ZCCI Speaker Marc Hodak Comments on Current Debt Talks
Almost all the news about the US debt since my talk in February has been, to my mind, not good. The excellent recommendations put forth by the Deficit Commission that President Obama had convened last year were best characterized by one of the commissioners as "beyond what's politically possible and short of what's economically necessary." Those recommendations are no longer under serious consideration. Less so are "the "draconian," "heartless," "irresponsible" cuts that Congressman Ryan had proposed in the last budget debate, which themselves were not even enough to save the U.S. from eventual bankruptcy, and, if implemented poorly, could even trigger it sooner rather than later.
Thus, current debate on the debt ceiling continues to live up to both the poisonous partisanship and confounding economics I described in my talk. Congressional deadlock on deep spending cuts or tax increases of any size simply reflects the underlying truth that such medicine is both politically unpalatable and would likely hurt an already depressed economy--not a good combination for elected leaders. Unfortunately, continuing to paper over the deficit with more unrestrained borrowing will simply push the problem further into the future, and make the collapse that much worse when it can't be pushed any farther.
But tonight I want to share with you one ray of hope emanating from this debate. As you may remember, the core of my talk is that mechanisms are more important than people. You may have remembered the example I gave of the BRAC mechanism that the government used to effectively shut down unneeded military bases across hundreds of districts that politics as usual could not possibly have closed. Well, the current, heated discussions are finally beginning to get senior government officials to think about mechanisms. It was just reported that:
Messrs. McConnell and Reid are also exploring a proposal to set up a commission to identify further spending cuts and force a congressional vote on the package, much like a similar mechanism once established by Congress to make politically difficult choices to close military bases. (i.e., the BRAC mechanism - MH)
As I mentioned, no mechanism is foolproof or perpetual, but a good one can lead a collective body to rational outcomes that they could not possibly accomplish through negotiation and logrolling. We're also hearing about a Balanced Budget amendment, which won't happen right away, but is now climbing on the national agenda. Good mechanisms could help push off the day of reckoning in a way that could actually soften the effects of an eventual dollar collapse, and could possibly push it off indefinitely.
I'm not ready to announce that the government is beginning to turn the debt problem around, but I wanted you all to know that I am actually rooting for the collapse to NOT happen, and looking as much for reasons to hope for the best as well as to plan for the worst.
Hodak Value Advisors
Adjunct Associate Professor
Leonard N. Stern School of Business
New York University