No one wants to actually balance the budget. Ever

Prudent Fiscal Policy And Political Suicide 

By Wolf Richter

French President François Hollande cobbled together his government yesterday, appointing no less than 34 ministers (of whom 16 are ministers of state). Exactly half of them are women, for the first time in the macho French political world. During their first working session, they, including the President, gave themselves a 30% cut in pay, implementing not only item number 47 on the 60-point agenda but also Hollande’s campaign promise (Nicolas Sarkozy raised his own salary by 172% after he’d arrived in 2007, which the French never forgave him). And barely appointed Minister of Economy, Finance, and Trade, Pierre Moscovici surprised the world: “A country that indebts itself is a country that impoverishes itself,” he said and proclaimed that the government would the deficit because “public debt is an enemy for the country.”

Powerful words. Though they may drown in Socialist Party priorities, they have nevertheless been spoken, and they're reasonable and refreshing. What a difference from what we’re getting dished up in the America.

President Barack Obama and House Speaker John Boehner met over sandwiches yesterday to discuss what to do about the deficit, if anything, while the national debt ticked higher, passing in its inexorable manner $15.716 trillion. But instead of even worrying about it, the President and the Speaker performed a charade of election machinations and grandstanding. The Speaker demanded some cuts in social programs and excluded raising taxes. To show how serious he was, he threatened to block extending the debt ceiling, set at $16.394 trillion to be reached later this year. If he sticks to his threat, it would send the US into default once the Treasury runs out of wiggle room. And the President pushed his own proposals to increase spending on some jobs initiatives. Must have been a fun lunch.

Ironically, and despite the wild gyrations during last year’s debt ceiling farce, gross national debt rose from the ceiling amount of $14.342 trillion to todays $15.716 trillion—a jump of $1.374 trillion in 9½ months! Outlays in fiscal 2011 rose by 4.2% to $3.6 trillion. Of that, a mind-boggling 38% was borrowed. And not long ago, gross national debt hit 100% of GDP.

Richard Nixon was the last Republican President to see gross national debt as a percent of GDP decline. Under Gerald Ford, it rose. Under Ronald Reagan, it jumped. Under George Bush père, it went up. And George W. Bush started a new era: borrowing went haywire, and the national debt began to defy gravity, rising from $5.7 trillion to a breathtaking $10.7 trillion, and adding during his last fiscal year in office the hitherto unthinkable amount of $1 trillion.

Under Democratic Presidents Jimmy Carter and Bill Clinton, debt as a percent of GDP went down. But under Barack Obama, deficits careened out of control, and national debt ballooned from $10.7 trillion to $15.7 trillion, jumping $5 trillion in three-and-a-half years—an accomplishment for which his predecessor needed eight years.

But presidents don’t control the purse. Congress does. And during these administrations, Republicans and Democrats took turns running Congress, and they all bent over backwards (most of the time), and continue to bend over backwards today, to fill the big trough that corporate America and practically everyone and his dog, here or overseas, have been feeding on.

“As long as I’m around here, I’m not going to allow a debt ceiling increase without doing something serious about the debt,” declared the Speaker defiantly. A sound bite, nothing more. Massive deficit spending has fed the economy for so long that the economy has become addicted to it. Withholding even a small amount would send tremors through the system. That’s why no one, not even the Speaker, wants to actually balance the budget. Ever. It would be political suicide. The much vaunted private sector depends on that $1.4 trillion in additional spending, and lobbyists are lining up to get their share. It’s simply too painful for a country to live within its means. The easy way forward, at least for a little while, is running up the deficits and piling on more debt.

Of course, the “fiscal cliff” is coming up at the end of the year: the Bush tax cuts will expire, automatic spending cuts are scheduled to be phased in, extended unemployment benefits will run out, and the payroll tax cut will expire. Combined, they would make a significant step towards bringing down the deficit—though the piercing screams of the tortured victims would reverberate throughout the land.

So, instead of embarking on real fiscal reform to get the country’s finances in order, Republicans and Democrats will engage in exciting but useless hand-to-hand combat through the elections, while the national debt ticks higher every day. Then they’ll agree on some cosmetic spending cuts, close a loophole, and remove the majority, if not all, of the fiscal cliff. To heck with deficit and debt; the reassuring rattle of the Fed’s printing press can be heard in the distance—and it will provide. Inflation and, to use John Maynard Keynes’ term, debauching the currency are easy and convenient, but they're the cowardly way of mitigating the consequences of endless budget deficits.