Commentary Magazine

The Debt Crisis Is Here: Now What?

AP Photo/J. Scott Applewhite

Is there a solution to the ever-spiraling national debt? Sure, but it won’t be easy, as the beneficiaries of the status quo—members of Congress—will have to vote to end the spree, jeopardizing their personal, short-term political interests. Not many members of Congress would be willing to do that if they have an alternative. After all, there’s a reason why Profiles in Courage is a short book.
But here’s the solution:
1) Make the president—the only person in Washington who represents the national interest—a major player in the budget battles again. First, empower the president to set the total annual spending limit, subject to a congressional override by a two-thirds vote in each house. Second, give him a line-item veto, something possessed by 44 state governors. The first would definitely require a constitutional amendment, the latter probably. (A Republican Congress gave President Clinton a line-item veto, but it was struck down by the Supreme Court, 6-3. With a little tweaking, and a more conservative court, it might pass constitutional muster.)
2) Force the government to keep honest books, just as corporations must. The federal government’s books are a tissue of lies and deceits purposefully designed to obscure the real fiscal situation. Corporate management goers to jail for such accounting practices. Establish a truly independent accounting board, modeled on the Federal Reserve, which would have the sole power to keep the federal books and keep them according to generally accepted accounting principles. It would also “score” proposed legislation as to future costs and revenues, a function now performed by the Congressional Budget Office, which has an utterly dismal record of doing it well. Legislation could effect this reform.
3) Reform the tax code, radically simplifying it in the process.  First, strip away the tens of thousands of special-interest provisions slipped into the code by members of Congress who repay their major donors this way. Second, merge the personal and corporate income taxes. For a hundred years, their separation has been the main engine of tax complexity and of tax avoidance by the very rich. This, too, could be the product of legislation.
Congress, a deeply dysfunctional political institution at this point, cannot reform its ways by itself. Only a president politically empowered by an electoral mandate earned by running on a platform of severe fiscal reform can force it to do so.
The United States, by far the richest country in world history, is not yet at the fiscal tipping point. We can afford the current national debt. But if interest rates return to normal levels, which at some point they must, increased interest costs will rapidly crowd out other spending, producing a political crisis.
And if the country should find itself in a military or economic crisis such as we experienced three times in the first half of the 20th century, then our ability to deal with it by throwing the cost onto the future will be severely compromised. It is an iron law of economics that you can’t borrow a dollar twice without paying it back first.
If we reach that tipping point, there will be only two options. Either there will be massive cuts in federal spending, which would throw the economy into a severe and protracted recession, or there will be a hyperinflation that would destroy the value of dollar-denominated assets, such as federal bonds. In other words, Germany, 1923.