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Make the Current Debt Limit Permanent
Raymond Richman, 7/25/2011

Why should Congress impose a debt limit if it is not going to be enforced? Why pass a debt limit if it is going to be raised as soon as the debt approaches it? The purpose of the debt limits is to force Congress and the administration to live within its means. A good case can be made for making the current debt limit permanent. The House under the constitution has the obligation to initiate all spending bills. Its request that as a condition of temporarily increasing the debt limit, expenditures must be brought under control is entirely reasonable. As we have shown repeatedly on this site, the federal government has been wasting enormous resources.

The administration’s assertion that we risk another recession ignores the fact that that recession has already lasted long enough to be called a depression with some 26 million workers unemployed and underemployed. The fact that the Obama administration has been in power two and a half years and its budget deficits have amounted to more than four trillion dollars without making a dent in unemployment, tells us that we have been governed by economic incompetents.

The administration claims that refusal to raise the debt limit will have serious economic consequences. Raising the debt limit without balancing the budget is what would have the unfortunate consequence of destroying the U.S. economy. The dollar would continue its fall and would be replaced by a new international standard. China, Brazil, and Russia have already proposed a new standard.  Reducing the federal deficit as a condition of any increase in the debt limit will have positive economic effects. And, if we add reducing our huge international trade deficit, the dollar would continue its status as the international standard that succeeded the gold standard.  

The dollar during the last decade has fallen in value fifty percent against the euro, the yen, and other currencies. We have become indebted to China, Japan, and Germany and other countries including OPEC members. During the past three decades, we went from the world’s leading creditor to leading debtor without protest from the economists at the leading American universities who have forced the ideology of free trade upon us. Our recommendation, which is not ideological, is based on the science of international trade, and calls for balanced trade.  

Our huge budget deficits are the result not only of foreign wars, but of foolish domestic and foreign spending, including nearly $40 billion on educational expenditures that produced nothing, a department of urban development that has accomplished very little at enormous cost (upwards of $20 billion), a war on narcotics that has been costly here and abroad and completely ineffective (another $20 billion not counting the thousands in prison, and the imposition of restrictions on oil drilling on public lands and offshore to appease environmental groups.  

The capture of the House of Representatives by the Republicans as a result of the Tea Party revolution has introduced a House committed to down-sizing the federal government and the opportunity has arisen for the House to insist on the end of the enormous budget deficits as a condition for granting an increase in the debt limit. Although the media are almost unanimous in criticizing the Republicans’ insistence on reducing the deficit without raising taxes, it appears to us, that past Congresses failed in their duty to reduce government spending as a condition of improving a rise in debt limits.

During the last decade, the federal budget deficits went from balance in 2,000 to $1.5 and $1.6 billion deficits in fiscal 2010 and 2011. From August, 1997, when the debt limit was $5.95 trillion until June, 2002  when it was increased to $6.4 trillion as a result of  increased expenditures resulting from the terrorist bombing of September 11, 2001, there was no increase in the debt limit. But Pres. George W. Bush’s foreign adventures and increased domestic expenditures without raising taxes resulted in increases in the debt limits in 2004, 2005, 2006, 2007, and 2008. Under Barack Hussein Obama, there were two moderate increases , one in 2009 and a large increase of $1.9 trillion in December, 2010. Once again, in 2011, we face the need for a debt limit increase, which is not surprising given the huge budget deficits in fiscal 2010 and 2011, caused in part by an ineffective $800 billion economic stimulus plan (the Recovery Act of 2009), which included direct economic subsidies to inefficient wind and solar energy plants,  which included tax credits and cash payments, the free use of public lands and loan guarantees which will come to haunt us in the next decade, transfers to state and local governments, and prosecution of a new war in Libya, which was supposed to be short and sweet, that was not approved by the Congress and has cost nearly a trillion dollars to date.

The House of Representatives has the right and obligation to initiate all spending programs. It has since the 2010 elections assumed its rightful constitutional role. One of its obligations is to balance the budget. The President is the one who is  demanding higher taxes for more government spending. The House should hang tough and do its duty. In so doing, it could make the U.S. attractive once again to new manufacturing industry. Simultaneously holding tight on the debt limit and balancing trade (through the scaled tariff) would end the depression.

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    Wikipedia:

  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]