A member, and hoping to stay that way, of the reality-based community

30 April 2011

When Reason is overtaken by spite

Of late the conversation in Washington that's been getting the most attention by the press is the question of whether to raise the debt limit. To grossly oversimplify the positions in question, the Rs want to refuse to raise the debt limit until they get some (unspecified) reductions in future spending/a constitutional amendment requiring a balanced budget/a unicorn that shits rainbows. Or something. It's not entirely clear. The Ds are mostly saying that, while the debt could be a problem someday, today is not the day to start paying it down, what with the economy in the toilet.

It's certainly true that, in the long run, the debt needs to shrink substantially (even dramatically). Currently it's at about 90% of the GDP, or about 14 trillion dollars, and it's rising. That's not sustainable forever, but there's substantial disagreement about how long it will be before things will reach a point where no one will lend us more money, or at least not at a sustainable interest rate. When that will be is a matter of debate itself, and isn't discernible by mere analysis. It strongly depends on whether or not people and institutions who are interested in buying US Treasury Bonds are sure they'll get their money back. Refusing to pay off the debts of the United States is a good way to engender fear in the average investor (who, so far, has viewed US T-bills as a rock-solid investment, particularly when T-bills are paying more than inflation).

The Rs, for reasons that appear to be rooted entirely in satisfying a lunatic fringe of the body politic, are holding that record, those promises, and our near-term economic future hostage to, well, to the rest of us agreeing to destroy the economy.

That assessment may seem a bit harsh, but it's an assessment of the obvious consequences of pursuing a policy of immediately shrinking the government to the size of revenues (that's a high-falutin' way of saying "spend only what we take in" while also saying, "No, you may not raise taxes"). You may wonder, "how can he say such a thing?" Well, the current deficit is 13% of GDP, with total spending of 40% of GDP. It's not good. That's just what it is. If tomorrow, you stopped the government from spending more that 27% of GDP, the economy would shrink by 13%.

This may sound awesome (yay! no deficit!) but for the millions of people that would lose their jobs, it would be very unpleasant. I'm concerned that more than 13% of the currently employed would lose their jobs, since folks with money would have even less incentive to invest.