Timeout For Lucy

The Debt Ceiling is Scarier Than the Fiscal Cliff was Alan Blinder’s latest contribution to macro policy (WSJ page A17, January 15, 2013). I guess he never read Snoopy and witnessed how Lucy routinely pulled the ball away as Charlie Brown tried to kick it. Now he wants to scare Charlie enough so that he takes one more kick at a vanishing ball. The Republicans have apparently agreed to pass a debt ceiling increase but Lucy is still at work and needs to go to time-out for a while.

Blinder spends the whole article explaining all the horrible things that might happen if the debt limit is not lifted. I admit it is pretty scary stuff although I think he doth exaggerate. We all know the debt limit will be lifted – it is just a question of how long it takes to reach a compromise. Our government is clever enough to juggle the spending for a month or two without really throwing old folks over the cliff. I love the way Blinder and other Democrats keep bringing up how Social Security and Military pay checks might be delayed because recalcitrant, hard-hearted, mean, selfish Republicans won’t lift the ceiling. The President could arrange that kind of evil spending priority but it would be only for political purposes – he and Congress have many other options for spending changes that would be less onerous on a temporary basis.

Blinder mentions how world investors and ratings agencies will downgrade and flee US assets because of a failure to reset the debt ceiling another trillion dollars or more to cover the planned deficit this year. He worries the US would be technically bankrupt. Of course, nothing could be more false. The US has plenty of money and an unshakeable obligation to pay interest to its creditors…more spooky scare tactics by Blinder and his friends. He knows but won’t admit that those creditors could care less about the debt ceiling – what they care about is getting paid back. What matters for creditors is the size of future deficits and growth of the debt. The extra trillion we need now is just a down payment on future increases in the debt that arise because government will not agree on a program to manage the debt. A credible medium- or long-term fiscal program is all that matters. That is what the ratings agencies want to see. That is what the creditors want. Raising the debt ceiling is like me promising to fit into my wedding suit by asking for one more slice of pie.

What is silly is that these scare tactics are so obviously political and so wrong that most people completely write them off as puffery. We all know that the Democrats want one more chance to pull the ball away from Charlie. The Democrats wanted a tax increase on the rich and they got one – as well as a sizeable increase on everyone on a payroll. Now they want more tax increases on the rich. What happened to all that talk in the last year about a comprehensive tax reform and spending restraint? What happened to entitlement reform? “No Charlie – I promise not to pull the football away this time. Take a big whack at the ball.”

The unfortunate message from the Democrats is that they are proving they cannot be trusted to enact anything that comes close to deficit/debt moderation. Higher taxes on the rich won’t do anything beyond nibbling around the edges of the budget pie. Ignoring a broad tax reform and arguing loudly against entitlement reform sends an even stronger signal to ratings agencies and creditors that we are not serious about controlling our debt.

I was once critical of both parties but when I read Blinder’s scare tactics it made me want to point the finger of blame in one direction. Democrats and their mouth pieces must stop holding our country hostage to their unflinching goals of income redistribution and unfettered spending growth. They have to stop these stupid scare tactics and sit down with Charlie Brown and do the hard business of putting our country on a stable financial path.