THE DEBT CEILING CIRCUS COMPROMISE

Politics has no relation to morals. ~ Nicolo Machiavelli 

You and I have read accounts of the president’s, Rep. McCarthy’s and Sen. Schumer’s AIP (Agreement in Principle) for resolving this year’s federal budget ceiling circus. Since 1960, Congress has either raised, extended or revised the US debt ceiling 78 times. These changes have allowed the federal government to pay for expenditures that Congress has already approved in prior legislation. As I mentioned in my last blog, their AIP seems to conform with the most feasible of the suboptimal solutions for the June 5, 2023 ceiling deadline.  

US Capitol

The best solution would be to annul the entire debt ceiling requirement, so politicians couldn’t advocate fringy proposals – like relying on the 14th Amendment – to surmount the ceiling. But that first-best solution will not happen for two reasons.

First, the ceiling has become politically institutionalized with Congress at the center of it. Congress’ collective ego is very pleased with this. Because Congress has allowed its annual budgetary process to become DBA (Dead Before Arrival) for quite a while, its members will never agree to withdrawing the periodic debt ceiling circus since it’s the only mechanism that affords both pollical parties several weeks of budgetary spotlighting. Unfortunately, this illumination can focus on the vainly desired solutions of both radical liberals and conservatives, the wildest animals in this circus. The real decisions are made behind tightly sealed doors.

Second, it once again allows the media to spend weeks resurrecting updates of stories talking-heads used in the last ceiling circus that propose a plethora of resolutions by this year’s experts. Every media personality has her/his opinion about the ceiling, both within and outside of our borders, and we get to hear from all them if we want. Occasionally, the media reminds us about how appallingly destructive for everyone an actual default would be. One question that has been raised during this year’s debt ceiling cliff-hanger is: why didn’t the Dems pass a ceiling extension in 2022 when they controlled both houses of Congress and the presidency? Was it too early to tango away from the fiscal cliff? Retrospectively, it seems like a sizeable strategic mistake on the Dems’ part.

The path to Congressional ratification of the new ceiling deal now being written as legislation based on the AIP will be bumpily rocky, as always. This will require Joe, Kevin and Chuck, to climb into their politically-directed 4x4s. Joe in his Hummer EV, Kevin in his Jeep Wrangler Rubicon Hemi V8, Chuck in his Chevy Bolt EUV will attempt to smooth the road a bit for eventual success via cajoling, commiserating and hand-holding. This will require overcoming their respective radicals’ upsets about the compromise agreement, as well as convincing their members to expand their perspective for a day or so, beyond the unwarranted discontent of just a sliver of their members.

What does the AIP offer? Repubs get some minor, temporary reductions in government expenditures – including a near-freeze in FY2023 real (inflation-adjusted) funding for many discretionary programs and slimming down the large-ish $80B in additional support that everyone’s most fav federal agency -the IRS- was expecting spend over 10 years to “catch bad-ass, tax-cheating rich guys.” These IRS cuts will be somewhere between $10-20B, almost a pocket-change change across a decade. But oh my, the symbolism of cutting the IRS’s budget and $4 will buy you a cup of coffee on Capitol Hill.

The Dems get an extended, post-2024 election time limit for the next debt ceiling follies and a relatively slim extension of welfare recipients’ work requirements. Both the Dems’ Progs and the Repubs’ Freedom Caucus have started howling that this deal is inexcusably terrible, positing they’ll not vote for it. The deal is not terrible. Especially when you compare this compromise, where by design not all Congress-people are happy, to having no deal at all and default actually happens for the first time.

President Biden, Speaker McCarthy and Majority Leader Schumer have their work cut out for themselves. I think on balance, the Dems are batting .550 with the compromise, the Repubs .450. It may be futile, but let’s hope rads on both sides of the political firmament begin recognizing the GIANT costs that will be borne by 100% of everyone – including themselves – if they don’t agree with this proposed legislation.

Out from center field, this agreement also will likely contain rules to expedite the permitting of new energy-related facilities that mitigate global warming, including a gas pipeline through West Virginia to placate Sen. Manchin. This revised permitting regime hopefully will include facilitating and advancing much-needed electric grid improvements.

For all our sakes, here’s hoping the President, Speaker McCarthy and Majority Leader Schumer are successful in getting Congress to approve number 79.  

 

 

 

DARK ENERGY, FAR AND NEAR

The past and the future are fiction; they only exist in the imaginations of the present. ~ Archibald Wheeler  

People consider many distinct time periods during their lives. Many persons focus on what’s going to happen to them during the next day or next week. Some young folks wonder how they’ll survive their teenage lives. California truckers pay attention to the next 12 hours, the maximum duty period many of them can drive during any single time interval between rest stops. Unsurprisingly, elected federal politicians focus on the next 2, 4 or 6 years depending on what political office they want to retain. I hope at least a few of them, especially the president and Rep. McCarthy, are also now concentrating on the time between now and June 1st to avoid a national debt default.

Economists distinguish different analytical time periods as either short run or long run. The economic short run is a time period where at least one productive input is fixed or unchangeable. Classic productive inputs are land, labor and capital. More recently, entrepreneurship has been added. The long run is a time period where all productive inputs can vary; for example, rental rates (the price of land) and wage rates (the price of labor) can change. Notice that economists often do not usually state how much actual clock time the short run or long run is. That degree of specificity apparently depends on case-study specifics. I believe the range of a short run period is from 3 months to a full year. The long run heads off from there into multi-year eras.

Almost a century ago, archeologists devised a means of classifying ancient societies called the three-age system. This system, beginning with the oldest period called the Stone Age, measures human development. The Stone Age lasted more than 3 million years ending between 4000 BCE and 2000 BCE, with the advent of metalworking. The Bronze Age lasted through 1200 BCE. The last and most recent period was the Iron Age, when the production of iron and then steel was mastered. The Iron Age ended during the 5th century BCE, after written records like Samarian tablets were first produced by human accountants and royal writers.

Cosmologists, like the late Professor Wheeler, quoted above and who popularized the concept of black holes, have adopted an entirely different, truly expansive time perspective. Astrophysicists have no professional trepidations about next month’s consumer price index or an up-coming prophesized recession. Their long run heads not just for a decade or even a century. No, cosmologists’ attention squarely aimed at the firmament could span 100 billion (10^10) earth years.

This very looong run period – give or take a few billions years – is cosmologists’ current guestimate for when the entire universe will end. No personal worries for any of us or our grandkids’ grandkids. But if you’re the worrying sort, cosmologists also expect our dear sun – currently a yellow dwarf star – will flame out in a mere 5 billion years. Oh, my.

Cosmologists concern themselves with the life cycle of stars and galaxies that comprise our universe. The picture below illustrates fragments of Cassiopeia A, a massive red supergiant star that met its fate when it became a supernova. The light from this star’s detonation probably reached the Earth in the early 1680s, about 80 years after the telescope was invented. Perhaps Edmond Halley, a pioneering astronomer during that time, saw Cassiopeia A explode through his eye piece. Halley’s fame rests with his comet, whose periodicity he accurately computed to be 75-76 years. Halley’s comet will next be seen here on Earth in 2062, perhaps by our kids and grandkids.  

Remnants of Cassiopeia A

Source: NASA, ESA, CSA via the New York Times

 

It was a mere 13.8 billion years ago that our current universe was created in some sort of singularly impressive, fiery burst of energy. It has been growing ever since. Astrophysicists have debated for decades if our universe will continue to expand forever or collapse in some sort of gigantic contraction. In fact, 25 years ago astronomers realized that the cosmic enlargement was not contracting but speeding up, attributed to a supremely strange force called dark energy.

If the universe’s dark energy continues to reign unabated, distant galaxies will be speeding away ever-faster from our miniscule neighborhood in the Milky Way. Which means eventually we won’t be able to see them anymore. As the celestial clock continues to tick, the less we’ll know about our universe. That represents a worrying prospect for cosmologists, given their very elongated analytical time period.

But dark energy isn’t just a celestial force influencing the heavens. I’d posit that we Americans also are once again suffering from a dark energy force in Washington, DC. I’m referring to the Republicans’ efforts to use our nation’s artificially-imposed federal debt ceiling (created in 1917 and legislatively modified in 1939) to now forcibly implement their own detrimental policies. Our debt ceiling concerns the fiscal requirements associated with paying for already-implemented legislation, not future legislation.

The US debt ceiling has been raised or revised 78 times since 1960, including 49 times under Repub presidents and 29 times under Dem presidents. The debt ceiling was increased 3 times with trifling trauma under President Trump without any associated conditions. Each of these 78 rounds of debt ceiling revisions has involved considerable political posturing and much media attention. Each time the same issues are raised but never resolved; they’re simply pushed off for the next round to deal with once again.

Last week, the president wisely retreated from his pointless no negotiation stance. The initial “negotiations” began at the White House, with President Biden and congressional leaders including Rep. McCarthy and Sen. Schumer. Each side regurgitated their already-known positions. Dems want a clean debt ceiling increase passed by Congress – meaning debt enlargement with no spending cuts. The Repubs offered a temporary $1.5 trillion (T) debt increase only if the Biden Administration agrees to remove sizeable existing renewable energy tax credits, add more work requirements for food stamp and government aid recipients and stop the president’s student debt-forgiveness plans. Predictably, neither side gave a proverbial fiscal inch to the other.

The best debt ceiling resolution would be to annul the Second Liberty Bond Act of 1917 that authorized Congress to establish an aggregate ceiling on the total amount of new bonds – Liberty Bonds – that the government could issue (for World War I expenditures). Neither Repubs nor Dems want such an annulment to happen because it would significantly diminish congressional budgetary authority. I expect the ultimate resolution for this round of debt ceiling negotiations, like others before it, will be another unclean agreement that includes budget cuts that aren’t as large as Repubs want, but are greater than what Dems want, tied to a substantial increase in the debt limit. Dems and Repubs are no doubt now discussing such terms behind very tightly sealed doors.

Real negotiations will not start until the debt ceiling clock ticks to within 10 seconds of when current federal expenditures officially reach the existing debt limit of $31.4 T. On May 1st Treasury Secretary Janet Yellen warned that the US may exhaust its established “extraordinary measures” by June 1st (the so-called “X-date”) to pay its existing debt obligations. Until then, we will suffer from the Repubs’ self-righteous brinkmanship.

    Is this any way to operate a political economy? No. Besides the US only Denmark has a national debt ceiling that is an absolute amount of money. But while Dems occupy the White House and at least one side of Congress is controlled by the Repubs, that’s when dark energy may force our fiscal cookie to crumble with severely damaging consequences for everyone. It’s time for Rep. McCarthy to remove the dark energy cloud surrounding him and other Repubs and pass an almost-clean, significant public debt increase without delay or obstruction.