Gregg Easterbrook: The phony-as-a-three-dollar-bill debt deal

By Gregg Easterbrook
for Reuters
Monday, August 1, 2011

http://blogs.reuters.com/gregg-easterbrook/2011/08/01/the-phony-as-a-3-b...

Maybe Washington can start paying invoices with $3 bills -- because the "dramatic" agreement to "reduce the national debt" is as phony as a three-dollar bill.

Weeks of nearly round-the-clock negotiations among the White House, House and Senate have led to an "historic" debt deal that consists almost entirely of fluff, doublespeak, and empty promises.

The politicians involved get to claim victory, and presumably will be rewarded with votes and campaign donations from the special-interest groups that, pretty much across the board, were spared any pain. Young people of the United States once again are hammered. If the deal becomes law, the national debt will rise again dramatically, while there's no guarantee any cut will materialize -- and the bill for this recklessness will be passed along to those under age 30.

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-- The closest thing to a tangible "saving" in the agreement is $1 trillion in caps on discretionary programs, spread over 10 years. The new national-debt ceiling allows borrowing to rise by $2.4 trillion, with a plan to pay back less than half that amount over 10 years.

Get it? A huge surge in spending now is called a "spending cut," while actual cuts don't take effect for up to a decade. And that's setting aside that inflation means the present value of money spent today sharply exceeds the value of smaller cuts many years in the future.

-- In December 2010, the White House and Congress agreed to $930 billion in fresh deficit spending, as the fourth stimulus plan enacted since the 2008 recession. When special-interest groups say they want a "second stimulus," remember, we've already had four. So $930 billion in extra borrowing right away is followed by a plan for about the same amount in savings years in the future. This is what Democrats and Republicans alike today are calling "fiscal discipline" or "draconian cuts." If you emptied your bank account today but declared you would become careful about money 10 years in the future, people would laugh at you.

-- By projecting the only tangible savings -- which aren't even specified, but are merely caps -- into the future, the plan allows Congress to cancel them. In 2012 or any future year, Congress will say, "We can't have caps this year because of the [INSERT ANY WORD CHOSEN AT RANDOM] crisis. We are postponing action till next year." Rinse and repeat.

-- The deal raises the federal borrowing ceiling by $2.4 trillion. This means Congress will immediately spend another $2.4 trillion. That basic point is being overlooked.

You've got a debt ceiling on your credit card. The ceiling is there for emergencies, and all responsible borrowers work to stay below their credit ceilings. Experience with the national debt ceiling, by contrast, shows that every dollar of available debt is always spent. Announced in doublespeak as a "savings" plan, this deal guarantees the national debt will rise another $2.4 trillion. The moment the deal becomes law, members of Congress from both parties will see an added $2.4 trillion in the cookie jar and begin raiding.

-- A new "joint bipartisan committee" will be charged with identifying another $1.5 trillion in cuts. Doing nothing today, while appointing a committee that will make the tough decisions later, is one of Washington's worst traditions of pure phoniness.

The president, speaker of the House, and Senate majority leader just negotiated nearly round-the-clock for weeks and they couldn't even agree to cut programs that are transparent boondoggles. So bring in the special committee! This is total abdication of leadership by the president and both political parties.

-- Will the bipartisan committee have the stones to impose cuts? Since January 2007, Congress has already been operating under "pay-go" rules, which specify no more deficit spending -- unless waivers are issued. And waivers are always issued! The national debt has increased by $6.6 trillion since "pay-go "discipline" was "imposed." Likely outcome: the bipartisan committee holds somber meetings and recommends cuts, then Congress issues waivers, citing the [INSERT ANY WORD CHOSEN AT RANDOM] crisis.

It's been a mere nine months since the last bipartisan deficit commission issued its recommendation, and those findings have been ignored by the White House and Congress. In a postmodern touch of humor, the last bipartisan deficit commission titled its findings "The Moment of Truth."

-- Won't the proposed balanced-budget amendment fix the problem? Assuming such an amendment passed Congress, it must be ratified by three-fourths of the states. There's no chance of this -- because the states love deficit spending! Nearly 40 percent of state and local government spending is financed by the federal government -- Washington borrows, then ships money to the states. If a federal balanced budget amendment went into effect, the states would have to fund themselves, rather than rely on Washington for free cash (all the while denouncing "the big spenders" in D.C.).

Calling for a balanced-budget amendment is classic political delaying tactics, since even a successful amendment would require many years to ratify. Nothing stops Congress from balancing the budget right now.

-- Congress continues to drive the nation deeper into debt when there are many problems but no national emergency, and before the Baby Boomers retire. Extra borrowing sure hasn't fixed the economy. Japan's example shows that undisciplined borrowing slows economic recovery by causing business to think that the nation is going downhill, and thus to hoard cash rather than invest. That's precisely what is being observed in the United States right now.

-- The worst aspect of the phony-as-a-$3-bill national debt deal is that the middle-aged men and women who run Washington are acting irresponsibly, then passing the problem along to their children. What kind of adult harms the future of his or her own offspring?

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