A former chief economist for the Joint Economic Committee of Congress says conservative Republicans are smart to fight for less spending and more debt reduction because waiting even longer will be much more painful, and he says not raising the debt ceiling will not be the financial calamity that most lawmakers in both parties suggest.
Brian Wesbury served as chief economist to the Joint Economic Committee from 1995-96, just after Republicans gained control of Congress. He’s now chief economist at First Trust Advisors in Illinois and been repeatedly listed as one of the best economic forecasters in America. He says having this fierce debate over America’s debt now may be ugly, but it’s nothing compared to the crisis awaiting us in about a decade if we do nothing.
“The real problem comes 10-15 years from now. Everyone in Washington knows this. There’s been some members of Congress elected who want to deal with this now. We always call it the ‘third rail’ of politics. Why deal with something if it doesn’t matter for my election in two years. So that’s the whole reason we’re having all this. As a private sector guy, ‘Do we want to jump out of a two-story building today or wait and jump out of a 10-story building 10-15 years from now?'” said Wesbury, who says America has a history of doing temporarily painful things to get back on solid economic footing.
He cites Federal Reserve Chairman Paul Volcker raising interest rates to 20 percent for a few years to combat the brutal impact of inflation. While the combination of high interest rates, lackluster economic output and high unemployment did trigger two recessions, Wesbury says once inflation was tamed and interest rates came back down, the stage was set for the economic recovery of the 1980s and beyond.
As for the looming debt ceiling, Wesbury says while markets might not like the perceived instability if the debt ceiling is reached, there is no chance of an actual default and America can still pay its more important bills.
“I’m very worried about this if there was something to worry about. The United States will not default, and I call a default not paying the interest or principle on debt. We have more than enough tax revenue. In fact, it’s 10-12 times the coverage of our debt. What would happen if we’re not allowed to borrow, we would not be able to pay all of our bills, whether it’s the Department of Agriculture or the Department of Commerce or possibly even a Social Security check or Medicare payment to a hospital. It all depends on how they prioritize payments, what they decide to keep open and what they don’t,” said Wesbury.
“If we put ourselves on a path toward a balanced budget, I think markets would be OK. There would definitely be pain. There would be $600 billion less in government spending, but that would also be $600 billion we would not be borrowing from the private sector, from the Chinese,” he said. “If the Chinese were not buying our Treasury Bonds, they would have to buy corporate bonds or stocks or they would buy oil or they would buy something else from us. So it’s not a net loss completely. It would cause mayhem. There would be orange cones out on the highways that nobody would be there to take down for awhile until they figured it out. But I do not think it would cause a financial catastrophe for the world. I think it’s a red herring. I think it’s propaganda to bring people to the negotiating table.”
Wesbury served on Capitol Hill during the last partial government shutdown. He says there are two main differences that help conservatives this time around. First, he says a much greater number of media outlets helps to balance the coverage.
“The only cable news network at that time was CNN. We now have Fox News that was started in the middle of 1996. There’s also a very big internet presence and Twitter. As a result, the news that gets out is kind of all across the political spectrum rather than focused in one area,” said Wesbury, who says the second big difference is the Tea Party movement which is a thorn in the side of both parties.
“They’re mad at Republicans too. It’s not just Democrats. They’re mad at Republicans because the last time Republicans controlled the House, the Senate and the White House between 2003-2007, they spent. They put in new government programs and they ran up the deficit,” said Wesbury, noting GOP approval of the Medicare expansion for prescription drug coverage, No Child Left Behind and other big government programs.
“All of those things, that’s the reason for the Tea Party. There’s this third group now, which makes this even more complicated,” said Wesbury. “They’re saying, ‘We want to stop this now. This is the time. Let’s do it.’ And that’s how the battle lines are being drawn.”
