The Corner

Do Not Be Complacent

I agree entirely with Mr. Zycher about the well-documented worthlessness of the ratings agencies.

But his assurances here do not comport with the facts:

Moreover, even the underlying premise is incorrect: In the event that the debt ceiling is not increased, federal revenues will be far more than merely sufficient to service the existing debt, roll over maturing debt, etc. Revenues will be sufficient to pay Granny, our servicemen, and other such untouchables. The ethanol producers and myriad other interests might have to extract their snouts from the federal trough for a few days; but so what?

OMB estimates federal revenues for 2011 will hit $2.17 trillion. Granny, our servicemen, and other such untouchables — by which I take him to mean Social Security, Medicare, national defense, and debt-service payments — will add up to $2.21 trillion, meaning that even if we cut the rest of the federal budget to $0.00 — no Medicaid, no food stamps, no Air Force One — revenues still would not cover these untouchables, according to OMB estimates. 

I wish it were just a matter of sticking it to those ethanol bastards and other “special interests,” but it isn’t. Ultimately, there are three ways to make the federal government solvent in the long term: A. Cut Social Security and Medicare; B. institute heavy tax increases; C. a combination of A and B. 

None of those things seems to me likely to happen with a Republican House, a Democratic Senate, and Barack Obama in the White House. Assuming that we are able to forestall a crisis until 2013 (of that I am not confident), I do not think it is likely that any incoming government — Palin, Bachmann, Perry, or Zombie Reagan — is going to be inclined to make cuts of the scale necessary to balance the budget, or even to radically shrink the deficit. Our deficit is about 40 percent of spending this year; continued recovery, if the estimates hold, will do some of the work for the 2013 regime, but even under current forecasts that are arguably too rosy, we’ll still be running a 26 percent deficit in 2013.

Cutting 26 percent of federal spending without touching the untouchables is pretty tough: National defense, Medicare, Social Security, and interest on the debt will account for 62 percent of spending, meaning that everything else would have to be cut by more than half to balance the budget. But, of course, we don’t have to balance the budget in one year: Still, everything else would have to be cut by 27 percent just to get the deficit down to 10 percent of federal spending. And “everything else” here doesn’t mean ethanol: It means Medicaid, the Department of Justice, the FBI, prisons, Veterans’ Affairs, the operating costs of Congress and the White House, the State Department, federal highways, etc.

Medicare, Social Security, and national-defense spending are going to be cut. Lots of other stuff is going to be cut, too. To the extent that such cuts are insufficient, taxes are going to go up to pay the difference. That’s the deficit-reduction deal. There isn’t another one. The question is only whether we implement it voluntarily or involuntarily, under conditions of stability or under conditions of crisis.


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