April 15th – The budget deficit and why it is the end of (this) Democracy.

Just about every year around April 15th, I post my theory on why we have a national debt, and why that national debt will ultimately be the failure of theis particular grand experiment of democracy.

First things first, the cause of the uncontrollable national debt is the Congressional control and domination of the budgetary process. This started in the mid-1970′s with the creation of the Congressional Budget Office (CBO) as part of the Congressional Budget and Impoundment Control Act of 1974.

The Federal Budget was never meant to be a product of Congress. It was supposed to be produced by the Executive branch, then approved by Congress. Over the last few decades, this process has been replaced by the following process:

a) The president submits a budget.
b) Congress chuckles and cans the whole thing
c) Congress makes it’s own budget and submits it to the president with about 15 minutes to sign it.

Probably the last serious challenge to this fundamental change occurred with George Bush Sr. George went toe to toe with Congress, even threatening to shut the government down. He was slaughtered politically. It was clear at this point that Congress had secured a (probably permanent) political advantage with its control of the budgeting process. Couple this with the ability to borrow without consequence via self-regulated deficit spending, and the rest is (and will be) history.

The Congress was never designed (explicity or implicity) to control the kind of spending it does now, and as such it has developed this ability through political evolution. Those who spent, survived…those who saved didn’t.

Every politician has now learned that deficit spending is the way to get elected. So it really doesn’t matter who controls Congress at this point….it will spend freely to the maximum capability of our economy and beyond. As mentioned above, the office of the President has been made irrelevant so that doesn’t matter either.

Further, this mismatched functionality of the Congress has existed for so long that a majority of citizens were born after the presence of a systemic, increasing Federal debt in the mid 1970′s. It’s what we know, and there is no reason to see it as a problem.

For years the numbers have been rationalized as “percentage of GDP” and “constant dollars” etc. But all of these arguments failed to recognize or address the fundamental problem: Congress controls spending, and it is politically rewarded to spend more and take in less. There will be no change in this equation….ever….because there is substantial political dis-incentive to change it.

These arguments that the “debt isn’t that bad” make alot of sense, until they suddenly don’t. Most of the people who downplayed the debt/deficit are oddly quiet now. This should scare everyone. But it doesn’t because “hey…we’ve spent freely for decades without a problem…clearly it’s not going to hurt anything”.

Instead, we have a cultish, Keynesian analysis that ever increasing deficit spending is necessary for economic stimulus. I guess this is what happens when the consequences of policy occur generations after said policy is implemented.

Yet even the most conservative estimates on the debt rely on wildly outlandish wildcard figures (usually economic growth figures) that will send in the mathematical cavalry and save us all. Even if this did happen, Congress’ mismatched political goals will kick in and we’ll just spend more.

(And this doesn’t even take into account the amazing cheap energy benefits that are coming to an end).

So any honest look at the numbers shows that the U.S. will eventually outspend it’s ability to borrow, and will then be in a serious pickle as it either defaults on the debt or begins printing money to meet obligations. Either solution would result in a collapsed economy and Federal government due to hyper-inflation or the sudden disappearance of Federal dollars in the GDP, or both.

At that point it can be said that the grand experiment of American brand Freedom Democracy failed. Which is ok. Sociopolitical failure is part of history. Maybe our descendants will turn their minds toward divine providence again and build something better.

Cheery thoughts! I know. But human history is not generally a tale of long, blissful periods of stability. We’ve been very blessed to have avoided problems until now.