Peter Ferrara’s Debt-Ceiling Fantasies
Peter Ferrara again. Sheesh.
“Suppose you were suffering long term unemployment, and you had maxed out all of your credit cards,” writes Ferrara, setting up a strawman for his latest looking-glass tale. “Would your first action this morning be (1) get out of the house to look for a job, or (2) start cutting back on expenses, or (3) focus on increasing your credit limit?”
He then goes on to claim that Obama, Pelosi, and Reid (oh my) would advise increasing your credit limit in such a circumstance, that the Obama administration is threatening to default on the national debt, that Democrats are evil, and that they want to drown kittens. Okay, I made that last part up. The part about the kittens. I’m not sure about the “Democrats are evil” bit – I’m afraid Ferrara may believe that.
Then he goes through a discussion about what should be priorities in the event Congress fails to raise the debt ceiling. But before I discuss this “plan,” I’ll dispense with the strawman.
Ferrara compares the government to an unemployed person with no remaining ability to borrow — a particularly inept comparison.
The government’s more like an underemployed person, who isn’t bringing in as much revenue as he would if his productive capacity was being fully exploited.
And it’s not at all like a person who has “maxed out all his credit cards.” No such limit has been imposed upon the government; the world still finds the U.S. government to be the safest investment available. No, the debt ceiling is much more like a person creating an arbitrary limit to the amount of debt he wants to have. He sets a budget, plans his spending, but then becomes underemployed and his debt reaches that personal limit. What to do? Admit that the limit was arbitrary and borrow more money to tide him over until he finds full-time work, or undergo painful, damaging cuts in the name of a principal, regardless of his future prospects?
Ferrara’s choice above would clearly “be (b) start cutting back on expenses.” But he doesn’t point out what that would mean. Does it mean start living out of his car? Or does it mean getting rid of the car altogether? What if having a car would make it possible to have a higher-paying job later – would he still get rid of it now, just to avoid passing through an arbitrary debt limit now?
Remember, Congress has approved all of the spending we do today. It’s not like it’s a surprise.
Now, to Ferrara’s math. I’ve been through this exercise too. He very conveniently cuts the discussion short; we can pay the debt, and we can pay full Social Security benefits, and we can pay the entire military budget, he says. We can afford “these most urgent obligations.” But what about those obligations that must by definition be “less urgent”? Air traffic control, for example? Or Medicare? Or food safety inspectors? How would these things be affected?
I can’t replicate all of Ferrara’s numbers, but no matter – it’s not by much. Obama’s 2012 budget estimates 2011 revenue from all sources other than social insurance and retirement receipts to be $1,366.9 billion (down $331.5 billion or 19.5% from 2007). Net interest, $206.7 billion, must be paid, leaving $1,160.2 billion.
Ferrara makes an error I’ve made, which is thinking that the Social Security shortfall must be paid out of current tax revenues. It doesn’t. Social Security would draw down its trust fund to pay beneficiaries. The government would simply roll this debt from the trust fund into publicly held debt. The trust fund goes down by $162.6 billion (Ferrara’s number), and the publicly held debt goes up by $162.6 billion.
So the situation isn’t as dire as we thought, right?
Well… Take out defense spending, which is $768.2 billion, and we’re left with $392 billion of current revenue — to spread across programs with spending set by Congress at $1,691 billion. The budget cuts across all other programs would have to average 76.8%.
Why do you suppose Ferrara didn’t continue the argument to its logical conclusion? What happens to services for veterans costing $141 billion? Justice administration at $61 billion? Medicaid spending of $276 billion? Unemployment compensation of $134 billion? Federal government employee retirement and disability payments of $127 billion? Food and nutrition assistance of $107 billion?
Why didn’t he continue? Simple. His view of reality withers under more than the most cursory of glances.