Monthly Archives: June 2011

The Ridiculous Act of the National Debt Limit: A Call for Change

As we approach the August 3 deadline set by the Obama Administration, the ridiculous nature of the entire debt limit would be a source of considerable amusement if not so serious. On or about the deadline, Congress will pass some sort of extension and the President will sign it into law at a level neither of them have any intention to honor. That will result in another performance of the debt Limit Two Step in 18 to 24 months. In truth, the national debt limit is utterly meaningless given congress has the ability to simply raise it to facilitate the annual budget shortfall whatever that may be. It would be as if you had the ability to raise the spending limit on your credit card whenever you bumped into that limit. It is simply ridiculous.

The 112th Congress

To be of any effect, the national debt limit must have real meaning which would force the congress to manage its annual budget within a fixed limit of unfunded expenditures. Some have suggested a maximum level of debt to GDP as a way of limiting the total level of debt. While this has some merits, it provides an administration incredible incentive to modify or tamper with the calculation of GDP, or to fuel inflation to increase the nominal amount of debt available to fuel their spending. The reality is there needs to be an ability to increase the debt limit; it must however be much more inflexible than the budget process the debt limit should be driving.

While in general I do not support legislating by way of the constitution, the primary purpose of that document is to define how the government should function and thus it is only right that the process by which the debt limit is raised should be defined by way of an amendment to the constitution. My proposed amendment would provide two ways by which the debt limit could be increased, both reinforcing the federal nature of our government and imposing upon the Congress and the President a limit they simply could not change at their own whim.

Part 1 would require the Congress to pass a change in the debt limit my way of a two thirds majority vote of both the Senate and the House of Representatives. Upon passing any debt limit modification, the resolution would then be forwarded to the states and would require the approval of the legislatures of 50 percent plus one of the states representing at least 50 percent of the population of the United States as at the most recent census. At neither the national of state levels would executive (President or Governor) approval be required.

Part 2 would allow any state’s legislative branch to propose a change in the national debt limit, and if adopted by two thirds of the states representing at least 50 percent of the population, that modification of the limit of the national debt would come into force. As with part 1, no approval would be required by any national or state executive. In this case the federal government would have to function within the debt limitations imposed upon it by the states, the people’s democratically elected representatives at a much closer level.

Such an amendment would make the limit on total debt financing available to the federal government a real constraint on spending. Part 1 would allow the congress to initiate changes they viewed as essential and an opportunity to convince a majority of the people’s state represent ivies of the validity of the change. Part 2 would allow the peoples elected representatives at the state level the ability to restrain the federal government’s ability to mortgage the nation’s future. In no way would this control federal spending so long as such programs are funded. It would however made the national debt a truly limited funding option controlled by elected officials representing the people other than those spending the money.

Is this radical? Absolutely. Would it allow the federal government to function? Absolutely, so long as they spend within their ability to pay for the expenditures with current revenue or to convince the states of the rational to increase the nation’s total indebtedness. The current system of unlimited deficit spending threatens the very existence of the republic; radical change is required to preserve our nation’s future.

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Filed under 2012 Election, American Leadership, Barak Obama, Budget, Congress, Conservative, Constitution, National Debt, Politics, Spending, Taxes

The Reality of National Debt

After years of uncomfortable silence, the nation’s political discourse is now full of, if not dominated by, discussions of the crisis created by the national debt. This is long overdue as the seeds were planted for this over decades. Headlining the news today is the social unrest created in Greece as they have finally reached the edge of the financial cliff and faced with the prospect of going over that rim, are trying to find a solution which apportions the pain across the population. It is easy for American commentators to dismiss the situation in Greece as a flawed comparison which could never happen in the United States. Indeed Greece is a small country with a population of just 11.3 million, as part of the euro zone it had limited monetary control and is not considered a strong economy. The United States is still the largest economy in the world, both in nominal terms, but also more importantly on a per capita basis among the major economies and among the most diverse economies in the world. The US Dollar is the international reserve currency and considered the safest in the world; the one international investors seek in times of financial and political risk. Most importantly the Greek debt has passed 125 percent of GDP while the US is at a much more manageable 75 percent. While all this is true, it overlooks some of the challenges we face in the US in resolving the debt crisis, the liabilities within the social Security System which are not counted in the national debt calculation and the potentially devastating effect of an international exodus from the US dollar if investors lost faith in our ability to manage our finances.

Greek People Take to the Streets to Protest Government Cuts

What the Greek situation today does illustrate is the significant social strains which will be places on American society in the event we do not find a long term solution to our fiscal situation. Somewhere around 2026, just 15 years from now, the majority of Americans who as of now depend on Social Security for a majority of their retirement will get a shock when their benefits are cut by 30 to 40 percent when the Social Security runs out of money. The social implications of this should be alarming to policy makers as it will place at risk the basic structure of American society. On one hand we will potentially have a massive displacement of older Americans, many of whom will be facing homelessness or massive restrictions of basic needs of life which we as a people have found to be unacceptable. On the other hand there will only be between 2.0 and 2.5 workers in the workplace to support each of those then receiving benefits and any tax increase to support those receiving benefits could easily double their total effective tax bill, a situation which would be socially, let alone politically unacceptable. The massive cuts in all spending and unavoidable tax increases would likely send Americans to the street.

Back in 1985 Ronald Reagan’s commission on Social Security proposed relatively modest adjustments to the cost of living increases in Social Security, many of which simply better reflected the actual cost of living for seniors, as well as a gradual increase in the retirement age. This represents the inevitable truth of Social Security, when created you received benefits at 65 when life expectancy was just 62. Then Senate Majority leader Bob Dole courageously endorsed the commission’s recommendations and as a result saw the Republican majority reduced to a minority in the 1986 midterm elections as the Democratic demagogues portrayed it as forcing seniors to eat cat food. Thus the myth of Social Security being the “third rail” of American politics was born, a myth reconfirmed in 2005 when President Bush half heartedly attempted to allow private investment and management of social security. Policy makers today can only wish they had options as painless as those Bob Dole chose to champion.

At its core, the federal budget deficit is a reflection of the fight for America’s self identity in the coming decades. President Obama is in fact a social-democrat, progressive, socialist or whatever you want to label those who seek a dramatically expanded a European style role for government. If you choose to support this view it is impossible not to dramatically increase taxes to pay for those services. This will also result in a change in the nature of American society to one where government replaces the entrepreneurial private sector as the leader of society. Those of us who believe that government’s role should be limited to national and domestic security and providing only a social safety net enough to ensure our citizens are not neglected must recognize the time has arrived to stop the inertia of government spending. This means revitalizing the private sector and true capitalism. We must restore the concept of moral hazard to the private sector: if your business is not successful and well managed then it should fail to be replaced by those who can. We must stimulate the private sector not with shovel ready dreams but with tax cuts to spur investment (a dramatic acceleration of capital depreciation on new investments as an example), reductions in government regulations and eliminating regulatory activists such as the NLRB (if Boeing wants to build a factory in South Carolina, it is no concern of the federal government, period). And raising the debt ceiling should be done to a reasonable ceiling, then prevented from increasing the next time we fail to live within our means.

The riots in the streets of Greece should be seen as a somewhat blurred and distorted by the filter of time look into our future if we stay on our current track. Over the past few years I have resisted supporting some of the more emotional movements calling for reductions in government. I believe we as Republicans must present a free market alternative to Obamacare rather than simply call for repeal. The responsibility of governing calls for the adoption of real solutions not just opposing the socialist programs of the left. We must show true fiscal stewardship of all elements of government spending such as defense (the elimination of programs even the Generals don’t want like the F136 “alternative” engine for the F 35). Every American must embrace less government spending even in their home town, not just the rest of the country. This will not be a one program Silver bullet but rather a line item by line item review of spending. While I truly fear the empty rhetoric we hear from all sides in Washington today, I have tremendous faith in the American people. When challenged the people have always faced sacrifice and restraint with strength and resolve. What is needed is the courage of leadership to make the case to the people those real solutions exist and a path to stability is defined. What we need is detailed reforms, not empty rhetoric; what we need are real leaders, not blow hards and demagogues. It truly is time to man up.

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Filed under 2012 Election, American Leadership, Barak Obama, Budget, Congress, Conservative, Free Markets, Health Care, Liberals, Obama Administration, Politics, Social Security, Spending, Taxes