The Myth of Government Default

The moment of truth is rapidly approaching and House Republicans need to crank up their resolve to force a real long term solution to the debt crisis of our federal government.  As David Rivkin and Lee Casey describe in the January 11, 2013 issue of the Wall Street Journalthe threat of government default is greatly exaggerated.  $200 billion in tax revenue is coming into the federal government every month, more than enough to keep making interest payments on the national debt as well as paying many other bills.

Far too many national leaders are in a state of denial about the seriousness of our fiscal problems.  House Speaker John Boehner says that “The American people do not support raising the debt ceiling without reducing government spending at the same time.”  The “Boehner Rule” stipulates that an increase in the debt limit must be paired with spending cuts of equal size over a ten year period.  This is an excellent framework for kicking off a national discussion to persuade the American people to support cutting back spending on entitlements and social programs as well as defense spending.

Every economic unit whether it be an individual, a family, a business, a community or a larger political subdivision, has to learn to live within its means.  This elementary rule of common sense applies to our whole country just as much as to any other social group.  Republicans have the clearest grasp of this basic truth at the present time and now need to exhibit the courage of their political convictions.  The future of our country depends on it!

2 thoughts on “The Myth of Government Default

  1. The truth is that with a combination of economic recovery and the tax increases and spending cuts enacted this month, the deficit (as a percent of GDP) is already on a downward track, as seen the orange line here:

    http://delong.typepad.com/sdj/2013/01/no-we-dont-really-need-any-more-deficit-reduction-until-2020.html

    If Republicans wish to cut entitlements, they should just argue for that. But to use the deficit as some overriding reason why entitlements *must* be cut is incorrect and dishonest.

  2. The orange line in the graph you are referring to does show a dip to a Debt/GDP ratio of 77% in about five years but then turns upward again. Even the red line in the same graph, which assumes an additional $1.4 trillion budget savings over ten years, appears to stabilize at about 74% after ten years but then resumes an upward course as the accompanying text makes clear.

    This is simply not good enough. It is far too risky to plan, under favorable economic conditions, to
    hope to stabilize the Debt/GDP ratio at such a high rate. What happens if we have another severe recession like the one we are now slowly climbing out of? What happens if we have a much larger natural disaster than Hurricane Sandy? What happens if the European Union falls apart and we have to come to the rescue like we did with the Marshall Plan after WW II? What if China loses faith in our ability to pay our national debt and stops buying it?

    We can be certain that there will be major crises in the future and we don’t know when they will occur. It is imperative to get our fiscal house in order as soon as possible. The only safe course of action is to try to eliminate deficit spending over a relatively short time period. The important thing is to implement a reasonable plan to achieve this goal. If it takes longer than expected or we don’t quite get there before the next crisis, at least we’ll be in much better shape than we are in today.

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