Government Shutdown

Maybe It Would Be Better To Shut Down the Government Now Than Shut Down a Bigger Government Later


U.S. Spending 2012

Amidst all the doom-and-gloom blathering over the budget showdown, lost are two important points: One is the unfortunate fact that the government won't really be shutting down at all—not in a Borders Books going-out-of-business sale sort of way, that is; and the other is that the government we have is wildly unaffordable and completely beyond the means of this country to sustain. If we don't rein it in now, it won't get any easier down the line. A "shutdown" won't be the end of the world—it won't even be the end of paying interest on debt already accrued. But kicking the ball down the road a bit more on dealing with the federal government's spending problem does take us in an increasingly unpleasant direction.

First of all, it's unfortunate that congressional Republicans have allowed the budget wrangle to turn into a pissing contest over Obamacare. As horrendously intrusive and economically illogical as that law is, it's small potatoes compared to the federal government's addiction to spending money that doesn't exist. That said, Senate Democrats play as big a role in the pending shutdown as House Republicans—they're the ones rejecting a spending bill that would keep the government open(er) after all.

A separate and somewhat overshadowed issue, though, is that the debt ceiling once again figures in the back-and-forth in D.C. This is an ongoing problem. The Bipartisan Policy Center points out that "On May 19 of this year, the debt limit was reinstated at a new, higher level, after having been suspended since February. Upon its reinstatement, the U.S. found itself up against the debt limit with the Treasury Department continuing to operate through the limited borrowing authority provided by extraordinary measures."

Basically, the junkie needs another fix. If one isn't forthcoming, we're told, the withdrawal will truly suck.

Fans of government spending insist that the U.S. risks defaulting on its debt, if the debt ceiling isn't raised, but that would only happen if federal officials deliberately decided to stop paying the bills. While failing to raise the debt ceiling would prevent the government from borrowing more, it wouldn't keep it from paying off its existing debt. In 2011, in response to the last round of the-debt-ceiling-is-falling hysteria, Reason's Veronique de Rugy wrote:

Technically, if the debt nears its statutory limit, the Treasury Department cannot issue new debt to manage short-term cash flows or manage the annual deficit—the government may therefore be unable to pay its bills. But in the real world things are different.

First, if the debt ceiling is not increased it doesn't mean the federal government will have to repay the entire debt at once. The government just won't be able to increase its borrowing. Americans understand the difference between not being able to borrow more money and defaulting on one's mortgage…

More importantly, the Treasury Department has other options. For instance, if the debt ceiling is not increased, the Treasury can prioritize interest and debt payment to avoid a default.

That's…not exactly the end of the world.

What else happens if Congress continues sparring and doesn't pass a spending bill? Well, "nonessential services" will taper off for the duration, but the military stays at its posts, the Post Office keeps losing your mail, Social Security and Medicare continue hemorrhaging money, and all the things politicians deem "essential" go about doing what they've always done.

But beyond the current budget battle, whatever we may think of politicians' budget priorities and their dividing lines between "essential" and "nonessential," raising the debt ceiling again and again isn't a solution of any sort; it's a refusal to come up with a solution. That's because the U.S. federal government continuously spends far more money than it takes in.

U.S. revenue and spending

The latest Congresssional Budget Office long-term budget outlook "projects that federal debt held by the public would reach 100 percent of GDP in 2038, 25 years from now, even without accounting for the harmful effects that growing debt would have on the economy (see the figure below). Moreover, debt would be on an upward path relative to the size of the economy, a trend that could not be sustained indefinitely."

So, put the Obamacare spat to the side. It's worth fighting, but separately. The real budget battle should involve efforts to rein-in an out-of-control federal government that's addicted to spending money that doesn't exist. If we don't do it now, it only gets nastier when we have to cut even less affordable programs, "essential" and "nonessential," in the future.

NEXT: Trial Begins on Whether BP Lied About Gulf Oil Spill

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  1. If we don’t rein it in now, it won’t get any easier down the line.

    Politically, it certainly won’t. However, when fiscal reality brings the hammer down on our profligate borrowing and none of our fellow travelers abroad care to fund our extravagance, I suspect pulling the reins in will be rather easier than it is now.
    Given a choice between cutting funding to the Lesser Yosemite Basin Indigenous People’s Party Planning Commission and the tens of thousands of special interests like it, or raising taxes on the general milieu, I think the choice will be very easy.

    1. Yes, it would appear to be very easy, but so far, not so much.

      The “general milieu” has proven no match for the Lesser Yosemite Basin Indigenous People’s Party Planning Commission and its ilk.

      1. Agreed, but it’s also always been easy to borrow more. Our perennial debates over how much to raise our debt limits always end the same way. Deprived of easy access to cheap credit, I see pols giving a swift kick to their former beneficiaries rather than hiking taxes on their voters.

        1. That’s what happened in Canada and Sweden.

        2. Gary North has made the same prediction, i.e., that, when push comes to shove, the pols will eventually ditch some / most of whom you call “former beneficiaries”.

          Although I do frequently defend Lew Rockwell and many of the authors featured on his site, I have never openly defended / supported Gary North. I only refer to him here because I have read his articles on this topic.

    2. Sadly, I had to Google Lesser Yosemite Basin Indigenous People’s Party Planning Commission to make sure it wasn’t really a thing.

      Interestingly, the third hit was the Wikipedia article on Cannibalism. There is a metaphor in there somewhere for deficit spending.

    3. However, when fiscal reality brings the hammer down on our profligate borrowing

      It won’t, not for decades or centuries, at least not all at once.

      The elites have ways of insulating themselves from this shit and passing the cost on to you. And for that matter – passing the blame on to you too. This probably doesn’t end until some of us wind up in camps.

    4. That’s just crazy talk. The budget for the Lesser Yosemite Basin Indigenous People’s Party Planning Commission is clearly labeled as mandatory spending.

      What are you, some kind of Anarchist?

    5. If we don’t rein it in now, it won’t get any easier down the line.

      That was the whole idea behind the debt ceiling law. Why do obstructionist Democrats want to play politics and try to subvert the settled law of the debt ceiling?

  2. haha. Obama couldn’t think of what ag dept employees do while giving his shut down speech now. Helping farmers make a profit is what he finally was able to come up with.

    1. Yeah, I heard that. My jaw dropped.

      He is nothing more than the lowest and slickest kind of con.

      1. Anyone have a clip of this part up yet?

    2. There are only 105,778 Dept of Ag employees – who can keep track of such a small number?

      1. Are there even that many farmers? Do they each get a personal Ag Dept employee to help them make money?

        1. a lot has to do with food stamps i bet. Their budget is 130+ bil

    3. Yeah, that was something.

      Hi, I’m from the government, and I’m here to help you make more money… by… uh… giving it to you to not grow some crops.

  3. As horrendously intrusive and economically illogical as that law is, it’s small potatoes compared to the federal government’s addiction to spending money that doesn’t exist.

    I consider them equal potatoes. It’s just that Obamacare is the new monster we don’t fully understand yet. The likely result of deficit spending is more knowable.

    1. I think of it as making the Hulk bigger and angrier.

  4. The reason the GOP focused on Obamacare is because it is unpopular so it makes sense to talk about it.

  5. Yeah, we libertarians are giggling about a shutdown but contemplate this horror: the USDA stops inspecting seafood; lobster girl gets sick from kissing diseased lobsters and loses her job. Then one of us has to volunteer to put the poor kid up in our mansion basement until the Rethuglicans can be defeated.

    1. You joke, but if the shutdown drags on Jugears will do everything he can to punish the voters and point at the republicans. He will deliberately do everything he can to make industry grind to a halt.

      1. “He will deliberately do everything he can to make industry grind to a halt.”

        How would we distinguish this from his normal, everyday behavior?

    2. Do you have a picture of Lobster Girl? My mansion basement is nicely furnished.

  6. the Treasury can prioritize interest and debt payment to avoid a default

    Honest question, but can we afford to pay interest on the existing debt without borrowing more, and still have enough money for even the most basic of government functions?

    1. Don’t worry, that point is approaching.

      1. So in other words, not yet, but soon? So we are fast approaching the point where not raising the debt ceiling really does mean default. That should scare people a whole hell of a lot more than it probably does.

        1. Have you never come across any of the doomsday sites? You want scared? You’ll find it there.

    2. Yes, easily, for now, as long as the interest rates stay low. Taxes are still being collected every week.

  7. If Mr. Tuccille had read to page 91 of the Long Term Budget Outlook report, he would have seen that his recommendations are almost exactly OPPOSITE the CBO’s. Cutting the deficit more now reduces economic (GDP and jobs) growth, as does this government shutdown. A debt ceiling debacle like Mr. Tuccille poo poo’s could quite possibly cause another Great Recession:

    “If policymakers wanted to minimize both the short-term economic costs of shrinking the deficit very quickly and the longer-term costs of allowing large deficits to persist, they could enact a combination of changes in tax and spending policies that would increase the deficit in the next few years relative to what it would be under current law but that would reduce deficits later relative to what would occur if current policies were extended…Households, businesses, state and local governments, and participants in the financial markets would be more likely to believe that the future deficit reduction would truly take effect if the future policy changes were specific and widely supported.”

    On page 89, the CBO suggests that an alternative fiscal policy that raises the deficit in the short term could increase jobs growth in FY 2014 by 700,000 more jobs and in FY 2015 by 800,000 more jobs. More people working makes future deficit reduction easier.

    Let’s get more Americans working. Don’t listen to Tuccille.

    1. Complete nonsense. Government spending crowds out private investment. So, doing the exact opposite of what the CBO says, assuming you’ve characterized their position correctly, is the best thing we can do for economic growth.

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