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Matthew Gagnon of Yarmouth is the chief executive officer of the Maine Policy Institute, a free market policy think tank based in Portland. A Hampden native, he previously served as a senior strategist for the Republican Governors Association in Washington, D.C.
Let’s say you are in a car and you are heading for a cliff, in a classic movie style moment. You are traveling at 90 miles per hour toward your doom, but unlike Thelma and Louise, you don’t want to go over the cliff. To stop the impending disaster, you decide to take your foot off the gas a bit, and your speed goes down to 88 miles per hour.
Does that stop you going over the cliff?
No, in fact your pace toward the edge barely declined, and no one on the outside would even realize the difference. You’re still going basically the same speed, and you’re still going to make an impressive, but ultimately deadly jump.
The cliff analogy is a popular one among those of us concerned about the level of federal deficit and publicly held debt that the United States has. The cliff, the logic goes, is some future point in time when our debt becomes too suffocating to deal with and causes us cataclysmic economic pain.
It is not a terribly controversial opinion, honestly. Most economists share this concern, with the debate being about just how far away that cliff is. Conservative economists think the cliff is right around the corner, while progressives see it as much further away.
There are detractors, like proponents of Modern Monetary Theory, who make arguments that say “deficits don’t matter,” but those arguments are almost universally rejected by mainstream economists, even left-wing figures like Paul Krugman.
Wherever the cliff is, it is there and we need to do something about it.
And that was the motivating force behind House Speaker Kevin McCarthy and the Republicans attempting to use the debt ceiling to extract concessions that made a meaningful difference on this problem. And a deal was struck this past weekend, and McCarthy touted it as a major win.
But, was it?
Not really. It is undeniable that certain things won in the negotiations were good, and make the federal budget situation slightly better. The bill rescinds roughly $28 billion in unspent COVID-19 relief money, for instance, which at this point shouldn’t even have been controversial. It also forces a long-overdue restart of federal student loan repayments. There are also new work requirement rules that are being placed on some government welfare programs.
But deficits? Little to celebrate there. The Congressional Budget Office issued an analysis Tuesday that estimated the deficit reduction to be roughly $1.5 trillion over the next 10 years. That may sound like a lot, but it really amounts to “only” about $150 billion per year over that time. With the deficit being projected to grow to more than $2 trillion by 2033 prior to this agreement, that would mean that the government would still be $1.85 trillion in deficit 10 years from now.
So was all this exhausting theatrical nonsense over the last few months in Washington worth it?
Not from my vantage point. Certainly the structure of federal spending is “better” than it otherwise would have been, but only in the most superficial of ways. While we may have just taken our foot off the gas a little bit, our car is still going 88 miles toward the cliff.
And as Tyler Cowen of the Mercatus Center recently said, “this deal is not very different from what would have resulted from the normal appropriations process.” Quite right. The debt ceiling was used as leverage for change now, but the debate wouldn’t have been much different if it took place over government funding for the next fiscal year.
In either case, the debate would have been hollow. The deal that they would’ve come to would have been a mostly meaningless agreement that changed nothing, but did just enough to allow the politicians to claim they were seriously tackling a difficult problem that they have no intention of actually dealing with.
For all the panic-inducing predictions of impending doom, this entire exercise, like all those that preceded it, was nothing more than an elaborate form of Kabuki theater for our benefit. We were never going to default, there was never any serious threat of danger, and the agreement they came to was never going to be much of a change of anything. But they sure did make a big show of it all, didn’t they?
In the end, the deal became what it was always destined to be: an expression of the will of the status quo in Washington.
