What the Debt Limit Battle Is All About

It’s hard to keep up with all the arguments and proposals in the debt limit struggle. But what’s at stake is fundamental.

The bedrock issue is whether we should have a larger and more expensive federal government. Over many years, federal spending has averaged about 20 percent of gross domestic product.

The Obama Democrats have raised that to 24 or 25 percent. And the president’s budget projects that that percentage will stay the same or increase far into the future.

In the process, the national debt as a percentage of gross domestic product has increased from a manageable 40 percent in 2008 to 62 percent this year and an estimated 72 percent in 2012. And it’s headed to the 90 percent level that economists Kenneth Rogoff and Carmen Reinhart have identified as the danger point, when governments face fiscal collapse.

This is a level of spending as a share of the economy Americans haven’t seen since World War II. It seems more like Europe than like the America we have known.

President Obama insisted in his somber press conference Friday that he is willing to reduce federal spending from these levels. But he remained vague on specifics and intransigent in his demand that any debt limit deal include “revenue,” which translated into English means tax increases.

Mainstream media have pummeled Republicans for pushing spending cuts and refusing to support tax increases in connection with raising the debt limit.

But Republicans had a mandate from the voters in November 2010 to advance such policies. In contrast, it’s not at all clear that voters in November 2008 gave Obama and the Democrats a mandate to increase non-defense discretionary spending by 24 percent (84 percent if you count the stimulus package) in 2009 and 2010.

In negotiations on the debt limit, Obama has fenced off several programs from any cuts at all. One is Obamacare, even though majorities in polls continue to favor its repeal.

Another is, astonishingly, the $53 billion he wants to spend on high-speed rail projects. To call high-speed rail a “boondoggle,” as does House Budget Committee Chairman Paul Ryan, is to engage in considerable understatement.

These projects include $715 million for construction of 100 miles of track between the small towns of Borden and Corcoran in California’s Central Valley.

They include a train from Iowa City, Iowa, that will take longer to get to Chicago than already existing bus service and a train from Minneapolis to Duluth, Minn., that will average 69 miles per hour — about what you could average on the parallel Interstate 35.

Obama has rhapsodized about the pleasure of walking to a train station and taking a high-speed rail trip to another city. But the great majority of Americans don’t live within an easy drive of a train station.

He has called high-speed rail an “investment” in cutting-edge technology. But it’s hardly cutting-edge: Japan debuted its bullet train in 1964, and France inaugurated its TGV in 1981.

As for investment, Oxford professor Bent Flyvbjerg analyzed results from dozens of rail projects in 20 countries over the last 70 years. He found that 75 percent ended up costing at least 24 percent over projections and 25 percent exceeded projections by more than 60 percent.

No wonder the governors of Wisconsin, Ohio and Florida have turned down federal money for rail projects that parallel interstate highways. They realize that their taxpayers would get stuck for inevitable cost overruns and operating deficits.

A high-speed rail line might make sense in the densely populated Northeast corridor between Washington and Boston, and as a Washingtonian who travels frequently to Manhattan I would love a faster train than the current Acela. But these projects make no sense in most of the rest of America.

High-speed rail is not the biggest item in the budget. But it’s emblematic of the Obama Democrats’ theory that government spending can stimulate the economy.

That theory has been pretty well demolished by the fact of 9.2 percent unemployment. The clear signal from both economic markets and political polls is that we should cut federal spending back from 25 percent of GDP toward 20 percent.

It’s not clear how far the Republicans can move toward this goal in the debt limit battle, or whether they can move any distance at all. But it’s worth trying if only to clarify the choice before voters next year.

 

COPYRIGHT 2011 THE WASHINGTON EXAMINER

DISTRIBUTED BY CREATORS.COM

Michael Barone

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Michael Barone is a senior writer for U.S. News & World Report and principal coauthor of The Almanac of American Politics.

  • TomD

    If we haven’t already reached it, we will soon reach the point where “kicking the can down the road” will no longer suffice.

    When half of Americans have a stake in an ever-expanding government, it becomes virtually impossible to scale back enough to make a long-term impact. Our founders, except in a few specifically enumerated areas, envisioned a decentralized polity; today we are headed in exactly the opposite direction. Ironically, while Europe is retreating from its big government approach, we are advancing toward a bigger national government.

    Since the establishment media is overwhelmingly inclined to support the policies of the left and the Democrats (higher spending/higher taxes), whatever is fashioned in Washington will largely retain the tendency toward expanded government, perhaps at a somewhat slower pace.

  • Jaime

    Obama can rhapsodize about train travel because he has never ridden on a train. I cannot speak for the TGV or the bullet train, having never ridden on one, but recent experience on “express” trains in Germany, France and Italy suggests that while this mode of travel can be a pleasant diversion, it doesn’t get you where you want to be quickly, and makes no sense as a means of real mass transportation. Consider how many trains would have to leave Los Angeles, New York, or Atlanta every day to carry the number of passengers who typically go through the airports of theose cities. It will never happen.

    And the Republicans are correct to insist that spending cuts, real and deep ones, be the first priority. Only a fool thinks that additional tax revenue to the Federal government won’t be used to increase spending rather than pay down debt. And the next priority of Republicans needs to be to have more Americans have an interest in how much money the government takes from them than in how much they can get from it.

  • Wi

    Crisis is clearly more about Republican thinking than Catholic thinking with its concern for the common good. Or if there is concern for the common good, and especially for the fate of the poor, let me know.

  • Martial Artist

    @Wi,

    How can it be a positive for “the common good” to be running budget deficits that are increasing exponentially, even if the economy were not stalled? The only thing continued spending at this point will accomplish is to debase the currency in a similar manner as the German mark was debased in the 1920s, with the result that everyone in that nation suffered. Where will the help for the poor come from when your dollar and mine is worth no more than a few pennies, if it is even worth a whole penny?

    If you are not aware of the German hyperinflation of the 1920s, I would suggest that you read a good history of the period. It might make you more aware of what the full nature of the problem is.

    Pax et bonum,
    Keith Töpfer

  • Mike

    Interesting article. There is also good commentary on the budget and Catholic social teaching on http://www.catholicurrent.com/#/.

  • Mark

    The 20 – 30 – 40 solution:

    - Cut the number of current federal employees by 20% (focusing on overpaid middle management / supervisor types.

    - Cut remaining federal empoloyee’s pay by 30% (or down to $40,000 / per year (which ever comes first)

    - Cut all federal employee retirement benefits by 40%

    - Freeze all of this for ten years.

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