Saturday, January 20, 2018

The Laughable Concept of Washington's Statutory Debt Ceiling

Once again, Washington finds itself dealing with the debt ceiling, an issue that seems to tie up an increasingly polarized Congress that seems to put its own best interests ahead of Main Street America.  In this posting, I want to take a look at the concept of the statutory debt limit/debt ceiling and how Congress has dealt with this issue in the past.

In recent years, as the federal government has added significantly to the debt through deficit spending, Congress has had to deal with the statutory debt limit on a relatively regular basis.  The statutory debt limit applies to nearly all federal debt including debt held by the public (i.e. outside of the federal government itself) and debt held on the government's own accounts (intragovernmental debt).  Approximately 0.5 percent of total federal debt is excluded from debt limit coverage.  Most of the government's own debt is held in federal trust funds like Social Security, Medicare, Transportation and Civil Service Retirement accounts.  Even though there are hundreds of federal government trust funds, the 12 largest government trust funds hold 98.8 percent of the intergovernmental debt.  

The modern debt limit was created in 1939 as the Public Debt Act of 1939 and was replaced with the Public Debt Act of 1941 (aka H.R. 2959 - 77th Congress) that set the stage for the financing of modern government debt financing.  Here is the title page for the Act:


Until the 1941 act was passed, the federal government treated all interest and capital gains on its debt obligations as tax exempt.  The 1941 act changed this by making the difference between the purchase and redemption price for savings bonds taxable.   At the time that the Public Debt Act of 1941 was passed, the aggregate limit on all federal debt obligations was placed at $65 billion.  Keeping in mind that the United States was about to enter the Second World War, this limit was raised as follows:

1942 - $126 billion
1943 - $210 billion
1944 - $260 billion
1945 - $300 billion

In 1946, the Public Debt Act was once again amended, lowering the debt limit to $275 billion. 

Here is a complete history of what has happened to the statutory limits on the federal debt from 1949 to March 2017:




Congress has either changed, amended or suspended the statutory debt limit 115 times since the Public Debt Act of 1941 was passed.

Let's focus on the period since 2010 as shown on this graphic:


As you can clearly see, Congress has repeatedly used various measures that have "kicked the debt can" further and further down the road.  As shown in grey on the graphic, since 2013, rather than coming right out and increasing the debt limit, Congress has tried to save face by temporarily suspending the debt limit five times with the latest suspension ending on March 15, 2017.  When the debt limit was reinstated, it was always reset at a new, higher level.  As I have said before, the new debt ceiling becomes the new debt floor since Washington has no hope of ever paying back any of its outstanding obligations.

Interestingly, as a "solution" to the repeated debt ceiling crises that have faced Congress over the past decade, back in September 2017, 3 Senate Democrats came up with the brilliant inspiration of pushing legislation to eliminate the debt ceiling, an idea backed by Donald Trump.  The text for the "End the Threat of Default Act" or S.1846 is as follows:


So, instead of dealing with keeping spending within the limits of revenue, the Congressional solution appears to be to get rid of the debt ceiling entirely, a move that would allow Washington the uncontrolled spending powers it desires with no fear of retribution by either Treasury holders or the American voting public. 


Friday, January 19, 2018

The Slow Death of Democracy in the United States

A paper by Martin Gilens and Benjamin Page entitled "Testing Theories of American Politics: Elites, Interest Groups and Average Citizens" provides us with an interesting analysis of who is really in control of American public policy, an issue that many of us already suspect is controlled by a small group of Americans.

There are four theoretical traditions in the study of American politics, each with a different set of actors who form a critical role in determining government policies:

1.) Majoritarian Electoral Democracy: this tradition attributes government policies to the collective will of its citizens who are empowered through the mechanism of democratic elections.  This can also be viewed as the "electoral reward and punishment" version of democracy where voters judge the results of government policies and how well these policies have satisfied their interests and values.

2.) Economic-Elite Domination: this tradition attributes government policies to the will of individuals who have substantial economic resources, for example, high levels of wealth or income or  social status including positions within political parties, managerial and executive roles in corporations, top-level positions in the executive, legislative and judicial branches of government and high military rank.  For the purposes of this study, the authors focus on the importance of economic elites.

3.) Majoritarian Pluralism: this tradition attributes government policies to the will of a majority of the population with the majority being categorized by religion, language, social class or other intensifying factor.  In the majoritarian tradition, mass participation and majority rule are required for democracy to function.

4.) Biased Pluralism: this tradition attributes government policies to and unrepresentative universe of interest groups, particularly from the business sector.  In this tradition, policy outcomes tend to tilt toward the wishes of corporations, businesses and professional organizations.

As such, here is a table showing the theoretical predictions concerning the influence of each set of groups on government policies:


We should keep in mind that we find the following:

1.) in some cases, the wealthy among us want the same thing from government policies as the poorest among us.

2.) U.S. membership organizations, particularly labour unions and organizations like the American Association of Retired Persons, favour the same policies as average citizens.

3.) some U.S. membership organizations take stands on key issues that represent only a fraction of average citizens - for example, pro-life and pro-choice groups, pro-gun and pro-gun control groups.

4.) the authors found that wealthy Americans do not always share the same policy preferences as business-oriented groups. 

To test which of the four theoretical traditions are most applicable to American politics, the authors assembled a database which looked at the influence of public policy on affluent, poor and middle income Americans.  They assembled a database which consisted of 1,923 instances between 1981 and 2002 in which a national survey of the American public asked a for/against question about a proposed change in government policy which did not involve a Constitutional amendment or Supreme Court ruling.  In 1,779 of these original cases, income breakdowns were provided by the respondents and, thus, were usable by the authors for their analysis.

Here are the author's conclusions:

1.) a proposed policy change with low support among economically-elite Americans (20 percent support) is adopted only 18 percent of the time.

2.) a proposed policy change with high support among economically-elite Americans (80 percent support) is adopted 45 percent of the time.

3.) a proposed policy change with high support among both groups (as defined above) is adopted about 56 percent of the time.

4.) narrow pro-change public majority cases got the policy changes that they wanted about 30 percent of the time.

5.) wide pro-change public majority cases (80 percent public approval) got the policy changes that they wanted about 43 percent of the time.

6.) ordinary citizens do not always lose out; when the policies that they favour happened to line up with those of the economic elites, there is a far greater change of the policies being adopted.

The authors concluded that, from their dataset, it appears that the traditionally held view of the Majoritarian Electoral Democracy appears to be a complete failure; when the preferences of organized groups and economic elites are controlled for in government proposed policy changes:

"...the preferences of the average American appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy."

The authors also note that organized and special interest groups, as a whole, do not substitute for the will of the voting public.

Here are the authors's conclusions:

"What do our findings say about democracy in America?  They certainly constitute troubling news for advocates of "populistic" democracy, who want governments to respond primarily or exclusively to the policy preferences of their citizens.  In the United States, our findings indicate that they majority does not rule - at least not in the causal sense of actually determining policy outcomes.  When a majority of citizens disagrees with economic elites or with organized interests, they generally lose.  Moreover, because of the strong status quo bias built into the U.S. political system, even when fairly large majorities of Americans favour policy change, they generally do not get it...

Americans do enjoy many features central to democratic governance, such as regular elections, freedom of speech and association, and a widespread (if still contested) franchise.  But, we believe that is policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America's claims to be a democratic society are seriously threatened." (my bold)

Let's close with this graphic from Open Secrets which shows the list of the top 25 individual donors from the 2016 election cycle:


Here is a list of the top 25 organizational contributors:


Can we say plutocracy?  Perhaps, despite what Washington may think, the American style of democracy really isn't what other nations should be aspiring to attain nor is it the type of democracy that the United States should force upon other nations.

Thursday, January 18, 2018

Our Nuclear Future With Thanks to the Pentagon

Remember this?



Here are the pertinent lines from the speech given by former President Obama at the Brandenburg Gate in Berlin:

"We may no longer live in fear of global annihilation, but so long as nuclear weapons exist, we are not truly safe….

Peace with justice means pursuing the security of a world without nuclear weapons -- no matter how distant that dream may be.  And so, as President, I've strengthened our efforts to stop the spread of nuclear weapons, and reduced the number and role of America’s nuclear weapons.  Because of the New START Treaty, we’re on track to cut American and Russian deployed nuclear warheads to their lowest levels since the 1950s.

But we have more work to do.  So today, I’m announcing additional steps forward.  After a comprehensive review, I’ve determined that we can ensure the security of America and our allies, and maintain a strong and credible strategic deterrent, while reducing our deployed strategic nuclear weapons by up to one-third.  And I intend to seek negotiated cuts with Russia to move beyond Cold War nuclear postures.  

At the same time, we’ll work with our NATO allies to seek bold reductions in U.S. and Russian tactical weapons in Europe.  And we can forge a new international framework for peaceful nuclear power, and reject the nuclear weaponization that North Korea and Iran may be seeking. 

America will host a summit in 2016 to continue our efforts to secure nuclear materials around the world, and we will work to build support in the United States to ratify the Comprehensive Nuclear Test Ban Treaty, and call on all nations to begin negotiations on a treaty that ends the production of fissile materials for nuclear weapons.  These are steps we can take to create a world of peace with justice." (my bold)

A recently released pre-decisional draft copy of the U.S. Department of Defense's Nuclear Posture Review (NPR), conducted at the behest of Donald Trump, gives us a sense of the direction of America's nuclear weapons program under the new administration.  The document opens with the following paragraph:


The Secretary of Defense, James Mattis, goes on to not that "...America's strategic competitions have not followed our lead.  The world is more dangerous, not less." and that "...Russia has retained large numbers of non-strategic nuclear weapons and is, in fact, modernizing these weapons as well as its strategic systems."  The Secretary also states that Russia has adopted a military strategy that relies on nuclear escalation for its success, suggesting the following:

"These developments, coupled with Russia's invasion of Crimea and nuclear threats against our allies, mark Moscow's unabashed return to Great Power competition."

In case you should happen to think that China is getting off easily, here's what the Secretary has to say about China:


In other words, the Department of Defense feels threatened that it is unlikely to retain its position as the world's sole superpower thanks to moves by both Russia and China.  To meet these "threats", the Secretary suggests that a "...diverse set of nuclear capabilities provides an American President with flexibility to tailor the approach to deterring one or more potential adversaries in different circumstances....Our goal is to convince adversaries that they have nothing to gain and everything to lose from using nuclear weapons."

According to the NPR, the possession of a nuclear weapons inventory satisfies the following objectives:

1.) Deterrence of nuclear and non-nuclear attack.

2.) Assurance of allies and partners.

3.) Achievement of U.S. objectives if deterrence fails.

4.) Capacity to hedge against an uncertain future.

From the NPR, here is an inventory of the Department of Defense's nuclear Triad which includes submarines, land-based ICBMs and strategic bombers carrying gravity bombs and air-launched cruise missiles:


So, what will this cost U.S. taxpayers?  According to the NPR, sustaining and upgrading America's nuclear weapons program will cost approximately 6.4 percent of the current Department of Defense budget.  Maintaining and opening the current gaining nuclear forces requires between 2 and 3 percent of the DoD budget and the cost to rebuild the nuclear Triad will cost an additional 4 percent of the total budget for several years.  And, as we all know, the Pentagon never underestimates/overspends.

Let's look at an excerpt from the document that shows how the Department of Defense expects to increase the deterrent effect of its nuclear arsenal.  The NPR states that "...to meet the emerging requirements of a U.S. strategy, the United States will now pursue select supplements to the replacement program to enhance the flexility and responsiveness of U.S. nuclear forces..."  This will be achieved through the use of non-strategic nuclear capabilities as follows:



By using low-yield, non-strategic nuclear weapons, the Department of Defense is hoping to use this relatively low-cost option to "...counter any mistaken perception of an exploitable "gap" in U.S. regional deterrence capabilities."  As I posted back in December, here are some of the past low-yield nuclear weapons options that were pursued by researchers at the Los Alamos Laboratory back in the early 1990s:

1.) Micronukes - have a yield equivalent to 10 tons of high explosive

2.) Mininukes - have a yield equivalent to 100 tons of high explosive

3.) Tinynukes - have a yield equivalent to 1000 tons of high explosive

These weapons have a yield that is far smaller than the first atomic weapon detonated over the city of Hiroshima in 1945 which had a yield of roughly 15,000 tons of TNT.  Starting in the late 1950s, scientists at Los Alamos developed the W54 series of nuclear weapons as shown here:


Lastly, here are the two pages which show how the Department of Defense plans to modernize America's nuclear weapons infrastructure:



With Donald Trump tweeting the following comment about America's nuclear weapons capabilities in December 2016:


...and with Hillary Clinton tweeting the following in October 2016:


...its pretty clear that Washington, whether controlled by the Republicans or the Democrats, is gunning for a fight and, at some point in the future, could well be looking for an opportunity to test drive its new inventory of low-yield nuclear "toys".  Keeping in mind that the draft version of the Nuclear Posture Review is just a preliminary copy of the final product, one way or another, it certainly appears that the Department of Defense is preparing itself to take the necessary steps to keep both China and Russia in their place as non-threatening, non-world powers.