Back in 2008-9 during the passage of TARP and other emergency liquidity injections my economics teacher at the time asked, “The banks are getting bailed out by the government, but who will bail out the government?”
Now that the most recent liquidity crisis (as Keith Hennessey calls it) has been averted, many might say that we should try to focus our political priorities on other issues – some even want another stimulus package (an awful idea, but that is for a future post) – since we have been discussing our fiscal woes since March. This is just wrong. As a nation, we must immediately start tackling our insanely large debt (as Keith puts it, the solvency risk).
This is not only about the still ever impending credit rating reduction, but that definitely helps motivate my concern. It is also about the clear neglect of any entitlement reform (via Tyler Cowen) in the debt deal. This is not a time where we can just sigh in relief that we made it through the storm, we have to think about the tsunami of future spending that is written into law. The current amount of federal debt per-person in the US is at $45,092. What kind of lesson is this to Americans who are still attempting to recover from their borrowing binges?
As you can see from the graph, not only is our mandatory spending going to skyrocket in the next 20 years, but our interest payments will be out of control. The only way to avoid some Greece-like disaster seems to be to hit this disease from every direction. Yes i mean deep spending cuts for entitlements and also the expiration of all of the Bush tax cuts (and maybe some other revenues like cutting tax expenditures).
The thing that bothers me the most today is that there is no one (except maybe Diane Rogers of The Concord Coalition, old post but still true) advocating for the end of all of the bush tax cuts. Even President Obama campaigned on the premise that he would not raise taxes for anyone making under $200,000! The extension of the Bush tax cuts excluding those making over $250,000(what he seems to be advocating) would cost $2.2 trillion over 10 years, undoing any good that the most recent debt deal has done and some extra.
Even being a Libertarian and all, it kills me to see the dash from the center.
Related: Keith Hennessey shows how the Joint Committe could have been designed in order to increase the probability of success and/or centrist outcomes. (He even slips in some game theory for no extra charge)