How I Learned to Stop Worrying and Love the Debt Bomb

posted at 2:35 pm on July 21, 2011 by Karl

The title is misleading; then again, so was the subtitle for Dr. Strangelove. Sometimes, a light touch helps illuminate a heavy topic.

Let’s start with the heavy part. Kevin D. Williamson lays out the inevitable endgame for our public debt problem:

Medicare, Social Security, and national-defense spending are going to be cut. Lots of other stuff is going to be cut, too. To the extent that such cuts are insufficient, taxes are going to go up to pay the difference. That’s the deficit-reduction deal. There isn’t another one. The question is only whether we implement it voluntarily or involuntarily, under conditions of stability or under conditions of crisis.

The issue of whether we are stable now aside, Williamson’s question reminded me of a piece from Megan McArdle back in May, warning left and right that neither may like the results of waiting:

Fiscal crises are–ahem–inherently unpredictable events. No matter how you assure each other that your awesome new health care plan can’t possibly be repealed because everyone’s going to be lovin’ on it so hard . . . or that no peacetime US government in history has ever collected more than 20.5% of GDP . . . the fact remains that when interest rates are rising and everyone’s panicking, the unthinkable frequently happens. Moreover, the tax hikes and spending cuts that are required in a fiscal crisis tend to be much more draconian than would otherwise be required, because they tend to happen when GDP is depressed and the gap between tax revenue and spending is exceptionally large.

Some of what McArdle writes is true, but the real fight — both now or in a possible crisis — is over the mix of spending cuts and tax hikes. A look at other countries’ crises is rather eye-opening on this key point. Canada reduced government debt from 68% of GDP in 1994 to 29% of GDP in 2008. There were six to seven dollars in budget cuts for every dollar of tax hikes — and these were real cuts in spending, not reductions in spending growth, and not the imaginary spending cuts Democrats have offered Republicans in past decades. By 2000, Canada was cutting personal and corporate taxes, as well as capital gans taxes. (Read the linked story for another example, set by New Zealand in the 1980s.) During the same period, Sweden reduced public debt from 78% of GDP to 47% of GDP by cutting public spending from 71% of GDP in 1993 to 52% in 2008—that is, by almost one-fifth of GDP. During the period Sweden cut taxes four times and abolished wealth taxes, inheritance and gift taxes. Finland similarly cut spending and taxes as part of its fiscal consolidation.

Indeed, a study of fiscal consolidations in 21 countries of the Organization for Economic Cooperation and Development over 37 years concludes that failed attempts to close budget gaps relied 53% on tax increases and 47%, while successful consolidations averaged 85% spending cuts and 15% tax increases.

I am not for doing nothing about the debt ceiling and have written a number of pieces about the need to do something about the public debt at all levels of government. Moreover, it is certainly possible that in a debt crisis, the intransigence of the left could force the federal government to take a tax-heavy approach proven to fail in all those other OECD countries. I tend to think there is still enough of the American spirit around to resist becoming wage slaves to the state. Assuming we can manage to avoid a more statist approach than Canada, Sweden and Finland, it would seem the left ought to have the greater interest in defusing the debt bomb now, as a crisis will likely be tougher on their priorities.

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Comments

It’s da BOMB!

leftnomore on July 21, 2011 at 2:35 PM

Wow! Cutting SPENDING reduces deficits. Who knew?

GarandFan on July 21, 2011 at 2:37 PM

We must protect our precious bodily fluids at all costs…

Seven Percent Solution on July 21, 2011 at 2:40 PM

There is a photoshop picture of Obama riding that bomb

Kini on July 21, 2011 at 2:40 PM

I tend to think there is still enough of the American spirit around to resist becoming wage slaves to the state.

Majority rules in a peaceful representative democracy, and a 52% majority of Americans voted for an undistinguished, inexperienced blowhard to our highest office in 2008 because of his skin color and a stupid slogan.

In other words the majority opinion better shift, and fast, or the options available will slide toward the extreme.

Bishop on July 21, 2011 at 2:43 PM

The question is only whether we implement it voluntarily or involuntarily, under conditions of stability or under conditions of crisis.

This is what needs to be hammered into the heads of the American people. Maybe Chris Christie would like to be our spokesperson? He’s damned good at that kind of thing.

disa on July 21, 2011 at 2:47 PM

a 52% majority of Americans voted for an undistinguished, inexperienced blowhard to our highest office in 2008 because of his skin color and a stupid slogan. promise to redistribute wealth.

Bishop on July 21, 2011 at 2:43 PM

FIFY. Joe the Plumber removed any doubt about it and 52% still voted for him, more than a few of them for just this reason.

cool breeze on July 21, 2011 at 2:56 PM

FIFY. Joe the Plumber removed any doubt about it and 52% still voted for him, more than a few of them for just this reason.

cool breeze on July 21, 2011 at 2:56 PM

Yep, the single best question asked of little Bammie during the campaign of 2008 came from a plumber man-on-the-street. Journalism is in a sad state in America.

slickwillie2001 on July 21, 2011 at 2:59 PM

In a nutshell, we are becoming as economically aware now in much the same way we have been forced to become politically active starting back in Clinton’s error.

I know I learned something new when I heard we haven’t paid off any debt since about 1961.

DanMan on July 21, 2011 at 3:00 PM

Classic, I love the movie Dr. Strangelove…just watched it again recently!

As for loving the “Debt Bomb” well I don’t love it but the ultra-liberals do because if it goes off (the debt bomb) then they are one step closer to their goal of “wealth redistribution” and turning our great nation into a socialist country like their favs the Euro-weenies!

I wish ultra liberals had enough brain power to learn from what is going down in socialist Greece, but then again critical thinking is not one of their strongest suits!

The ultra liberals don’t care because they know damn well that socialism never has and never will work, they just want to kill evil capitolism at ANY cost!

Liberty or Death on July 21, 2011 at 3:09 PM

I’m not entirely opposed to tax increases. For instance, I want everybody back on the income tax rolls. I don’t care if it’s only $100 a year. If seniors remain recalcitrant about having our benefits trimmed, increase taxes on those benefits. I want welfare via tax credits ended which will mean an increase in taxes for many families, but no one should be able to get a tax refund without first having paid taxes and no one gets a greater benefit than no tax due. Most of all, I want an across-the-board tax rate reduction and elimination of most deductions and all credits. That will mean an increase in tax liability for some and a reduction for others, but I believe it will also mean an increase in tax revenue.

First of all, however, reduce the damn spending.

SukieTawdry on July 21, 2011 at 3:10 PM

Journalism is in a sad state in America.

slickwillie2001 on July 21, 2011 at 2:59 PM

It’s hardly limited to journalism.

“The American Republic will endure until politicians realize they can bribe the people with their own money.” –Alexis de Tocqueville

The money of the 48% of people who still pay any income taxes, anyway.

Welcome to Moocher Nation.

cool breeze on July 21, 2011 at 3:12 PM

I’m not entirely opposed to tax increases. For instance, I want everybody back on the income tax rolls. I don’t care if it’s only $100 a year. If seniors remain recalcitrant about having our benefits trimmed, increase taxes on those benefits. I want welfare via tax credits ended which will mean an increase in taxes for many families, but no one should be able to get a tax refund without first having paid taxes and no one gets a greater benefit than no tax due. Most of all, I want an across-the-board tax rate reduction and elimination of most deductions and all credits. That will mean an increase in tax liability for some and a reduction for others, but I believe it will also mean an increase in tax revenue.

First of all, however, reduce the damn spending.

SukieTawdry on July 21, 2011 at 3:10 PM

Yes. We need an absolute minimum income tax rate of 1% and we need to wipe out the EIC ‘welfare’ program. A 1% rate on someone at the poverty level would be $100-200 a year. Anyone can afford that.

slickwillie2001 on July 21, 2011 at 3:16 PM

“Seventy million government checks! In a population of 309 million, almost 23% of the population is receiving some kind of check from the federal government.”

RADIOONE on July 21, 2011 at 3:20 PM

Medicare, Social Security, and national-defense spending are going to be cut. Lots of other stuff is going to be cut, too. To the extent that such cuts are insufficient, taxes are going to go up to pay the difference. That’s the deficit-reduction deal.

Shoot, a fella’ could have a pretty good weekend in Vegas with all that stuff.

BobMbx on July 21, 2011 at 3:25 PM

“Seventy million government checks! In a population of 309 million, almost 23% of the population is receiving some kind of check from the federal government.”

RADIOONE on July 21, 2011 at 3:20 PM

That includes former presidents. They get a salary, plus office expenses, plus travel expenses, plus… it’s a long list. No one ever turns the people’s money down.

itsacookbook on July 21, 2011 at 4:11 PM

I favor leaving the Debt Ceiling alone, and implementing 15% across-the-board cuts in EVERYTHING the government does.

Then allow Congress to re-allocate the pain of the spending cuts, but do not allow them to raise taxes or raise total spending.

Then if the budget is still not balanced, repeat the 15% across-the-board cuts again and again until the debt actually shrinks every year.

landlines on July 21, 2011 at 4:15 PM

Purity of Essence!

Kafir on July 21, 2011 at 4:19 PM

(1) Canada had it easy (sarc), all those liberals theatened to move there never did.

(2) “Job-cutting tax cuts” Obama with his ‘profits-and-earnings’ economic smarts will run big corporations like GM/Chrysler to save us all.

Sir Napsalot on July 21, 2011 at 4:25 PM

The last time the US Government reduced spending was immediately after WWII. Every claimed “cut” since then has been a lie. Every single one.

If history teaches us anything, this much is a cinch bet:
If the debt ceiling is increased, spending will not be cut.

Bugler on July 21, 2011 at 4:37 PM

Major disconnect here –

Any tax increase is implemented NOW. Any debt reduction is implemented in the FUTURE, sometime during the next 10 years.

Yeah! Right! We can rest assured that those new guys in the White House and Congress, whoever they might be during the next 10 years, will certainly carry out our critical debt reduction plans of 2011.

Uniblogger on July 21, 2011 at 4:40 PM

85% spending cuts NOW; I will not agree to one damned dime of a tax increase unless there are real, immediate cuts NOW! No, Congress, a spending cut is not defined as a lessening of an expenditure increase!

Mutnodjmet on July 21, 2011 at 4:58 PM