The Debt Downgrade is a Warning Shot and an Opportunity
First of all I don't have what you'd call a great deal of admiration for the intellect at the folks at S&P. The guys who, when paid enough, kept tripple A ratings on mortgage CDOs that were worthless. I also find their narrative complaining about the seeming inability of our political system to come to decision like it's parliamentary cousins elsewhere seems to ignore the fact that we have a completely different system of government. In a lot of ways the Constitution encourages checks and balances that make acting quickly on all but the most urgent of problems difficult (War, natural disaster etc).
That said, I am hoping the downgrade will be a spur to action for the country to act. S&P does have one good point-- finding a way to solve this problem isn't actually that difficult. The math is quite limited and there are only a few things that will either make a difference or are possible to change. I think we do need compromise from both sides hitting all the major issues. If I had my druthers, this is what we'd do.
Both Parties: Agree to cap all spending for all program (entitlements included) now. If we did this in four years, we'd have a balanced budget with 5-6 years.
Democrats:
- Medicare/other entitelments: Introduce means testing. If you are a billionaire you don't need your social security check or free medical care.
- Raise the eligibility age for these programs by 5 years to 70 years of age over the next decade or so.
- Introduce higher co pays to discourage
- Consider the initiatives in the Ryan plan. Many of these ideas in this plan were previously adopted by Democrats, let's adopt some.
- Review all wage tables for government employees. These jobs used to pay well below the private sector. These jobs have turned into fat cat meal tickets. Do a study, consider a 12-18% across the board cut in wages.
Republicans:
- Military spending, especially government contractors is WAY out of control. The budget needs to come down as well as stand down large scale nation building in Iraq and Afghanistan.
- Some short term spending on infrastructure makes sense. These projects can increase productivity and keep some short term support for the economy while debt comes down. Find some democratic programs to support like bridges, roads, and high speed rail. We also need to put in place laws that will allow for these projects to get past local right of way laws that have made things like high speed rail impossible.
- Energy independence. Basic research in next generation fuels makes sense. Beyond that though we could move our truck fleet to natural gas now.
- Tax reform with a far simpler code with less loopholes can generate revenue and spur growth.
After the 2012 election is too late to do any of these steps. The longer we wait the more extreme the policy prescription is going to have to be. The longer we try to keep these imbalances up, the more difficult the adjustment will be in the end. Better to take the pain now.
Originally posted here.
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