Community Voices

Wednesday, Feb 06 2013 04:51 PM

Solving US debt ceiling woes will make world markets happy

By The Bakersfield Californian

As President Obama begins his second term, the debate over the debt ceiling has now become the newest political football in Washington. Despite his outcry as he campaigned for election in 2008 that running up the national debt to fight two wars was immoral and unacceptable (he even voted against a raise in the debt ceiling while a U.S. Senator), Obama now says it is crucial to our economic well-being that we continue to raise the debt ceiling. He might have added that we need to pay for the massive increases in spending we have endured under his presidency.

But that said, the only actions the president had taken in his first term to address the growing national debt was to implement the Affordable Health Care Act (aka Obamacare) and to raise taxes on "the rich" -- neither of which come close to reducing the rate of expenditures needed to slow down its growth. Instead of addressing the accelerated growth in government spending that he has enabled, he proposes even more spending -- which prompts us collectively to now ask, "Huh?"

Looking at recent history, the population grew 38 percent between 1980-2011 and was far exceeded by growth in GDP (441 percent), government expenditures (544 percent), and total public debt (1524 percent). Overall stewardship of public debt showed a fairly constant amount of debt relative to GDP between 1991 and 2007 (averaging 62 percent). There were actually eight years during this period (1996-2002 and 2006-2007) where tax revenues as a percentage of GDP met or exceeded government spending as percentage of GDP. There were three years where spending exceeded revenue between 4 percent and 5 percent of GDP, which can be attributed to war spending: 1991 (first Gulf War), 2003 (Iraq War) and 2008 (Iraq War surge). But in the past three years (2009-2011), spending exceeded revenue by over 8 percent. This gap between overall government spending and revenue since 2009 is unprecedented in the post-World War II era.

While there are certainly reasons as to why government spending has increased across the board, the fact remains that the recession and high unemployment levels endured by the private sector has barely touched the public sector -- and government spending appears to grow unabated.

Having some magical "coin fairy" mint a half-dozen trillion-dollar coins for Paul Krugman to place under Obama's pillow to account for the national debt run up over the past four years is unlikely to be a viable strategy to mitigate the issue. But yet, that is the net effect of what is being proposed now. Krugman and now Fed Chairman Ben Bernanke are telling the world that a debt ceiling is basically a silly idea. Furthermore, for the past three years the U.S. has been operating without a budget: The Senate has not met its legal obligation to even vote on one. Thus, there is no framework for our nation to alleviate its dependence on debt to pay its bills. Without China willing to basically take zero interest to buy our Treasuries, the U.S. could no longer exist as it does today -- which puts all of our plans for future spending (entitlements, defense, etc.) at risk.

Can we get on the right path from insolvency to prosperity even with all this debt? Yes, but it will take leadership and a willingness to stand up to special interests, including the bureaucracy that is created and grows by the empowerment of spending "other people's money." Amazingly, if we could have maintained the rate of federal government spending to the 2007 level (even including adjustments for inflation), we would have had close to a balanced budget right now, and the raising of the debt ceiling would have been a non-issue today.

Markets hate uncertainty, so efforts by the U.S. government to fundamentally address our national debt will be a significant improvement over what we see today -- and should foster real economic growth that ultimately solves America's fiscal problems. Instead of demagoguing the debt ceiling, the president and Senate need to actually work with the House of Representatives to produce this plan, called a budget, so that the world will see that the U.S. is not utterly dysfunctional.

Greg McGiffney is a Bakersfield businessman, college professor and veteran. Community Voices is an expanded commentary of 650 to 700 words. The Californian reserves the right to edit all submissions for length and clarity.

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