The Current Debt and Budgetary Impasse

One of the most important, but frequently ignored, aspects of the current negotiations about raising the debt ceiling is the lack of credible commitment on each side.

The problem has two aspects. One is clearly analyzed by Michael McConnell in today’s Wall Street Journal. (Perhaps also here.) What exactly is “on the table”? The president or the GOP says “I propose X in budget cuts.” Are specific reductions being proposed or just general goals to be worked out later? Is the base-line current spending or is it current budgetary authority (that is, the current planned rate of increase)? If the president suggests revenue “enhancements,” how specific are these? Are they increases in marginal rates or elimination of specific “loopholes”? We just don’t know for sure.

The second aspect is how enforceable would be such agreements under the current gun? The devil is in the details, as people often say. They cannot be worked out now but, equally important, the lack of consensus that exists now will exist later on. So what happens if nothing happens later on? Is the debt ceiling increase rescinded? Oh boy, if that were to happen.

Republicans have complained with good reason that the revenue enhancement ideas put forth by Obama and Co. are much more specific than expenditure reduction “proposals.” (I would add this is probably true of the expenditure reduction proposals of each side!)

The upshot is: The public doesn’t know what is on or off the table with any reasonable degree of specificity. I imagine that the parties themselves don’t know. There is no reasonable enforcement mechanism for whatever the negotiators come up with.

My guess is that there will be some kind of debt ceiling increase with the real budgetary differences papered over once again. The system is broken and the public will be the real sufferer. Not that most don’t deserve it. For the real culprit, Americans need only look in the mirror.

About Mario Rizzo 75 Articles

Affiliation: New York University

Dr. Mario J. Rizzo is associate professor of economics and co-director of the Austrian Economics Program at New York University. He was also a fellow in law and economics at the University of Chicago and at Yale University.

Professor Rizzo's major fields of research has been law-and economics and ethics-and economics, as well as Austrian economics. He has been the director of at least fifteen major research conferences, the proceedings of which have often been published.

Professor Rizzo received his BA from Fordham University, and his MA and PhD from the University of Chicago.

Visit: Mario Rizzo's Page

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