A Defensive Question

The IGM expert panel is asked whether they agree with

Because all federal spending and taxes must be approved by both houses of Congress and the executive branch, a separate debt ceiling that has to be increased periodically creates unneeded uncertainty and can potentially lead to worse fiscal outcomes.

Almost nobody disagrees, so I will not argue. Instead, let me propose a defensive question. Ask the experts to agree or disagree with the following:

Because the ratio of debt to GDP cannot keep growing indefinitely, the failure of the executive branch and the Senate to offer a sustainable long-term Budget creates unneeded uncertainty and can potentially lead to worse fiscal outcomes.

I would venture to suggest that this is a more serious source of uncertainty and political friction than the debt ceiling.

I also would venture to offer this guide to budget politics: those who maximize the symbolic significance of short-term budget controversies do so in order to avoid acting on the long-term problem.

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3 Responses to A Defensive Question

  1. Wophugus says:

    “How will we resolve a long term problem?” Probably isn’t a question that creates much uncertainty since the long term is a morasse of uncertainty. No one in the real world makes business decesions thinking they’ve got the world figured out in 30 years, so who cares if they don’t know how we will avert a fiscal crisis in 2030. Lots of people make business dececisions based on whether government will default next month, though.

  2. Kent Lyon says:

    Actually, people who create and run businesses make decisions with a long term perspective in mind. People make educational choices, career choices, investment choices, choices on where to live, who to marry, how many children to have, based on long term considerations. At least some people do. Immigrants in particular do. Why are people leaving California now? They perceive it’s long term course to be nothing but down, and they emigrate to other states with lower taxes and regulatory burdens where opportunities are better. Why did the Oakies go to California in the first place? The dust bowl they fled was a man-created disaster, as was the Great Depression, which would have been the great recession had the nation pursued Warren G. Harding’s fiscal policies instead of Hoover’s and FDR’s.
    The main reason businesses look to short term conditions is because, exactly, the government creates massive uncertainty. Rapid change induced by government (Obamacare, Dodd Frank, the hyper-regulatory EPA) creates far more uncertainty than a debt ceiling fight. No budget Obama creates even more uncertainty, as there is no transparency to government spending. That creates more uncertainty that a debt ceiling fight. The fault is almost entirely in this administration. Why are corporations holding on to cash? Uncertainty caused by government.
    Remember, all government spending, either of revenue raised by taxation or by borrowing, is actually taxation. It has to be paid at some point, even in inflated dollars with QE ad libitum. There is no Keynsian multiplier, and if there is, it is less than 1 or less than 0. All government spending hurts the private economy. More government spending hurts the economy more. We do have a BIG spending problem. The Keynsian delusion is exactly that–sheer delusion for benefit of politicians to perpetrate their insanity on voters. The deluded Keynsian in chief is ruining the nation. The American electorate for re-electing him gets the Darwin Award of the Century. Massive cuts in government spending would send the economy soaring, as happened post WWII.

    I would predict that if the sequester goes in to effect, the result will be a surge in economic activity and growth. If it does not, and is not replace with some spending discipline, the economy will continue to stagnate. The key is to cut government spending, the more the better for the private economy. However, the economy will not actually recover until Obama is out of office. His rhetoric is killing the economy, along with his policies. One of the main reasons the economy took off at the end of WWII is exactly because Roosevelt died, and someone who was perceived as not so hostile to business (Truman) replaced him. Business confidence exploded with Roosevelt’s death. If Obama succeeds at his goal of destroying the Republican party, winning the House in 2014, keeping the Senate, he will then arrange, a la Bloomberg, to run for another term, and the economy will continue to stagnate.
    Why America wants, and votes for, economic stagnation is hard to understand.

    • wophugus says:

      I think you are mixing up arguments that economic uncertainty vis a vis our fiscal future is hurting the economy with arguments that Obama’s shitty policies are hurting the economy or creating uncertainty in other ways.

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