Federal Judiciary

A Titanic Mess -- By: Jim Talent

The most dangerous mistakes in government occur when leaders allow their ideology to trump their perception of reality. In its most extreme form, this kind of blindness can approach insanity, by which I mean the leaders live in a world of their own, unable to recognize and act upon basic facts.

I served in legislative office for 20 years and saw this phenomenon a number of times. The blindness afflicts people in both parties, but it happens more commonly on the left than on the right, because, as William F. Buckley once famously remarked, ?conservatism is the politics of reality.? We are currently witnessing this phenomenon at work in the Democratic party.

The president and the Democratic leaders of Congress want the government to fund and control health care in America. That is why they forced the legislation through Congress. In my opinion, the bill the president signed into law yesterday will raise costs, suppress innovation, restrict care, and eventually lead to the rationing of care.

But forget about the merits of government-run health care in the abstract. There is a more fundamental and insuperable objection to the legislation: We can?t afford it.

Literally. The government is broke. The Obama administration has spent all the money. The government is already borrowing at a rate that is unsustainable, to fund the obligations it has already undertaken.
 
This year, the government will borrow 40 cents of every dollar it spends. Much of its spending simply pays the interest on previous borrowing. By even the rosiest economic and fiscal scenarios, the federal government will continue borrowing indefinitely at amounts that are far above historical levels. None of this is disputed. The facts are readily available to anyone who wants to see them here.
 
It may seem incredible that an administration would spend our government into bankruptcy before funding its own top domestic priority. But that is exactly what occurs when leaders isolate themselves from reality.
 
So, what happens when any organization -- a family, a business, a government -- continues borrowing amounts it cannot afford to pay back? Its creditors first demand a higher interest rate and then stop lending money altogether.
 
That is already happening. No one in Washington seemed to notice, but two weeks ago, Moody?s announced that unless the government engaged in substantial fiscal adjustments -- in other words, unless the government cut spending -- it would devalue the government?s credit rating. If that happens, the government will have to pay a higher interest rate to borrow money, which means interest payments will increase, which will require more borrowing. It?s the death spiral. The private-sector analogy is when a consumer uses one overleveraged credit card to make the minimum payment on another overleveraged credit card.
 
Passing a big new program was hardly the ?substantial fiscal adjustment? that Moody?s had in mind. The new health-care benefit will cost $150-250 billion annually, depending on whose figures you believe.  The Democrats claim that the benefit is ?paid for? by Medicare cuts and tax increases. Now, no one in Washington would bet ten cents of his own money on the proposition that this new law will pay for itself. It?s based on fairy-tale assumptions -- including that Congress will never enact a ?doc fix? to prevent doctors? Medicare reimbursements from being dramatically slashed.

But only in Washington would such an argument even be considered relevant. Imagine a consumer with massive debts and huge ongoing budget deficits. What if such a consumer announced that he had reduced his monthly budget and was going to use the money, not to reduce his borrowing, but for a new purchase? Who would take it seriously?

The federal government is broke. Long before this new benefit takes effect in 2014, the government will be scrambling just to make its interest payments. It will be doing what California is doing now -- furloughing employees, engaging in short-term fiscal tricks, and trying desperately to protect existing programs. The idea of some huge new expenditure will be a bad joke. No matter which party is technically in control of the government, the debt will actually be running fiscal policy.
 
Perhaps the president is thinking that he can use the impending fiscal crisis as an excuse to raise taxes, and that the increased revenue will enable him to fund the health-care benefit. Here?s a fact he might want to consider. The biggest tax increase in American history was in 1993. If such a tax increase were passed today, and assuming it didn?t cripple the economy, it would produce $71 billion annually in additional revenue -- enough to fund the government?s current borrowing for just ten days.
 
In college, I had an economics professor who liked to remind his students of an important principle of human behavior: ?The crew of the Titanic stopped doing dishes when the ship hit the iceberg.? It?s a sound principle, but it assumes that the crew actually recognizes reality. The president and congressional leaders are still working away at the dishes, while the ship is going down.

-- Jim Talent represented Missouri in the U.S. House of Representatives (1993-2001) and the U.S. Senate (2002-2007). He is a distinguished fellow at the Heritage Foundation and serves as the honorary chair of the American Freedom and Enterprise Foundation (FreedomSolutions.org).

Full post as published by Bench Memos - National Review Online on March 24, 2010 (boomark / email).