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.

It is the Entitlements, Stupid!

Unsustainable public entitlements seem to be the most talked about secret in the nation.  There does not appear to be a pundit out there who has not addressed the necessity for cuts in or fixes of the entitlement system.  Europe has started facing down this monster while US states (who have to balance their budgets) have begun the reform process.  Yet, strangely the federal government has done little to address the nation's budgetary mess.

In today's Wall Street Journal, Charles Koch wrote a poignant editorial about the need to fix America's fiscal situation.  He called on the government to tackle the overwhelming burden of the nation's entitlement system.

In spite of looming bankruptcy, President Obama and many in Congress have tiptoed around the issue of overspending by suggesting relatively minor cuts in mostly discretionary items. There have been few serious proposals for necessary cuts in military and entitlement programs, even though these account for about three-fourths of all federal spending.

His criticism is not solely reserved for the Democrats.  The GOP is equally culpable in the mismanagement of the national finances.  Koch attacks the concept of crony capitalism, which is seemingly endemic on both sides of the aisle.  Democrats and Republicans alike operate under a system that has utterly failed to face reality.  Koch argues that,

Crony capitalism is much easier than competing in an open market. But it erodes our overall standard of living and stifles entrepreneurs by rewarding the politically favored rather than those who provide what consumers want.

The purpose of business is to efficiently convert resources into products and services that make people's lives better. Businesses that fail to do so should be allowed to go bankrupt rather than be bailed out.
...
Our elected officials would do well to remember that the most prosperous countries are those that allow consumers—not governments—to direct the use of resources. Allowing the government to pick winners and losers hurts almost everyone, especially our poorest citizens.

Politicians, on both sides of the aisle, should heed these warnings.  Koch makes a powerful - and true - argument.  If American politicians, for fear of electoral retribution, fail to force tough choices on America, everyone will pay the price.  The federal government needs a serious dose of reform.  It needs to be smaller, more efficient, and supportive of free competitive markets.  Time to get started before it is too late.

Cheeseheads!!!

Today on NBC’s Meet the Press, Governor Scott Walker (R-WI) spoke eloquently (see below) about the ongoing debate over collective bargaining that has halted legislation in Wisconsin and seized the nation’s interest over the past few weeks. Walker, who has resolutely stood firm in his showdown with the Democrats, has proposed legislation that would not only require public unions to bear greater responsibility for certain benefits, but would also end the “right” of collective bargaining for public unions.

In reality there are two major issues at work. The first and most immediate is the budget issue. This has predictably been relatively uncontroversial. As most acknowledge, states across the country are in dire budgetary straits. Accordingly, the Wisconsin public unions have agreed to shoulder the increased responsibility for their fringe benefits.

It is, however, the second issue – namely the proposed abolition of collective bargaining for benefits – that has driven the unions into a fury and their Democratic supporters into Illinois. Democrats have become absolutely apoplectic about the attacks on their supposed rights, effectively shutting down the Wisconsin legislature and moving their foot-soldiers into the capitol building in Madison.

The battle is unsurprising, despite its contemptibility. It is natural to expect unions to defend the unjust handouts and special privileges conferred upon them by the power of the state and to stalwartly fight to prevent their eradication. Nevertheless, it is quite laudable that Governor Walker has had the fortitude to stand-up to the tyranny of collective bargaining and unions.

The argument for such a strong criticism of unions is simple. Unions, like any institution that has coercive power, can – and do – cause severe harm to others that may cross their paths. The unions have been afforded a rare opportunity to wield the coercive power that should only be possessed by governments (and even then in limited fashions). No other institution is granted such sweeping powers of coercion over private individuals. For instance, the automatic and mandatory deduction of union dues from paychecks is simply the power of taxation in private hands.

Furthermore, unions have severe distorting powers. They drive wages up and cause unemployment. A union is essentially a private club, established with explicit government approval, where benefits are unjustly taken from those who are excluded and given to those lucky enough to call themselves members. As Friedrich Hayek argues, the real crushing power of unions is not so much the power they have over their members, but the power they possess over those outside of the union. Not only is this arbitrary and uneconomical, it is blatantly unjust. No organization, whether union or otherwise, should be granted such powers of coercion.

For those union supporters who argue in terms of workers’ protections, their aims are noble yet misguided. Union-busting is about destroying a special interest, not about hurting workers. As Governor Walker argues, Wisconsin workers are comprehensively protected by a multitude of legislation - and rightly so. There is no dispute that workers, like other groups, should have protection from mistreatment. However, unions, due to the inherent harm caused by their coercive power, are simply not the proper forum for maintaining worker protections.

The battle against collective bargaining is a small step in the right direction. Unions should not be afforded any special privileges under the law. They should be allowed to exist like any private organization – free to assist their members in a variety of fashions but stripped of any pseudo-legal power over others. Governor Walker should be applauded for his resilience and justness in attacking a bastion of cronyism and illiberalism.

Visit msnbc.com for breaking news, world news, and news about the economy