The Debt Failsafe Trigger

It is absolutely shameless the way the political class keeps chasing down our money. In America, the almost trillion US-dollar stimulus has created a hole for which it is almost impossible to think of a solution that does not involve a major inflation. But a serious cutback on spending, you would think, would be at the top of any program to find a way out.

But the American President is made of sterner stuff. Whether he is simply incapable of understanding the problem he has created, or cannot bear to face reality, or is unwilling to accept responsibility for his own incompetence, or he thinks he can hold off these demons until he is reelected in 2012, or whether it is something else entirely is impossible to know.

So it is interesting in all this to find the following snippet by Dan Mitchell of the Cato Institute in relation to the President’s proposed 12-year approach to dealing with the deficit.

[T]he most disturbing feature [of Obama’s proposal] may be a provision that punishes the American people with higher taxes if politicians overspend.

Called a ‘debt failsafe trigger,’ Obama’s scheme would automatically raise taxes if politicians spend too much. According to the talking points distributed by the White House, the automatic tax increase would take effect ‘if, by 2014, the projected ratio of debt-to-GDP is not stabilized and declining toward the end of the decade.’

Let’s ponder what this means. If politicians in Washington spend too much and cause more red ink, which happens on a routine basis, Obama wants a provision that automatically would raise taxes on the American people.

It may come to that, naturally well after the next election, even assuming a second Obama term. However, Buchanan and Wagner, in their brilliant 1977 Democracy in Deficit, have another suggestion that appeals to me. And rather than allowing politicians to have others fund their mistakes, this one would put a kind of automatic feedback mechanism into the deficit creation process that might actually lead to some kind of restraint amongst those who recommend these higher expenditures to governments. In speaking of the possible introduction of some kind of trigger mechanism that would immediately come into play if some threshold were passed, what they call “an automatic adjustment scheme”, Buchanan and Wagner wrote:

One thing to be avoided in any variant of an automatic adjustment scheme would seem to be attempts to protect outlays on salaries for legislative and bureaucratic personnel. In fact, a strong case could be made for requiring disproportionate adjustment in this component of the federal budget, since this would provide an indirect means of encouraging compliance with the constitutional norm for maintaining overall balance in the fiscal account. It would be difficult to think of much legislative or bureaucratic agitation to exceed budget-balance guidelines if the penalties were known to include explicit reductions in governmental salaries. [My italics]

That is, if a significant component of the adjustment towards budget balance occurred by lowering the wages of public servants, they might not be so quick to raise expenditure in the first place.

Completely unrealistic as a mechanism since it would never get past Sir Humphrey. But it does have an appeal to we poor folk out here who must one way or another fund all this spending however useless and wasteful it may be.

HT to Powerline for the Dan Mitchell quote.

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10 Responses to The Debt Failsafe Trigger

  1. .

    Maybe they ought to have a spending failsafe which cuts programmes if they don’t have the money…

  2. C.L.

    The Donald again:

    Trump Says Obama ‘Lives in the World of Make-Believe’.

    At this crucial juncture, here’s how the make-believe president is spending his time.

    Unserious.

  3. Sinclair Davidson

    Electronic versions of Democracy in deficit here.

  4. Infidel Tiger

    At this crucial juncture, here’s how the make-believe president is spending his time.

    I think Obama’s found his level there. Round table with kids.

  5. JC

    He’s really getting airtime hosing the idiot in the White House.

    These are some of the best, most publicized criticisms that are being circulated through the media since he was elected. It’s refreshing.

  6. PSC

    Whether he is simply incapable of understanding the problem he has created, or cannot bear to face reality, or is unwilling to accept responsibility for his own incompetence, or he thinks he can hold off these demons until he is reelected in 2012, or whether it is something else entirely is impossible to know.

    How precisely did Obama cause the recession and near collapse in the banking system which started in 2008?

    One thing to be avoided in any variant of an automatic adjustment scheme would seem to be attempts to protect outlays on salaries for legislative and bureaucratic personnel.

    And how would this have any material effect given the proportion of government expenditure which actually goes on salaries?

    As a hint, salary expense in the region of 10% of the budget. Just shy of $300bn for 2009.

    It’s not actually the cause of the problem, and adjusting the wages of public servants simply won’t have a material effect on the budget.

    The debt problem boils down to the US semi-privatized health system consumes 17% of GDP, growing rapidly, of which about half is government expenditure. The expenditure growth is uncontrolled – we’ll see if Obamacare has a material effect in restraining it.

    Every other western nation produces similar health results with more heavily socialized systems for about 8-10% of GDP and much slower system growth.

    How will cutting public sector wages stop people claiming more on their health care?

  7. Jarrah

    “And how would this have any material effect given the proportion of government expenditure which actually goes on salaries?”

    It’s not meant to have a material effect on the bottom line. It’s about putting incentives in place to change behaviour.

    But you’re right about health spending. The US’s hybrid system is unravelling.

  8. JC

    What hybrid system, Jarrah?

    The US health system is NOT unraveling. The health insurance system this moron in the White House pushed through the Congress in the early hours of the morning appears to be unraveling because it looks to be unconstitutional.

    Get it right next time.

  9. PSC

    It’s not meant to have a material effect on the bottom line. It’s about putting incentives in place to change behaviour.

    To repeat:

    How will cutting public sector wages stop people claiming more on their health care?

  10. JC

    How will cutting public sector wages stop people claiming more on their health care?

    WTF?

    Are you taking stupid pills again? So now, you’re saying that lower wages encourages people to become ill and go to the doctors and also to have more operations.

    Are you Homer disguised as PSC?

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