Debt Ceiling Has Once Again Proven To Be Entirely Ineffective

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Remember Pippi Longstocking? The little Swedish girl who lived alone in a big house with a horse, a monkey and lots of money in a bag. She was a happy little camper. Every night at bedtime she told herself: “Pippi, it is time for me to go to bed!” Some nights she listened, but some nights she did not. Then she had to get really firm with herself: “I really, really need to go to bed – right now!”

Pippi was very popular all over the world, in part because she lived the kid’s dream. No school to have to go to, and no parents who told her what to do.

Setting your own rules for your life is part of responsible adulthood, and for most of us it works out just fine. But sometimes when adults get together and try to solve problems, their self-regulating habits can become rather dysfunctional.

Not to say amusing. Speaking of which, there is probably no better example than the United States Congress. And there is no more amusing case of Congressional self-regulation than when they tell themselves how to get rid of the budget deficit.

The budget deal that our federal lawmakers just reached is an astounding testimony of Congressional dysfunction. Nothing has been done to rein in deficit spending. Nothing has been done to change the long-run trajectory of the federal budget. We are still heading back to trillion-dollar deficits.

The debt ceiling has once again proven to be entirely ineffective.

Or, as KQTH radio talkshow host James T Harris calls it: the debt awning. Congress can roll it in and out whenever they want to.

They have, once again, chosen to roll up the debt awning because they cannot get rid of the deficit. The most remarkable part of this is that getting rid of the deficit is exactly what Congress has been trying – for more than 40 years.

Just like Pippi Longstocking, Congress has tried again and again to tell itself really, really sternly to stop spending on credit. And just as often as it has been lecturing itself and putting new rules in place, a new deficit has popped out of the budget.

How is this possible? The answer is, simply and brutally, that over time Congress has created a budget process that does more to protect status quo than to affect change. It is probably the most dysfunctional legislative invention this side of the Roman Empire.

Its roots are more than 40 years old. It began in 1974 with the Budget Control and Impoundment Act. Its goal was to create a new budget process that could prevent the budget deficit from running away.

It did not work. The exact opposite happened: in 1974 the budget deficit was 0.4 percent of GDP; ten years later it was 5.9 percent of GDP.

In the spirit of Pippi Longstocking, Congress said to itself: “OK, this time we better listen to ourselves. It is time to really, really balance the budget.” And so, in 1985 they came up with the Balanced Budget and Emergency Deficit Control Act, also known as “Gramm-Rudman-Hollings”. To make sure that they really, really followed their own rules this time, Congress denied itself both chocolate and donuts: if they spent too much, then Congressional Democrats would have to accept cuts in entitlement spending and Republicans would have to accept cuts in defense spending.

Budget sequestration saw the light of day.

Just to show off its self-regulatory prowess, Congress used Gramm-Rudman-Hollings to outlaw a budget deficit by 1990. Therefore, it is probably just logical that the budget deficit was 2.7 percent of GDP that year.

Instead of punishing itself for breaking the law, Congress slapped its own wrist with yet another pack of budget rules. With the 1990 Budget Enforcement Act and its PAYGO system Congress forced itself to pay for all expenses with current revenue.

And still, those deficits kept coming. In 1993 the federal budget shortfall was 4.5 percent of GDP.

“Alright” Congress said to itself and slapped its own cheek. “That’s it. We have not regulated ourselves harshly enough. So let’s do that.”

The result was the Balanced Budget Act of 1997 Congress. Just like Gramm-Rudman-Hollings in 1985 made it illegal for Congress to have a deficit in 1990, the Balanced Budget Act waived a Congressional finger of authority at Congress and demanded a balanced budget by 2002.

Ironically, the budget took a break from deficits right after the Balanced Budget Act was passed, but returned to deficits just as the 2002 checkpoint came around.

Since then, the budget has parked itself firmly and solidly in the red. Despite decades of regulating itself for the purpose of eliminating the deficit, Congress accomplishes the exact opposite.

The reason is not that Congress is not trying. The reason is that they are trying the wrong medicine. We do not have a budget deficit because Congress does not know how to put a balanced budget together. We have a budget deficit because Congress has focused its efforts on the wrong part of the problem. It is not the budget process that causes a deficit – it is structural over-spending.

In order to end the budget deficit Congress should unlock itself from an entirely dysfunctional budget process and concentrate its efforts on reforming entitlement spending. Those efforts begin with adding a debt-capping balanced-budget amendment to the Constitution, an amendment that prevents Congress from raising the debt ceiling without approval from the majority of states.

Yes, states’ approval. Congress has proven that they cannot do what Pippi Longstocking could, namely impose working rules on themselves. Therefore, we have to bring in the 50 states to give Congress some parental oversight.

Sven Larson, Ph.D., is an economist and Member of the Council of Scholars of Compact for America. He is the author of Industrial Poverty (Gower Publishing) about the debt crisis in Europe. Find his daily blog articles at America’s Fiscal Future

About Sven Larson, Ph.D., Economist 14 Articles
Sven Larson, Ph.D., is an economist and Member of the Council of Scholars of Compact for America. He is the author of Industrial Poverty (Gower Publishing) about the debt crisis in Europe. Find his daily blog articles at America’s Fiscal Future.