On the Chopping Block

Cut what again?  Cap which leak?  Balance?  You try balancing this.

Megan McArdle theorizes on which things might happen if the US defaults. While that is an unlikely prospect, government functions in a reactionary manner, waiting until things have gone wrong before trying to fix them. Will any of these things go wrong if there’s no deal on August 2nd?

Let’s say that we refuse to raise the ceiling.  Does the prioritization listed above [military payrolls, Social Security, Medicare, and Medicaid] mean that we don’t need to cut politically untouchable programs?

No.  Let’s think through what would happen if we tried to use this plan:

• You just cut the IRS and all the accountants at Treasury, which means that the actual revenue you have to spend is $0.
• The nation’s nuclear arsenal is no longer being watched or maintained
• The doors of federal prisons have been thrown open, because none of the guards will work without being paid, and the vendors will not deliver food, medical supplies, electricity,etc.
• The border control stations are entirely unmanned, so anyone who can buy a plane ticket, or stroll across the Mexican border, is entering the country.  All the illegal immigrants currently in detention are released, since we don’t have the money to put them on a plane, and we cannot actually simply leave them in a cell without electricity, sanitation, or food to see what happens.
• All of our troops stationed abroad quickly run out of electricity or fuel.  Many of them are sitting in a desert with billions worth of equipment, and no way to get themselves or their equipment back to the US.
• Our embassies are no longer operating, which will make things difficult for foreign travellers
• No federal emergency assistance, or help fighting things like wildfires or floods. Sorry, tornado people!  Sorry, wildfire victims!  Try to live in the northeast next time!
• Housing projects shut down, and Section 8 vouchers are not paid. Families hit the streets.
• The money your local school district was expecting at the October 1 commencement of the 2012 fiscal year does not materialize, making it unclear who’s going to be teaching your kids without a special property tax assessment.
• The market for guaranteed student loans plunges into chaos. Hope your kid wasn’t going to college this year!
• The mortgage market evaporates. Hope you didn’t need to buy or sell a house!
• The FDIC and the PBGC suddenly don’t have a government backstop for their funds, which has all sorts of interesting implications for your bank account.
• The TSA shuts down. Yay! But don’t worry about terrorist attacks, you TSA-lovers, because air traffic control shut down too.  Hope you don’t have a vacation planned in August, much less any work travel.
• Unemployment money is no longer going to the states, which means that pretty soon, it won’t be going to the unemployed people.

These are just the very immediate, very theatrical outcomes.  Obviously, over any longer term, you’d have issues from bankrupt vendors stopping work funded with federal highway money, forgone maintenance on things like levees and government buildings, and so forth.  Averting any of these things would require at least small cuts in Social Security, Medicare/Medicaid spending, or military payrolls.

Now, maybe you look forward to these outcomes.  There are certainly some on this list that I would be okay with.  But because I am not delusional, and I did not fall off of a turnip truck last night, I recognize that the American public does not agree with me, and that if any of these things happen, they will freak out and besiege their local representatives.  And as we can see from the examples in the New York Times article, when faced with demanding constituents, the new face of the GOP is not quite as steely-minded on the subject of spending as we have been told.

None of this is likely to happen on August 2nd. If there will ever be a deal – and there will be – Obama is willing to peremptorily raise the debt ceiling on a short-term basis, which he can do just by saying so at this point, because congressional leadership is OK with it. Also, our leaders – the ones who are real leaders, not just representatives – aren’t as foolish as we think they are. They know the consequences of not raising the debt limit, and if it’s in their interest to raise it – and it is in the interest of most leaders – it will be raised. It may even be improved. Or perhaps that’s too hopeful?