An Alternative to the Debt Ceiling
Posted by CircuitGuy 11 years, 6 months ago to Economics
NYTs argues the debt ceiling is just an illusion and should be abolished. (Ignore the author's annoying Democratic bias. The whole Democrat/Republican thing borders on a scam.)
Debt Ceiling is Better than Nothing:
These annoying budget showdowns are little reminders that if debt/GDP increases, it sucks capital away from commercial projects that could grow GDP. We shouldn't make it easy or non-annoying to go deeper into debt.
A Radical Suggestion:
I would like some kind of fiscal policy board that sets fiscal policy similar to how the Fed sets monetary policy. This is would probably require a constitutional amendment, and would decrease and would turn over spending authority to a board that's less accountable to the citizens. The benefit of it, though, is politicians could never argue for or against a spending program or tax on the basis for stimulus / fiscal responsibility. The committee would have already laid out for the next three years what percentage of GDP we'll be increasing/decreasing the debt. Congress would be free to spend and tax as much as it wants but it would have to respect the fiscal policy board's level of borrowing. If the board said 2014 borrowing will be 100 billion, we could have a vigorous debate about whether to raise taxes or cut spending to hit that, but borrowing $700 billion (would not be an option). If there's some $600 billion in spending we couldn't live without, they'd just have to increase taxes.
This system would work only if the fiscal policy board were better at fiscal policy than Congress. It would have make it harder for politicians to argue for a spending program without talking about a tax to fund it.
There's no way around the fact that it would turn spending authority over to unelected appointed experts.
Debt Ceiling is Better than Nothing:
These annoying budget showdowns are little reminders that if debt/GDP increases, it sucks capital away from commercial projects that could grow GDP. We shouldn't make it easy or non-annoying to go deeper into debt.
A Radical Suggestion:
I would like some kind of fiscal policy board that sets fiscal policy similar to how the Fed sets monetary policy. This is would probably require a constitutional amendment, and would decrease and would turn over spending authority to a board that's less accountable to the citizens. The benefit of it, though, is politicians could never argue for or against a spending program or tax on the basis for stimulus / fiscal responsibility. The committee would have already laid out for the next three years what percentage of GDP we'll be increasing/decreasing the debt. Congress would be free to spend and tax as much as it wants but it would have to respect the fiscal policy board's level of borrowing. If the board said 2014 borrowing will be 100 billion, we could have a vigorous debate about whether to raise taxes or cut spending to hit that, but borrowing $700 billion (would not be an option). If there's some $600 billion in spending we couldn't live without, they'd just have to increase taxes.
This system would work only if the fiscal policy board were better at fiscal policy than Congress. It would have make it harder for politicians to argue for a spending program without talking about a tax to fund it.
There's no way around the fact that it would turn spending authority over to unelected appointed experts.
Don't look now...but you are staring at Jabba the Deficit.
It's the same problem that makes me a few lbs overweight. I know it's calories in / calories out, but it's hard to execute.
I don't mean to say our deficit is analogous to a few lbs over. We may have to have an economic heart attack before we go on a diet and exercise regimen.
There doesn't seem to be a way to isolate such a 'board' from the politics.
You point out that Volcker was willing to take away the monetary punch bowl, and as a result many kids have never even thought about inflation. Couldn't we get a fiscal version Volcker to do the same thing?
I am strongly against Keynsian economics. It may seem helpful to prop up an economy with government spending, but it has not been proven to my satisfaction that it has ever shortened a recession. It is nonsense and takes money from the private sector where it could produce something instead of greater debt. I would support Hayek over Keynes any day.
http://www.youtube.com/watch?v=MBfpXudxO...
I don't get how the Liberty Amendment solves it. The first part just says the gov't will follow the Constitution. If the gov't doesn't respect the Constitution as is, adding a line saying "this
Constitution WILL be respected" won't help. They'll say the same thing: The constitution specifies protecting interstate commerce, so it specifies [insert any program here].
The last part says they'll eliminate the main types of taxes, but that won't stop them from instituting sales taxes and other fees and then spending more than they take in.
I disagree with his passing comment that tax rates (within reason, not marginal rates >65%) affect growth. This is moot b/c I agree that gov't debt stifles growth.
I like the idea of a balanced budget amendment, BUT it takes away gov't spending as a stabilizing force in the economic cycle. If the gov't went along spending the same each year with a _structrually_ balanced budget, _cyclical_ deficits and surpluses would come and go w/ the economic cycle. If we disallow even _cyclical_ deficits, it means we have to cut spending (or raise taxes) during a recession. This means the recession will be deeper than it needs to be (i.e. more unused production capability), and that means slower long-term growth.
The counter-argument to this is that I'm weighing a balanced budget amendment against a scenario where Congress runs no structural deficit and intelligently allows cyclical surpluses/deficits to even out the economic cycle. That scenario has never happened in my life so far.
So if we're left with an amendment, how do we leave an exemption for bona fide national emergencies that wouldn't be exploited to circumvent the spirit of the amendment?
http://www.nytimes.com/2013/08/12/opinio...
There is only one legitimate reason for deficit spending; in time of necessary defense of the nation when survival is at stake one must take unsavory measures.