The Senate has, apparently, arrived at a modus vivendi on the continuing resolution to fund the federal government in the absence of a complete budget:
Senate leaders agreed to a deal Monday evening that is almost certain to avert a federal government shutdown, a prospect that had unexpectedly arisen when congressional leaders deadlocked over disaster relief funding.
After days of brinkmanship reminiscent of the budget battles that have consumed Washington this year, key senators clinched a compromise that would provide less money for disaster relief than Democrats sought but would also strip away spending cuts that Republicans demanded. The pact, which the Senate approved 79 to 12 and the House is expected to ratify next week, is expected to keep federal agencies open until Nov. 18.
which gives us, what, seven weeks before there’s another confrontation between the House Republicans and the Senate Democrats over spending, taxing, and borrowing. It’s beginning to feel like Groundhog Day.
I understand that there’s a conflict but for the life of me I can’t understand why. What was it that George Santayana said about fanaticism? Something to the effect that fanaticism was when you redoubled your efforts having forgotten your aim? It seems to me that both sides of the aisle are dominated by fanatics.
In my view the alternatives for how we run our government boil down to three, in decreasing order of responsibility:
- When we need to make an extraordinary expenditure, we cut something else to constrain the proportion of national income absorbed by the government.
- When we need to make an extraordinary expenditure, we impose additional taxes to increase the proportion of national income absorbed by the government.
- When we need to make an extraordinary expenditure, we borrow to make up the difference between what we have and what we need.
I’d welcome arguments for the ranking of these alternatives. This isn’t the 1930s or the 1950s. In the 1930s the cost of government amounted to less than 20% of national income. Now it’s somewhere upwards of 50% around twice that. The best that increasing government’s share will do is to boost employment briefly and temporarily even as it strips the private sector of the capital needed to increase the economy on a more permanent basis.
Borrowing is even worse. Remember that we never ever pay back what we’ve borrowed. We never reduce the principle sum. We just pay interest on it forever. That means that we end up paying for a $7 billion extraordinary budget item ten times over or more. When growth is robust that may be tolerable. During a period of slow or no growth it’s profligate.
I simply can’t believe that the Congress can’t find a few billion dollars of expendable spending to give a little more money to FEMA in a federal budget that’s over $2 trillion. It strains credulity.
Dave Schuler: In the 1930s the cost of government amounted to less than 20% of national income. Now it’s somewhere upwards of 50%.
Less that 40% (and would even lower but for the recession).
http://www.heritage.org/index/explore?view=by-variables
Generally, emergency spending is detached from other budgetary considerations. In other words, when the fund runs low due to a high frequency of disasters, you don’t hold additional emergency funding hostage in order to wring concessions on other spending issues. You fund the emergency fund, then handle the other spending issues separately. This is similar to the debt ceiling battle, where brinkmanship over U.S. default led to a credit downgrade.
There are various numbers floating around. The Heritage figure you cite is as a percentage of GDP not national income. I don’t think that GDP is the appropriate comparison. Here’s why.
Let’s say we borrow a billion dollars, spend it on paper, then burn it. GDP would have increased by a billion dollars. I don’t think that’s the right way of looking at things.
I’m not sure I understand the remainder of your comment. We need to make choices. Are you suggesting that somehow taking something off-budget means that we don’t need to make choices or pay for it somehow? I agree that emergency funding is a priority. Is there another alternative for financing it other than cutting something else, taxing more, or borrowing? I don’t know of one.
Unlike the Republicans in Congress I don’t oppose tax increases to pay for the things we need. I also don’t oppose choosing our priorities more wisely. However, I think that borrowing to pay for the things we need, hoping that things will just magically get better, is profligate.
Dave,
Here’s a fourth alternative: Print money to cover the expense. Imagine we did $1.4 trillion in QE each year instead of borrowing that money.
Dave Schuler: The Heritage figure you cite is as a percentage of GDP not national income.
U.S. GNI (2010 $14.6 trillion) is very close to its GDP (2010 $14.7 trillion).
Dave Schuler: I’m not sure I understand the remainder of your comment.
Whether to cut or tax and what to cut and tax is a political question. To tie it to disaster relief means to hold victims hostage to resolution of the political question.
And the decision either to tax more, borrow more, or print more money is also a political question. It’s not that one approach is political and the other isn’t. It’s that both are political.
The Congressional Republicans have put their cards on the table. I don’t agree with them about the unacceptability of additional taxation but I understand their position. The Congressional Democrats are not so forthcoming. What is it that they want to do? One way or another the additional spending must be paid for.
I’ve made that argument myself. To be honest at this point I think we’d be better off simply by printing the money rather than borrowing it.
Dave Schuler: And the decision either to tax more, borrow more, or print more money is also a political question.
Yes, but you don’t hold emergency victims hostage. In an emergency, you bind the wounds before worrying about the bill.
Dave Schuler: It’s that both are political.
Both sides agree that emergency services should be funded. If there is sufficient political resolve to cut the budget for energy, then that should be voted on separately.
“Are you suggesting that somehow taking something off-budget means that we don’t need to make choices or pay for it somehow?”
Correct.
“Whether to cut or tax and what to cut and tax is a political question. To tie it to disaster relief means to hold victims hostage to resolution of the political question.”
Wrong. It just mean politicians are crappy (or irresponsible) budgeters, never providing for contingencies. In fact, they are pretty crappy at all things financial….
No one frequent to this site would be surprised I choose #1.
That’s how businesses and households deal with it. Only government goes sailing down the road in their convertible, sunglasses on, and champagne glasses clinking………….without a care as to the consequences.
Not only government, Drew, or individuals wouldn’t have the massive debt loads they’re currently carrying.
Drew: It just mean politicians are crappy (or irresponsible) budgeters, never providing for contingencies.
Not always. The U.S. was running budget surpluses just a decade ago. This would have tempered the bubble, and left the U.S. with a much smaller debt, and therefore more able to weather the shocks of the financial meltdown (assuming the U.S. still allowed the shadow banking system to grow out of control). The U.S. veered from that path, being promised tax cuts that would pay for themselves, then wars that would pay for themselves. Rather a quaint theory. How did that work out?
“The U.S. was running budget surpluses just a decade ago.”
This is too convenient and dishonest a response to spend real time on.
Drew: This is too convenient and dishonest a response to spend real time on.
http://www.cbo.gov/budget/data/historical.pdf