Two Men Arguing Have Much in Common

Listening to the fight and argument over the nation's debt ceiling last month, one cannot help but feel that vast policy differences divide democrats from republicans.  The democrats and republicans seem unrelenting in their shared willingness to fight, name call, and accuse the other side of bad faith.  Given this, it may serve us well to investigate further what else the two men arguing have in common.

To analyze the differences between the democrats and the republicans on the nation's debt, the line chart below defines the spectrum of policy choices available.  On one extreme, we could aggressively reduce the 14.5 trillion (T) in US debt by running surpluses and paying down obligations; on the other extreme, we could aggressively expand the debt by running greater deficits and borrowing more; or, we could pick some happy medium in between.

Using this spectrum, we can now compare President Obama’s Budget (democrat) with the Ryan Plan (republican) to see their differences over the debt.  The Obama budget calls for $5.7 trillion (T) in government spending in 2021, and the Ryan Plan calls for $4.7T in government spending in 2021.  Discounting for an historical inflation rate of 3.21%, Obama’s budget proposes that, in today’s dollars, government spending should top 4.16T, up 15% from where we are today.  In contrast, the Ryan Plan asserts that government spending should ebb to 3.43T, down 4.8% from where we are today. 

While each side believes it can divine and increase economic inflows 10 years from now, it seems a less speculative approach to benchmark each proposal’s spending against the actual inflows of today.  Inflation adjusted, the Obama expenditure of 4.16T yields an annual deficit of 2.14T against today’s inflows, and we would have to borrow $0.55 cents on the dollar to meet his expenditures (the writer notes that if Obama obtained his stated tax increases with no negative effects to the economy, the Obama deficit would only grow to 1.8T, requiring only $0.46 cents on the dollar in borrowing).  Inflation adjusted, the Ryan Plan of 3.43T implies a deficit of 1.41T per annum against today’s inflows, and we would have to borrow $0.39 cents on the dollar to meet Ryan's expenditures. 

Option 1: spend to where we borrow $0.46 to $0.55 cents on the dollar; Option 2: spend to where we borrow $0.39 cents on the dollar.  Option 1: increase the nation’s debt by 12% to 15% EACH YEAR in real terms, or Option 2: increase the nation’s debt by 10% EACH YEAR in real terms.  Each of the next 10 years, both options materially add to the US debt that already stands at 683% of current inflows.  Simply, when built against today’s reality as opposed to tomorrow’s dreams, the Obama Budget and the Ryan Plan are next-door policy neighbors, inhabiting the leftmost segment.  Both plans reside on an extreme outpost, nowhere near the middle of the number line.  In the case of the democrats and the republicans on the matter of the debt, two men arguing have much in common.

 Given the policy proximity, we cannot help but recognize the irony of republicans accusing the democrats of profligacy and of the democrats dubbing the republicans “extremists.”  This reminds us of Charles Anderson, who said, “Observe which side resorts to the most vociferous name-calling and you are likely to have identified the side with the weaker argument and they know it.“  The republicans and democrats share a position and their antics, Anderson would posit, suggest a weak argument on both parts.  It is little wonder they try to confuse the argument even further, labeling left as right, further left as center, and the center--no further debt--as terrorism.  So, the next time you see the "left" and the "right" beating on one another and arguing their lilliputian differences, take a pause, scrutinize the facts, and always remember, two men arguing have much in common.