Why the GOP Won the Debt Debate

As argued yesterday, the debt deal compromise is not perfect, but it is nevertheless a fair deal.  William McGurn, at the Wall Street Journal, outlines why the deal is a large win for the Republicans.

It's that the deal has Democrats, including the president, essentially signing on to the Republican framework for defining the Beltway's budget problem: spending that is too high rather than taxes that are too low.... And come the 2012 elections this deal will help force the debate that all conservatives have wanted all along—about the size, scope, and proper mission of our federal government.... That puts 2012 on terms much friendlier to the argument that Republicans need to make to the American people. It runs like this: If you are want a government in Washington that spends less, that taxes less, and encourages our private sector to grow, you need a Republican in the White House.

The win lies not so much in the details of the compromise - there is certainly a mix of good and bad in this regard - but in the fact that the right has changed the terms of the debate.  America has a long history of relying on a leftist framework to government and budgetary issues; namely, big government spending is good and taxes must be increased to fill any budgetary gap.  Now, serious government retrenchment is on the table.  The right is still a long distance away from actually crafting a government in the proper, limited fashion supported by conservatives, but by beginning to alter the frames of discussion we are one large step closer to achieving that.

A Fine Debt Deal

The bipartisan deal, announced yesterday by the White House, to raise the debt ceiling alongside significant spending cuts has not only helped avert an economic crisis, but has started a much needed process towards fixing America's fiscal situation.  As Speaker of the House, John Boehner (R-OH) said, "[It is not] the greatest deal in the world.... But it shows how much we've changed the terms of the debate in this town....”

The deal, which has yet to be voted on by either chamber of congress but is largely expected to pass, includes immediate cuts and an increase in the debt ceiling.  This is to be followed by a second round of cuts and debt ceiling raises, backed by the recommendation of a bipartisan committee.  Notably absent at this stage are any tax increases or a balanced budget amendment.  Both issues will be raised by the time of the second round of cuts.

Republicans should be quite happy with the outcome.  While the deal certainly has not achieved everything that the GOP desired, it is a good first step.  Reforming the fiscal condition of this country is a process.  After some 80 years of fiscal misguidance, it is far too ambitious to expect all of the needed changes to be implemented during one summer's battle over the debt ceiling.  What this battle has done is begin to change the national mentality.  It has rewritten the terms of debate in a manner that is more conducive to further reforming the fiscally unsound policies of the post-war era.  For the first time, debt limit increases have been linked to to spending cuts.  As Senate Majority Leader Harry Reid (D-NV) bemoaned, the debt ceiling has been unconditionally raised 74 times since 1962.  This has now changed and each future debt limit increase will most certainly involve debates over additional cuts.

In one sense, it is probably good that the Republicans have not received everything that they want - and everything the economy needs - in this one deal.  If the GOP had managed to drive through a "dance-in-the-streets" deal - one complete with a balanced budget amendment, fulsome plan to reduce our national debt, and severe cuts to government spending and entitlements - the debate would be prematurely terminated.  This may have thus provided the needed fiscal changes, but would accordingly fail to make them lasting.  It would only be a matter of time before the left regained the position to scale back these reforms.

The fact is while these needed changes are apparent to many, especially on the right, they are unfortunately not obvious to all Americans.  Fixing policies is only half the game, changing the American mentality is the real crux of the battle.  Unfortunately, many Americans are not quite ready to completely revamp their thinking about deficit spending and the government's fiscal responsibilities.  Accordingly, winning too much, too soon could undermine the broader discussion that is needed.  America needs to realize the necessity of making these reforms and turn from its all-the-time-Keynesianism deficit spending mentality to one of long-term fiscal responsibility.  The process that the battle over the debt ceiling has started will provide the continued platform to present these arguments.  These reforms will only become permanent if the American ethos is severely altered. Spending beyond our means is unsustainable, but unfortunately much of America will need to be convinced of this through a drawn out debate.

Republicans should be sanguine with their success.  No, it is not perfect, but it is an amazing start.  For a party that only controls one-third of the government and has faced a Democratic opposition that started on the far-left of American politics, it has been an astounding feat to so change the national dialogue.  There is still much more work to done, and given the ingrained and long-established interests it will not be easy; yet a historical process has begun.  For this we should be proud.

$15 Trillion in Hundreds

Here's an interesting graphic made by designer Oto Godfrey.  It shows what $15 trillion dollars (a little more than the national debt limit) would look like if stacked-up in hundred dollar bills.

$15 trillion USD

It's a lot of money, whether or not it dwarfs the Statue of Liberty, but the graphic puts it into an interesting perspective.

The Entitlement State

The Wall Street Journal provides what they call "a short history of the entitlement state."  Unsurprisingly, the essay concludes, "The looming debt downgrade only confirms what everyone knows: Congress has made so many promises to so many Americans that there is no conceivable way those promises can be kept."


The Journal is right to peg so much of our dire fiscal straights on the over-inflated welfare state.  Beginning under FDR in the 1940s, the WSJ tracks the growth of entitlements through LBJ's Great Society and the Social Security problems of the 1970s and then onto Obama's profligate spending today.  While correctly arguing that the left's counter-argument of military spending is a red herring ("But national defense spending was 7.4% of GDP and 42.8% of outlays in 1965, and only 4.8% of GDP and 20.1% of federal outlays in 2010. Defense has not caused the debt crisis."), the editorial is fair to pin some of the blame on the GOP.

Mr. Bush and Republicans did prove after 9/11 that the Washington urge to spend and borrow is bipartisan. Republicans launched a Medicare drug benefit, record outlays on education, the most expensive transportation bill in history, and home ownership aid that contributed to the housing bubble. The GOP's blunder was refusing to cut domestic spending to finance the war on terrorism. Guns and butter blowouts never last.

Whatever nuanced disagreements one has with this argument, the fact is clear that the federal government is spending far beyond its means.  Much of this is arguably the by-product of a process that encourages a lack of forward-thinking.  The American system - and to some degree human nature - encourages politicians to dole out perks today while placing the costs on future citizens.  As time progresses, entitlements are increasingly piled on and rarely are forward-looking politicians able to remove these newly constructed "rights".  Political and moral arguments are marched out to defend these handouts and so the fiscal burden grows.

To be fair, the blame cannot solely lie with politicians, but must also lie with the electorate who votes for politicians who swing perks their way.  Individuals and groups across the political spectrum lobby politicians for special treatment, not realizing or simply not caring that someone else will have to pay for it.  Even the most stalwart small-government folk are resistant to relinquishing the handouts that they receive (Medicare?).

This is a losing mentality - a short-sighted and fatal way-of-life.  Americans have, for far too long, thought about the benefits they receive from the government separately from the costs that are required to pay for these perks.  It has always been someone else or some other generation that will pay.  But this model of government has proven it cannot endure for any prolonged period of time.

The fiscal sanity of our government and the future of the state demands that we, as a nation, rework our way of thinking.  We have become far too comfortable, as individuals and a society, living beyond our means, but it cannot continue.  Citizens need to reevaluate what they expect to have and what they want others to provide for them.  Remember the government does not produce anything.  Whatever is provided by the government comes in one end and, with some loss along the way, goes out the other.

Government should be restructured to perform the essential duties for which a government is needed; namely providing certain common goods (roads, defense, rule of law) that all citizens benefit from and are unsuccessfully provided by the private market.  It should largely cease its role as a wealth re-distributor, both across time and class.  Whatever the argument one has about this program or that program, the fact is they are unsustainable in our society.  The welfare state has only been maintained over the past seven decades because of the wool over America's eyes - it has been stomached because nobody has been paying for the full extent of the entitlement state.  This ultimate grand bargain has allowed politicians to appease both those who want more and those who do not want to pay more (oftentimes the same people).  But the free lunch has ended and Americans must reconcile themselves to reality - we can never over the long-run get more than we produce.  Americans must realize that government is not a magical tool to solve society's woes or to enact some vision of morality, but a limited means of coordinating essential services that a society needs.

Not Such a Hard Deadline

According to a New York Times report, August 2nd is not really the "hard deadline" that the administration has been arguing will signify the end of the federal government's ability to pay its bills.  For months pressure has been building to raise the debt limit by this date to avoid the catastrophic event of default.  However, as the Times reports it seems that there is at least another week of cash available to pay the government's bills.

It turns out the federal government is sitting on some extra cash.  

Thanks to an inflow of tax payments and maneuvering by the Treasury Department, the government can probably continue to pay all of its bills for several days after Aug. 2, providing potentially critical breathing room for Congress to raise the debt ceiling, according to estimates by several Wall Street banks and a Washington research organization.  

The consensus is that the government will not run short of money until Aug. 10, when it would be unable to cut millions of Social Security checks without borrowing more money. ...The government will exhaust its ability to borrow more money on Aug. 2, which is equivalent to maxing out a credit card. But there still will be cash in the federal wallet.  Some Republicans have expressed skepticism about the Aug. 2 deadline, describing it as an artificial line drawn by the Obama administration for political reasons. Analysts emphasize, however, that the deadline is real; it’s just the date that is inexact.

Obviously this does not obviate the need for some deal to, at least in the short-run, raise the debt ceiling with concomitant cuts in spending and some tax reform.  It does however provide the markets with some much needed time before "crisis" hits.  If these numbers are legitimate, it would be prudent for the White House and congressional leaders to seize upon them to quiet market psychology.  Winning a political battle is not worth sinking the economy.

A Message from Chaz

Charles Krauthammer sends a message of warning to the GOP to not take the debt limit fight to the cliff.  Arguing that Obama has politically "outmaneuvered" the Republicans, he believes that the GOP needs to forgo a large reform package in order to "call Obama's bluff".  Instead they should opt for a short-term package and then address the reform issues later, putting the burden of failure on the Democrats.

If conservatives really want to get the nation’s spending under control, the only way is to win the presidency. Put the question to the country and let the people decide. To seriously jeopardize the election now in pursuit of a long-term, small-government, Ryan-like reform that is inherently unreachable without control of the White House may be good for the soul. But it could very well wreck the cause.

This seems to be sage advice.  As John Podhoretz reports at Commentary, a recent Quinnipiac poll suggests that if the US defaults on its debt, Republicans will be blamed by a margin of 48-34.  Republicans are right to be angry at the left's intransigence and unwillingness to seriously address our crumbling fiscal condition and are correct in the prescribed medicine of entitlement and tax reform.  Nevertheless, they must not lose perspective of the broader conflict.  It will be impossible to make the needed ideological shifts in our government, if the GOP cannot maintain a position of leadership.

The McConnell Escape Plan

Poor Mitch McConnell (R-KY) is getting slammed for what he has called "a sort of last-choice option[in the debt debate]."  The senate minority leader has proposed what seems to be a reasonable way for the Republicans to escape from the stalled negotiations over the debt limit, while putting the Democrats on the defensive.  Yet, very few seem to be thrilled with McConnell's proposal.
The proposed plan would allow Obama to unilaterally raise the debt ceiling at set times and set amounts with Congress possessing the right to prevent an increase with a 2/3 vote.  This would go into effect without any deal on taxes, entitlement reform, or spending cuts.
At first glance, such a proposal appears to be a timid withdrawal and much of the far right base is livid.  Over at RedState, Erick Erickson calls McConnell "Pontius Pilate" for his "historic capitulation".  Michelle Malkin howls that it is "another mortifying McConnell head-banging-against-the-wall moment."

While the base is right to be angry at missing the opportunity to really reform the system, their anger is woefully misplaced.  McConnell's plan certainly is not optimal.  Any ideal plan should reform both the tax and entitlement systems.  However, it is a second-best backup plan - one that is preferable to realizing too late that the Democrat's truly are willing to sink the country's economy in order to maintain a surfeit of entitlements.

The Wall Street Journal spells out the logic the best.

Republican Senate leader Mitch McConnell said yesterday he's concluded that no deal to raise the debt ceiling in return for serious spending restraint is possible with President Obama, and who can blame him? 

... 

The debt ceiling is going to be increased one way or another, and the only question has been what if anything Republicans could get in return. If Mr. Obama insists on a tax increase, and Republicans won't vote for one, then what's the alternative to Mr. McConnell's maneuver?  

Republicans who say they can use the debt limit to force Democrats to agree to a balanced budget amendment are dreaming. Such an amendment won't get the two-thirds vote to pass the Senate, but it would give every Democrat running for re-election next year a chance to vote for it and claim to be a fiscal conservative.  

... 

Even if Mr. Obama gets his debt-limit increase without any spending cuts, he will pay a price for the privilege. He'll have reinforced his well-earned reputation as a spender with no modern peer. He'll own the record deficits and fast-rising debt. And he'll own the U.S. credit-rating downgrade to AA if Standard & Poor's so decides.  

We'd far prefer a bipartisan deal to cut spending and reform entitlements without a tax increase. But if Mr. Obama won't go along, there's no reason Republicans should help him dodge the political consequences by committing debt-limit harakiri.

Essentially, if no deal is possible then McConnell's plan lets Obama take the fall for raising the debt ceiling without cuts (a surefire way to look like an economic dunce), absolve the Republicans of charges of being obstinate and causing economic turmoil, and salvage the economy in the short-run in order to fight the entitlement battle another day.  The alternatives?  Sign on to the Democrat's plan or allow the economy to run off a cliff.  If a deal with the Democrats truly isn't possible, the McConnell plan seems like a healthy way out.

The Escape Clause

In light of today’s meeting between congressional leaders and the White House over the debt ceiling and entitlement cuts, two Republican senators have voiced strong support for a balanced budget amendment. Writing in the Wall Street Journal, Senators Olympia Snowe (R-ME) and Jim DeMint (R-SC) state that:

A constitutional amendment to balance the budget is imperative if we are to provide continuity of fiscal responsibility, and ensure we never return to the recklessness of the past and present. It's time Congress passed the amendment and gave the states—and "We the People"—their say.

The senators’ argument not only has wide support amongst the base and Republican politicians; all 47 GOP senators have endorsed such an amendment; but is sound and well articulated. The irresponsibility of continuous spending beyond our means is ruinous for the economic future of the United States. As Snowe and DeMint argue, “the only way to compel lawmakers to maintain their [fiscal] responsibility forever is a balanced budget amendment to the Constitution.”

However while the merits of such an amendment are clear to nearly all on the right and the more sensible on the left, there is at least one potential drawback that needs to be considered in the language of any acceptable proposal. While in nearly all instances there really is no reason to maintain an imbalanced budget, there are a few possible exceptions to the rule. Any balanced budget amendment must include an escape clause in order to prevent hamstringing future leaders (or daresay lead to a repeal of this amendment).

The most obvious exception is the case of major war or national catastrophe. It would be extremely difficult for any country to wage a large scale war, like WWI or WWII, without resorting to debt. Not only would such a restriction be impractical, but it would arguably be immoral to prevent our leaders from taking necessary measures to protect the country.

Concomitantly, there is an argument to be made that the costs of such a war (WWIII) should be spread over multiple years, if not multiple generations. After all, the sacrifices of those who fought in WWII were not just for the benefit of their generation but their progeny as well. It may be impossible for future generations to shoulder past sacrifices in terms of lives; however, it is possible to spread the financial costs. Utilization of debt is a prime tool to balance the costs of such conflicts over multiple years and generations.

Obviously, such instances are exceptionally rare and thus the use of an “escape clause” would only be warranted under extreme circumstances. Nevertheless, the point remains that debt or even a deficit is not always a bad thing. In certain other instances such as significant national projects (how to define the worthy ones is a tough issue) and severe economic decline, deficit spending might have beneficial uses. Just like the responsible use of debt by the individual – a homeowner who takes on a mortgage or a student who takes out loans to pay for college – there are instances where government debt is acceptable, even beneficial.

Debt isn’t intrinsically bad. The excessive abuse of it is the problem. Funding programs (and entitlements) that the government should not even be involved in is bad. The current mentality of spending more than we produce on a yearly basis even goes beyond the Keynesian economics it purports to be based on (Keynes argued for deficit spending during economic downturns with surpluses in upturns, not deficit spending every year). Such a mentality needs to be eradicated and the balanced budget amendment is a fabulous way to do so. Politicians should just be careful that in their haste to solve a serious problem they don’t create a new one by failing to consider the potential benefits of debt. It is a shame to throw the baby out with the bathwater.

Time to Fix the Economy: The Debt Limit and Spending

Yesterday's vote on raising the debt limit was, as expected, voted down by the vast majority of the House of Representatives.  While Democrats, including Minority Whip Steny Hoyer (who voted against the bill), are hurling accusations of political theatre, the rejection of the "clean debt limit vote" was appropriate.  The message sent is unequivocal:  America cannot continue to spend beyond its means.  Cuts are needed and any increased ability to spend must be countered by reduced expenditures.

In a sense the Democrats are right.  This vote was not really about the debt limit.  Speaker of the House John Boehner (R-OH), said it clearly “It’s true that allowing America to default would be irresponsible....”  However, default is certainly not an issue, at least at this point.  Instead, the vote was much more about changing the prevailing economic discourse in this country, where for far too long it has been easy to spend beyond our means and push off the consequences.  It is necessary and laudable for Congress to stand its ground and show that there really is no such thing (anymore) as "easy money".

The debt limit may ultimately need to be raised (a default would be catastrophic), but not without meaningful reassessment of the government's fiscal condition.  We are, as a nation, spending far too much.  Former Republican governor of Utah and possible presidential candidate, John Huntsman eloquently articulated the need to reevaluate our economic position, in what can fairly be described as a campaign speech in today's Wall Street Journal.

Amongst other points, Huntsman argued that the debt level must be cut while difficult choices need to be made regarding Medicare, Social Security and other government expenditures including agricultural subsidies.  Even Sarah Palin has jumped in the fray, smartly calling for an end to all energy subsidies.

Boehner is taking this message directly to the president, in a meeting scheduled for today, where he and fellow GOP congressmen aim to push Obama to make deep spending cuts in order salvage the US's fiscal sanity.  Backed by a number of leading economists, Boehner argues that "“To help our economy grow and create jobs, any debt limit increase needs to be met with even larger spending cuts.”


The GOP and those 82 House Democrats that voted against raising the debt limit are right to stand firm.  America must realize that our situation is perilous and that it is time to adjust our system before it becomes too difficult.  Huntsman summed up the sentiment nicely "Some argue for half-measures, or for delaying the inevitable because the politics are too hard. But delay is a decision to let America decline. The longer we wait, the harder our choices become."