fragile recovery afloat.  And, by far the biggest risk to the recovery is the fallout from a failure to increase the debt ceiling before the August 2 deadline.  Almost everybody seems to agree on this, except for about 536 people who happen to live in the nation’s capital.

So, here’s my two-part plan on the debt ceiling.  Part 1: shut up.  Pass an increase in the debt ceiling that takes us well beyond the 2012 elections.  Both sides need to quit risking the economy in order to score political points.  Part 2: put up.  Since the disagreement between the two parties is really about their competing visions for government, let’s see them.  Give me a ten year financial plan for the government.  Make it detailed — more detailed than the 10 year plans put out by Representative Paul Ryan and President Obama.  Tell us what you’re going to cut and whose taxes you’re going to raise.  (Please don’t tell us you’re going to eliminate waste, fraud and abuse, because this cliche has a 200+ year record of failure.)  Let us see what these competing visions of the future are.  Get it all together for the 2012 election, and then we’ll vote on it.  If you think you can save the economy, do it by coming up with a plan for saving the economy.  At this point, the two sides only seem able to agree on plans for wrecking it.

2 Responses to “Debt Ceiling — shut up, then put up.”

  • Robert Gillespie says:

    I share Nolan Miller’s frustration with Washington’s the two ring political circus – raising the debt ceiling and a constitutional amendment to balance the budget.
    However I believe his proposal will be ignored not because it is without merit, not because it is unreasonable or irrational but because offers no means for changing the incentive structure of elected legislators to even consider it.
    There are two flaws (at least) in our political system that shape the incentives of elected legislators. These are: first, political risk-aversion of career incumbents, priority one is staying in office, and second, their incumbent advantage. Incumbent advantage makes a super majority of them essentially election proof. Consequently, hard political choices can be and are avoided.
    The fundamental changes needed to correct the chronic imbalance in the budget, e.g. reforming entitlement programs, pose a political price so high that it could swamp even their incumbent advantage. A politically safer alternative is – borrow and muddle through (BMT). Consequently, the current incentives of legislators are inconsistent with the fundamental economic reforms needed to achieve long-run fiscal stability.
    A solution that addresses both flaws is the imposition of term-limits, but contingent upon a balanced budget – Trigger Term-Limits. (For details I refer the reader to an earlier post on Trigger Term-Limits). The current “solutions” being discussed: a balanced budget constitutional amendment and the debt ceiling, offer opportunities for political posturing but not fundamental solutions. Unless the incentive structure of legislators is changed the BMT solution will prevail. Legislating Trigger Term-Limits would reset incentives; the political risks of term-limits being imposed would trump the political risks of BMT. Are the deficit hawks in congress willing to risk falling on their swords for their principle?

  • Nolan Miller says:

    Thanks for your comment, Bob. I agree that there is no chance of politicians actually doing what I suggest. My point was simply that this is NOT really an argument about the debt ceiling, so let’s stop making it one and have a sensible discussion of whether we want a 14%-of-GDP government or a 24%-of-GDP government (or a 20%-of-GDP goverment, which is probably more realistic). Such a discussion would be good for the country, and it should not take place in smoke-filled rooms under the threat of a total financial meltdown.

    Your Trigger Term Limits is another version of the call for our elected officials to act like adults — do their jobs or be replaced by someone who will. [Everybody: here's the link: http://businesspublicpolicy.com/?p=1775 ] Of course, that requires them to take the first step of agreeing that they should do their jobs or be replaced if they don’t, and I’m not confident that the current batch of legislators would ever agree to do that.