Friday, April 22, 2011

The Need to Increase the Debt Ceiling

Washington is currently absorbed in the Kabuki theater of raising the debt ceiling. As Derek Thompson at the Atlantic notes, for many Washington players, this debate over raising the ceiling is a mere game. Nearly everyone---Republicans and Democrats---believes that the debt ceiling must be raised. Every once and a while, the minority party shows its fiscal "prudence" in voting against raising the ceiling, while the majority party has to lumber forward and vote "for the future." The very same Democrats (such as Barack Obama) who now say that raising the ceiling is imperative were, but a few years ago, voting against raising the ceiling; Republicans now talking about the craziness of raising the debt ceiling were very happy indeed to vote for a raised ceiling when they were a Congressional majority under Bush.

Congressional Republicans' whole argument against raising the debt ceiling is about political positioning. Republicans are trying to extract more fiscal concessions from Obama in terms of budget cuts and are using the debt ceiling as a way of getting those.

While threats to not raise the debt ceiling might be effective talking points or bargaining tools, I think we should be far less impressed by their fiscal substance. Moreover, we should not confuse voting for raising the debt ceiling with conservatives "selling out": any Republican who votes in favor of raising the debt ceiling should not be viewed as an apostate from fiscal conservatism because of that vote.

There are many reasons why this is the case. Perhaps foremost among them is the fact that not raising the debt ceiling would be exceedingly traumatic for our economy and our nation's fiscal health. Not raising the debt ceiling would force the federal government to spend only as much as it takes in from taxes, and, right now, over 40% of the federal budget is deficit spending. Veronique de Rugy and Jason Fichtner offer the following numbers:
The most recent Office of Management and Budget data shows federal revenues will reach $2.17 trillion this fiscal year. Interest payments on the nation’s debt are estimated to be $205 billion this year, or about 10 percent of revenues. Taking that payment off the top, as Mr. Toomey’s plan would, leaves $1.9 trillion for Congress to spend. That’s enough to pay for Social Security ($741 billion), Medicare ($488 billion), and Medicaid ($276 billion), with $395 billion left for other programs.
That remaining $395 billion is not enough to fund fully the Department of Defense, let alone other government programs such as unemployment benefits, highway projects, education programs, and so forth. That massive drop in federal spending would very likely push the economy into a deeper recession, which would further eat into tax receipts and bring us no closer to fiscal health. While it's true that Congress has delayed raising the debt ceiling a few times in the past (in 1985, 1995, and 2002), deficit spending is now such a huge portion of the federal budget that those past examples may not be that instructive.

Meanwhile, every budget plan under serious consideration at the moment demands more deficit spending. Even the Ryan budget, which so many self-anointed fiscal hawks have embraced, requires trillions more in deficit spending. House Republican lined up almost uniformly behind the Ryan budget, and so they have already become de facto supporters of more debt for the federal government.

At a certain point, it becomes an honorable realism to acknowledge history. Every presidential administration since the end of World War II has added to the federal debt in terms of the sheer number of dollars. Budget plans that Republicans have embraced demand much, much more deficit spending at the moment, even if they will (supposedly) lead to less deficit spending in the future.

Even figures held in great esteem by fiscal hawks such as Pat Toomey are ultimately willing to raise the debt ceiling. The opening line in Senator Toomey's recent op-ed makes this plain:
As we have been approaching the $14.3 trillion statutory limit to federal borrowing, I and many of my colleagues have insisted on real spending reforms now as part of any agreement to allow still more government borrowing...
This statement takes for granted that there could be an agreement to allow more government borrowing.

Fiscal conservatives are hoping to trade their votes for raising the deficit ceiling for further budget cuts. That is a reasonable expectation.

What would be unreasonable would be for any supporter of the Ryan budget to tar those who ultimately vote for raising the debt ceiling as traitors to the cause of fiscal solvency. If conservatives hope turn our nation's fiscal situation around, they would do well to recognize the difference between a negotiating tactic and policy substance.

Monday, April 18, 2011

Standards and Consequences

In the WSJ, John Fund uses the recent Wisconsin judicial election to look at the variety of voting standards (or lack of standards) across the country. This election's fate was decided when a Republican county clerk realized that she had forgotten to add 14,000 votes from a city into her reported figures. This vote swing put the "conservative" candidate over the top. Fund reflects more broadly on the systems of voting in the US:

Our Constitution decentralizes our election procedures over 13,000 counties and towns, with each counting its votes in its own way. This basic framework is sound, but local practices are too often unsound. In 2005, a bipartisan Commission on Federal Election Reform, headed by former President Jimmy Carter and former Secretary of State James Baker, issued 87 recommendations on how to clean up our system. Sadly, most have been ignored or implemented only haltingly.

Fewer than half of states exchange updates on voter registration with other states, and many never sufficiently check the accuracy of registration information. Most registration lists are inadequately transparent—they aren't easily searchable and are clogged with ineligible or duplicate voters. Fewer than half the states require some form of post-election audit or manual recount.

The Carter-Baker commission noted that "the electoral system cannot inspire public confidence if no safeguards exist to deter or detect fraud or to confirm the identity of voters." Eighteen of the 21 commission members called for voters to show photo ID at the polls and for more security for absentee ballots.

Some states have since adopted photo ID laws. But too many (like Wisconsin) still do not require any ID to vote. In a time of razor-thin election margins, we can no longer afford such insecurity in our election process.

Also, though one-third of all votes in 2008 were cast before Election Day, safeguards against absentee ballot fraud are still spotty.
Fund's points also have a bearing on the fate of the Electoral College. The National Popular Vote movement attempts to sidestep the process of amending the Constitution by having various states sign onto a compact saying that they will cast their electoral votes not for the candidate who wins that state but for the candidate that wins the national popular vote. This movement could be on the verge of a significant win in California, where an alliance of Republicans and Democrats in the state legislature has formed to push through a bill that would have California join the compact.

As I've written before, this huge range of standards would make switching to a National Popular Vote system problematic. Right now, under the Electoral College, the voting irregularities of one state are somewhat confined to that state: having more rigorous, fraud-deterring standards within a state does not weaken it relative to other states for presidential elections. Moreover, what fraud does occur is often more limited in its impact.

If the Electoral College were nullified by the National Popular Vote compact going into effect (which would only happen once enough states to reach 270 electoral votes sign on), states would have an incentive to have as many votes---and as many fraudulent votes---flood the national system as possible. Rigorous standards, such as ID requirements for voting, could lower the turnout of the state and so weaken that state's influence in national elections.

Right now, the voting standards of, say, Georgia have a limited effect on Wisconsin, and Wisconsinites have limited motivation to police the standards of Georgia and other states. Under National Popular Vote, the whole calculus of standards changes considerably; then, the standards of Georgia would have a more considerable effect on the lives of Wisconsin citizens. Should National Popular Vote pass, there would very likely become a growing chorus on behalf of a single standard for voting across the county, with an increasingly centralized and invasive bureaucracy to oversee the nation's voting.

That increased centralization might not be a problem if you support the US government becoming more like a parliamentary democracy, but it is more troublesome for those who believe in the United States being a federated republic. Moreover, there is considerable reason to believe that a single federal standard for voting would be less secure than many state standards. In the past few years, it is precisely the biggest administrative bodies that have failed in their duties: megabanks, ratings agencies, federal overseers, etc.

There is of course a role for federal involvement in voting standards. The Civil Rights Act, for example, was hugely important for ensuring that the Constitutional franchise was enjoyed by the citizens of many states. But there is also a reason for wanting to limit federal power, as well.

The National Popular Vote compact has been proposed and is advancing in many state legislatures; it has already been passed in six states and Washington, DC (see its website for more details). Some state legislators may hope that the success of this measure would bring more attention to their states and so increase their own power and influence, but NPV may represent a significant step down the road of undermining the power and independence of these legislatures and their members.

Tuesday, April 12, 2011

Means-Testing Troubles

Yuval Levin's provocative essay on going "Beyond the Welfare State" offers the following prescription for a conservative re-thinking of entitlements:
Second, essentially all government benefits — including benefits for the elderly — should be means-tested so that those in greater need receive more help and those who are not needy do not become dependent on public support. Most retirees would still receive some public benefits (and the poorest could well get more than they do now), but the design of our welfare programs would avoid creating the misimpression that they are savings programs. People who are already retired or nearly so today should be exempted from such means-testing, as they have planned for decades around the existing system; Americans below 55 or so, however, should expect public help only if they are in need once they retire. Means-testing should, to the extent possible, be designed to avoid discouraging saving and work. And private retirement savings should be strongly encouraged and incentivized, so that people who have the means would build private nest eggs with less reliance on government.
Means-testing for entitlements for the elderly has been notion recently gaining in popularity among some sectors of the right, but I think there is reason for some skepticism about means-testing all elderly entitlements, particularly Social Security.

One of the more dangerous aspects of Great Society-style welfare was its encouragement of unsustainable and deleterious behaviors. Welfare checks provided to single mothers were no doubt motivated by a worthy spirit of compassion, but those very same checks indirectly financed the breakdown of the urban family. Rather than ending misery, they often ended up subsidizing it. Unlike private charity, government subsidies can create a sense of entitlement that may undermine the behaviors necessary to support a government capable of providing such subsidies.

As it stands now, Social Security mostly avoids that trap. Whether you manage your resources well in retirement or manage them poorly, you receive the same check. Far from encouraging bad economic behavior, Social Security tends to reward good economic behavior: if you achieve success in the workplace and improve your salary, you also reap a higher Social Security check when you retire. But even if you struggle in the workplace, you still will collect some benefit to help you in your old age. In many respects, this is exactly how government should work from a conservative perspective: it rewards industry but also provides a safety net for the less fortunate.

Means-testing could utterly vitiate that structural tendency. Instead of rewarding a person for economic success over a career, means-testing for Social Security could penalize them for this success. Levin notes some of the challenges of means-testing when he says that means-testing "should, to the extent possible, be designed to avoid discouraging saving and work." Yet I think it might be very hard to means-test Social Security so that it did not discourage saving and work.

If we means-tested Social Security based on the net-worth of a household, we would give the elderly little incentive to save. Say government offers the following choice: live close to the bone for years until you exhaust your savings and then get a Social Security benefit OR spend it extravagantly and then get that very same benefit. What choice would many people make? While elderly men and women are unlikely to start an explosion of illegitimacy (thankfully), subsidizing profligacy and discouraging prudence are rarely smart policies for a government; our current economic troubles are testament to the dangers of that course of action.

Means-testing on income could result in a significant lowering of the standard of living for the elderly. Right now, elderly Americans who have some level of health can work to supplement their Social Security income and so raise their standard of living. Means-testing could take that incentive away. The elderly could sit home and collect that government check OR they could go out and work, with the dollars earned in the workplace eating into their government checks. Many people of an advanced age would find it hard to earn enough in the market in order to make more than their government-guaranteed income, so many elderly Americans might find Social Security checks the absolute limit for their income.

I suppose some of these doubts are predicated on my suspicion that Social Security is not driving any potential entitlements crisis. Currently around 4.8% of GDP, Social Security is scheduled to peak at around 6.1% of GDP and stay around there for as far as federal actuarial accounting can see. That is a manageable number and a manageable increase. Many deficits the program may face could be eliminated by making a few relatively minor changes to the program (such as raising the cap on taxable income). Compared to something like Medicare, Social Security is very sustainable.

Granted, some of these objections could be worked around, but fiddling with Social Security is a dangerous business, and not only from a short-term electoral perspective. Compared to many government programs (including many means-tested ones), Social Security provides a social insurance safety net of equity while also encouraging individual initiative and prudence. Those advantages should not be overlooked.

(Crossposted at FrumForum)

Friday, April 1, 2011

Takers v. Makers, or Our Choices Have Consequences

Over at the WSJ, Stephen Moore laments the rise of government employment:
Today in America there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5 million). This is an almost exact reversal of the situation in 1960, when there were 15 million workers in manufacturing and 8.7 million collecting a paycheck from the government. It gets worse. More Americans work for the government than work in construction, farming, fishing, forestry, manufacturing, mining and utilities combined. We have moved decisively from a nation of makers to a nation of takers...

Surveys of college graduates are finding that more and more of our top minds want to work for the government. Why? Because in recent years only government agencies have been hiring, and because the offer of near lifetime security is highly valued in these times of economic turbulence. When 23-year-olds aren't willing to take career risks, we have a real problem on our hands. Sadly, we could end up with a generation of Americans who want to work at the Department of Motor Vehicles.
It's worth noting that we have created an economic structure that incentivizes working at the DMV. Moore bemoans the state of 23-year-olds not wanting to take career risks, but 23-year-olds, just like corporations, have every right to make decisions that are in their own economic best interests.

Consider manufacturing: the de facto federal consensus over the past twenty years has in many ways been that manufacturing workers should accept lower wages. Indeed, much of the right's anger with manufacturing unions in Detroit and elsewhere focuses on the fact that these unions have won generous pay and benefits for their members. Our trade and regulation policies have, over the past few decades, further shrunk a manufacturing employment sector already diminishing due to gains in technology.

Or construction: this field has already taken a hit due to the collapse in the housing market. Moreover, construction jobs have also witnessed a significant wage decrease due to a flood of illegal immigration.

Or hi-tech fields: many large companies are perpetually lobbying to employ more and more foreign-born workers through mechanisms such as the H1-B visa. Or they are outsourcing programming work. Both of these mechanisms have hurt employment prospects and the wage growth for Americans in these sectors.

There are still plenty of opportunities in these sectors of the American economy, true. But while many economic sectors were hollowed out, government employment, under George W. Bush and Barack Obama, has boomed. Government jobs are harder to outsource or close down due to foreign subsidies. And with youth unemployment at exceedingly high levels, the young people of America are going to take any opportunity they can get.

I think our energies would be better spent not on attacking working for the government but on improving the economic conditions for the private sector. Destroying teachers unions will not turn around our economy and is not even a certain recipe for improving public education.

The weakening of many parts of our economy has in turn strengthened government, but a half-dead economy cannot indefinitely support a perpetually-growing government. Revising some of our public policies and making targeted investments in the future can be a way forward. Supporters of a vital free-market economy and of effective government are no doubt hoping that such a way can be found.

UPDATE: It's worth adding that government entities, particularly at the state and local level, are already feeling the pinch of economic hardship. State and local governments have cut tens of thousands of jobs over the past year or so. Meanwhile, the federal government is still hiring, but even its numbers are down and do not seem to be making up for the cuts in state and local workforces. So employment in state and local governments may be a more challenging prospect in the months to come. According to the US Bureau of Labor Statistics, the sectors of the economy to gain the most over the past year were "administration" and "health-care" (though much of the US's health sector is driven by government spending).

(Thanks to David Frum, who rightly noted that government employment in the US has become less of a growth industry.)