It has been an interesting week. More data supports the observation on this blog that inflation moderated to the appropriate 2-3% range six months ago. That’s the good news. The bad news is that Congress will likely writhe through another dysfunctional cycle in deliberations of whether to exceed the national debt limit. As a spoiler alert, we have already exceeded it. 

Today’s graph incorporates one more piece of economic information, the latest Producer Price Index. It shows once more that inflation ended six months ago, despite the howls of protest. Everything since then is just politics as usual. We have a law, called Gresham’s Law in economics that says bad money forces out good money. We regularly see that bad politics trumps good economics every time, apparently. 

The other news is that the Federal Government once again has exceeded their debt limit. This is a limit that has been raised because of excessive government spending, from $11.1 trillion in January of 2009 to $31.4 trillion now. In fourteen years, the level of national debt has risen by 183%. It took 133 years to get to $11.1 trillion and just 14 years to almost triple.

Now, I am all for two things. One is to spend within our means and not leave the legacy of our excessive consumption for some future generation to pay. The second is to pay our bills. 

These are actually two separate issues, although they are now comingled in the discussion. We must expand the debt limit not because of spending we recently proposed or will soon propose, but for spending since the last expansion of the limit. That train has left the station. We bought our ticket and took the trip long ago. Now we have to pay our excess credit card overlimit or up our credit limit. 

We have no choice but to do so. We can argue about it and attribute all sorts of blame, in some cases rightfully so. But, both parties spent like drunken sailors for the past six years (as always, I mean no offense to drunken sailors). We can of course posture and try to blame all this on others, but we can’t change the reality that we are no longer able to borrow more money to pay incoming bills. 

In the short term, we can do a few gimmicks. We can avoid paying back some of the money we owe regularly to keep the Social Security Trust Fund going, but any shortfalls we will have to pay back later. When such simple operations run out, by June or July, we can tell federal workers to stay home. Of course, many can’t, but some can. We close our parks, We can delay some road construction (at the height of road building season) and we can deem many workers non-essential. The funny thing about furloughing federal employees is that they get an extended holiday, and then we pay them all those backwages once they come back to work when a new debt limit is passed. 

Of course, our bond ratings take a hit too. Last time this was done, the ratings agencies lowered our bond rating a notch, and it has not risen since. That raises the interest we pay on any new debt we will inevitably have to issue because of payments delayed and because we should not expect any reasonable level of government spending reform. More expensive credit will only compound matters. 

I should write a book someday that illustrates all the times such folly to secure political advantage has cost taxpayers dearly. That, and the crazy amounts of money expended in advertising to get officials elected are, I guess, the price of our democracy. In any regard, we will pay the price and do it again in a couple of years. 

I said earlier that all the rhetoric about expanding the debt limit is just that - empty rhetoric. OK, we took the trip, now we pay the balance. But, most of the discussion will surely be about future spending, or more correctly, the desire to spend less on some domestic programs and perhaps less on collecting tax revenue and more tax rate reductions and more spending on other programs. On net, no party ever truly comes up with a plan that enhances efficiency, ensures taxpayers pay an equal burden (but not an equal amount), and effectively invests in more efficient infrastructure for the future. One party or the other may do some of those things, but no party produces a coherent and sustainable vision of governing. 

Now, I am all for first paying what we owe, along the principle that those generations who benefit should be those who pay, and also be willing to truly invest in the future, and only then pass on some of these costs to future generations. With a crumbling civil infrastructure, we can’t really make the claim the U.S. could make in better days. But, maybe we can get back to that vision someday. Until then, let's sit back and watch as we shoot ourselves in the foot.