It's the Debt Ceiling, Stupid!

The Osama news is news, but Rep. Jeb Hensarling, just back from meeting with his constituents in Texas during the Congressional break, thinks the budget is still the issue de jour.  For those with short attention spans, here is what's happened thus far in this fast moving budget debate:

The Republicans recently triumphed, as the White House and the Senate agreed to $38 billion in cuts over the rest of the fiscal year.  Or, the Republicans triumphed were humiliated, as the White House and the Senate agreed to allowed only $38 billion $8 billion $352 million in cuts over the rest of the fiscal year.  Got it?

In truth, it's all been much ado about nothing.  The last budget debate was over what should be a relatively minor budgetary process, the so-called Continuing Resolution.  The Republicans set the terms for debate, how much to cut, and the Democrats managed to minimize the size of the cuts.  Result: a wash.

The real action is coming up on the Debt Ceiling and the 2011-2012 budget.  Paul Ryan's proposed budget, a far-reaching, bold, proposal which makes a real effort to reform our sorry finances, has been getting a lot of press of late, and some surprisingly positive comments from the Main Stream Media.  And it deserves the attention; if we can get Ryan's plan into law, it would be well-nigh revolutionary.  But the important thing is the Debt Ceiling, and here's why.

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The thing about the Continuing Resolution debate was that it highlighted the problem with budgetary politics.  Did the Republicans get $38 billion in cuts, or only $352 million? Well, yes and yes. 

The fact is, government finances and budgets are full of accounting arcana that are not easily understood.  When the Associated Press reports that the Republicans wanted $38 billion in cuts, we think of total cuts in actual dollars being spent in Washington.  In fact, we now know that the cuts were in something called Budgetary Authority, which is different from actual monies that are going to be spent.

The difference is like the difference between accrual and cash accounting, or maybe fiscal and calendar year accounting.  Depending on your perspective, choosing any accounting system will alter and obscure certain aspects of the budget.  A decrease in the Budgetary Authority to the tune of $38 billion is a real cut in the budget, but there is much in the continuing budget which wasn't going to be spent anyway because it was authorized last year, and never spent.  That's just the nature of the accounting game, and not a particular problem -- until politics enters the equation.

A proper CEO takes the limitations of his accounting system into account when viewing corporate performance.  Politicians, however, are prone to use the limitations of any accounting system to further their political goals.  And the resulting debate becomes almost incoherent for the citizens, and very difficult to follow.  Thus, what is needed is a bold, transparent benchmark on spending that can't be argued away by various partisan politicians and economists.

Enter, the Debt Ceiling.  Whatever the arcana of accounting used by Congress, when the Treasury Department cannot issue new debt instruments, it just can't.  No way around it; no prevarications will cure the problem.  So, why don't we just decide how much more debt we will allow -- say, 10% more than last year, or about $150 billion, and then whatever the budget that is passed, that is all the President will have to spend.  Period.

We can then judge how well our President functions as an Executive, which, after all, is his primary purpose under the Constitution.  He will have to juggle cash to make sure all debt service is paid, and then distribute the remainder as best he can.  Again, without regard to Congress' budget.  If Congress is so degenerate that it can't pass a proper budget, well that is something else the citizenry can take an interest in and try to send some people up there who can pass a real budget.

So I say, forget the budget, forget the CBO "scoring" of budgets, forget the pleas and prevarications of our Ruling Class in Washington, forget the high dudgeon in the editorial pages of the Main Stream Media.  Let's just tell Washington it can have another $500 billion more debt in 2011, just to be nice about it, but let them know that their debt authority will go down 20% a year thereafter.  Presto: balanced budget in 5 years!

And any politician that can't live with that can go out and find a job he can do.