CED-遏制大规模公共债务（英文）-2021.5-14正式版

SUSTAININGCAPITALISM

Aseriesfocusedon

nonpartisanreasonedsolutions

inthenation’sinteresttothe

centralchallengeswefacein

ordertoprovideprosperityfor

allAmericans.

CEDFISCALHEALTHSOLUTIONSBRIEF

ContainingthePandemicPublicDebt

Inearly2020,theCOVID-19pandemicpresentedtheentireworldwithitsworstpublichealththreatinatleastacentury.Thepreciseseriousnessofthepandemic,ofcourse,couldnotbeknownattheoutset;andinfact,thepandemicisnotyetvanquishedasthisstatementiswritten.Theextentofthedamagethevirusanditsmutationswillultimatelycauseisnotyetfullyknown.Butthenear-miraculouseffortstodevelopvaccines,containtheinfection,andtreattheinfectedprovidemuch-neededhopethatareturnto“normal”isnotoutofreach.

Thepandemichadeconomicconsequencesaswell.Andlikethepublichealthimpact,theshocktotheeconomywaslargebutimpossibletoassessaccuratelyatitsoutset.Andlikethedamagetopublichealth,theeconomicfalloutisstillimpossibletoassesstodaywithcompleteaccuracy.Forthefirsttimein100years,stay-at-homeorderstoprotectthepublichealthspurredaneconomicdownturnanddramaticjoblosses—leavingawideswathofbusinessesinhospitality,travel,leisure,dining,andretailnearlyshutdown,withentireoccupations,suchaspersonalserviceworkers,facingextendedlayoffsorevenpermanentjobloss.Thefatesofthesebusinessesandworkersareunpredictable,dependingontheuncertaincourseofthepandemicitself.

Anothersimilaritybetweenthepublichealthandtheeconomicthreatsisthatprudentpublicpolicyrequiredstrongandimmediateresponses.Withtheultimateextentofthedamageunknownbutpotentiallycatastrophic,executiveandcongressionalpolicymakersdeemed

itessentialthatgovernmentreactswiftlyandrobustly.Policymakersandcommentatorsrepeatedoftenthatthenationshoulderronthesideofaction—thatitwouldbebettertodotoomuchratherthantoolittle.

Althoughthepublichealthresponseisvigorouslydebated,theeconomyhasrecoveredmorequicklyandenergeticallythanmostforecastersanticipated,andthemagnitudeofthepolicyresponsehasbeencreditedbysomeforthatwelcomeoutcome.

Thereisanotherpotentialanalogybetweenremediesforhealthortheeconomy.Strongtreatments(andofcoursemajorsurgeries)fordangerousdiseasescommonlyentaileitherthecertaintyortheriskofserioussideeffects.(Chemotherapyforcancerisjustoneobviousexample.)Theimperativeforthetreatmentdoesnotobviate

thesideeffects.Medicalpersonnelmustremainvigilantforlingeringproblemsandpreparedtocounteractthem.

Thesameistruefortheeconomicpolicyresponsesforthepandemicdownturn.Policymakershaveemployedextremeremedies,includingenormousincreasesinspending,thatarewithoutprecedentinpeacetime.Theresultingbudgetdeficitshaveforcedasubstantialincreaseinborrowingandpublicdebt.Likechemotherapyoranyotherextrememedicalremedy,thefactthatreliefandstimulusspendingisnecessarydoesnotmakeitbenignforalltime.Thedebtwillhaveconsequences,andthoseconse-quencesmustbeaddressed.

Eventhoughtheeconomyisstillfindingitsfeetandthevirushasnotbeendefeated,itisbynomeanstooearlytostateournation’sresolvetoaddresstheproblemingoodtimeandformulateaplan.Infact,anassurancethatthedebtbuildupwillnotbeallowedtogrowoutofhandwillgivecontinuingconfidencetofinancialmarketsandgreatlysimplifytheformationofmonetarypolicyinthecomingmonthsandyears.Thenationhastoooftensufferedinrecentdecadesfromcavalieranalysesofandapproachestoimportantpublicpolicyproblems.Thisimpendingbuildupofenormouspublicdebtcannotbecomeanotheroccasionforcasualpolicymaking,orworsestill,ignoringtheissueentirely.Thefollowingbriefassessesthesituation,considerstheoptions,andformulatesaplantosetthenation’sfinancesonasustainablecourseforthefuture.

Beforethepandemic:amassivelydeterioratingoutlookforpublicdebt

EvenbeforeCOVID-19struck,theUnitedStateshadaseriouspublicdebtproblem.Thisproblemhadrootsbacktotheearly1980sbutseemedtohavebeenconquered.Asrecentlyastheyear2000,usingtheconsistentmethodologyoftheCongressionalBudgetOffice(CBO)baseline(whichassumesnochangesinpolicy),thefederalgovernmentwasprojectedtohavepaidoffthepublicdebt1inthedecadeofthe2000sandthenremainnet-debt-freeforalmosthalfacentury(asthechartbelowillustrates).2

However,by2007,justbeforethefinancialcrisis,theprojectionhaddeteriorated(seebluelineinChart1).Thefederalgovernmentwasnolongerprojectedtoeverpayoffthedebt,whichhaddoubledsince1980,anddebtwasexpectedtoreturnto50percentofGDPby2050.Thefinancialcrisisof2008worsenedeventhatdismaloutlook.IntheCBO’s2019projection(orangeline),thepublicdebtin2049(thelastyearincludedinthatforecast)wasprojectedtoreach144percentofGDP.Thiswasachillingprospect,andmorethanone-thirdovertheprevioushighof106percentofGDPatWorldWarII’send.

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Chart1

Thepublicdebtoutlookhasdeterioratedmassively

Debtheldbythepublic,percentofGDP

200

CurrentProjection

150

100

Projectionasof2019

50

Projectionasof2007

0

Actual

Projectionasof2000

-50

1946

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2000

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Source:TheConferenceBoard

Thus,evenbeforethepandemichit,thedebtwasprojectedtogainenormousleverageoverthefederalgovernment’sfinances.At5.7percentofGDPby2049,thefederalgovernment’sinterestbillwouldalreadybemorethantriplewhatitwasin2019,andinterestratescouldeasilyrisehigherinthefaceofsuchamassiveincreaseinthefederalgovernment’ssupplyofdebtandincreasedebtservicecostsstillfurther.3Interestcostswouldcrowdoutpublicspendingoninfrastructure,research,andeducationessentialforeconomicgrowth,whilethefederalgovernment’sborrowingwouldcrowdoutprivateinvestmentaswell.Therewouldbelittlebudgetaryflexibilitytodealwithanyfuturecontingencies.

Thedevastatingimpactofthepandemic

Howeverdismalthepublicdebtoutlookwasininfirstdaysof2020,theCOVID-19pandemichaswreakedtruehavoconthefederalbudget.Theimpactistwofold:1)thedeclineinrevenuesandincreaseinspendingwhichwouldhaveoccurredwithoutanyfederalactiontoreversetheeconomicdownturn;and2)theadditionalspendingincreasesandtaxcutsincurredtohelptheeconomyreboundandcushionthehitonthemillionsofAmericanswhoselivelihoodswereinterrupted.Thesetwoimpactsduetothepandemiccanbedefinedasthe“pandemicdebt.”

Initscurrentprojection(redlineinChart1),CBOseesthepublicdebtrisingto202percentofGDPin2051.Thatisalmostdoublethepreviousrecord,andagain,morethanone-thirdoverwhatwasanticipatedjusttwoyearsagobeforethepandemic.Thefederalgovernment’sprojectedinterestbillisproportionatelylargerthantheprevious

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projection,andnowstandsat8.6percentofGDP.Thatisalmostonedollaroutofeverytwodollarsoffederalrevenues(whichCBOprojectsat18.5percentofGDPin2051).Theaverageeffectiveinterestrateonthepublicdebtisassumedtobebarelyhigherthanitwasinthepreviousprojections,atlessthan4.3percent.Butthisassumptioncouldprovehighlyoptimistic:historicalpatternsindicatethattheinterest“bill”couldbemuch,muchlarger—tomuchworseeffectonthenation.

Whatisatrisk

Thelong-runoutcomesthatCBOprojectsareallbutunthinkable.TheonlyprecedentthatapproximatesthisoutlookisthepublicdebtattheendofWorldWarII,butthatsituationwasfundamentallydifferent.Atthattime,thenationhadbuiltenormousproductivecapacitywhiletherestofthedevelopedworldwasflattened;thetroopswerecominghomeandlookingforjobs;andforthevastmajorityofhouseholds,balancesheetswererobustfromfullwartimeemploymentandconsumptionconstrainedbecauseofrationing.TheUSeconomywaspoisedforaneconomicboomthatwouldquicklyworkoffthepublicdebtburden.Today,instarkcontrast,theglobaleconomyisintenselycompetitive.TheUSworkforceisrapidlyagingintoretirement,andalthoughsomehouseholdshavebenefitedhandsomelyfromaliquidity-drivenstockmarketboom,manyhavereducedincomesandsubstantialdebt.AstheCBOprojectionsindicate,theoutlookisforaburgeoningdebtburdenforasfarastheeyecansee,withthedebtgrowingfarfasterthantheeconomy.Thereisabsolutelynoreliefinsight.

Thisgrowingdebtburdenmayverywellbetherootcauseofawastingdiseasefortheeconomy.TheUSeconomyisalreadylabor-constrainedbecauseofthepreordainedandunalterabledemographicpressureofpopulationaging.4Offsettingthatconstraintwithcapitalinvestmentforimprovedproductivityandexpandedcapacityistheonlyrealisticwayout.5Butaddingmassivelytothepublicdebtwillreducethefinancingavailableforprivateinvestment:ifthenation’sownsavingoritsborrowingfromoverseasareatallconstrained—andthemoreborrowingbytheUnitedStatesandothernations,thehigherinterestrateswillbecome—thenthegreaterthediscouragementofprivateinvestment.

Atthesametime,greaterinterestcostswillcrowdoutallotherfederalgovernmentoutlays(includinggrantstostatesandlocalities),therebyreducingproductiveinvest-mentsineducation,infrastructure,andresearch(aswellasnationalsecurity,theruleoflaw,benefitstotheelderlyandotherdependentpopulations,andquality-of-lifespendingfortheenvironmentandcivilsociety,amongotherpurposes).Thus,whileraisingthecostofprivateinvestment,thedebtdiseasewillreducecomplementarypublicinvestmentaswell.ThosewhochoosetoignoretheproblemandtrustinAmericaningenuitytoaccel-erateproductivitygrowthandbailusoutofdebtmustunderstandthatthedeteriorationofthefederalbudgetistheveryenemyofproductivityandcannotcontinueindefinitely.

Thus,themassiveincreaseindebtwillcondemnfuturegenerationstolowereconomicgrowthandlowerstandardsofliving.Highertaxeswillbeessentialtopaytheinterestonthedebt—whichistheonecategoryofgovernmentspendingthattrulyqualifiesas“mandatory.”Ournation’schildrenandtheirchildrenwillbetheinevitablevictimsofthisgeneration’sfailuretoconfrontreality.

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Andlikeallwastingdiseases,thisbudgetdeterioration,ifuntreated,willsomedaytakeasuddenturnfortheworse.WheninvestorsbegintosenseadecreasingwillingnessorabilityoftheUStaxpayertofundanexponentiallyrisingdebt-servicebill,theywilldemandhigherinterestrates.HigherinterestrateswilldegradeUSprosperity,livingstandards,andworldleadership.Higherrateswillsqueezebothprivateandpublicinvestmenteventighter,reduceeconomicgrowthfurther,andthusbothincreasethecostofservicingthedebtanddecreasethenation’scollectiveincomeoutofwhichthatdebtmustbeserviced.Analreadyimpossibleoutlookwillbecome,somehow,evenworse.Thisdeteriorationmightnotcomesoon.Itmightnotbecataclysmicbutratherjustanincreaseininterestratesabovetheanticipatedtrend.Butwiththedebt-serviceburdenalreadyprojectedtodrainbothpublicandprivateinvestmentenormously,anyworseningwillbepainful.

Furtheractiontorevivetoday’seconomymaywellbejustified(dependingonbotheconomicandpublichealthdevelopments).However,theextraordinarypandemicincrementtothepublicdebt,ontopofthealreadyextraordinarydebtthatpredatedandthengrewbecauseofthefinancialcrisis,willhaveconsequencesthatmustbeaddressedifUSprosperityandworldleadershiparetobemaintained.Notably,theUnitedStatesenjoyedconsistentlylowinflationandlowinterestratesforalmostadecadeandahalf,fromtheearly1950sthroughthemid-1960s—until(notewell)—adeficitanddebtbingefrightenedthefinancialmarkets.Thesamecouldeasilyhappenagain.Orlookingontheothersideofthecoin,tobetUSleadershipandprosperityonthepropositionthatinterestratesandinflationwillneverriseagainissurelytheheightoffolly.6

Whatshouldthenationdo?

Takentogether,thedebtaccumulatedbeforethepandemicandthemassiveincrementinresponsetoitaredaunting.Somuchso,infact,thatpolicymakerswouldmostlikely(basedonrecentdecadesofexperience)recoilfromeventouchingtheproblem.Whyevenattemptanincrementalimprovementwhenitappearsimpossibletoachieveacompletesolution?Therewouldmostlikelybenopoliticalcreditfortrying,onlyblameforfailing.

However,thefollowingapproachtothisproblemcouldmaximizethechancesofactionandwouldmakethatactionasmanageableassuchpainfulactioncanbe.

Thepandemicdebt

Ratherthanagglomeratingthemassive,combineddebtandcoweringbeforeitsimposingsize,theproblemcanbesegmented.Firstandforemost,policymakersshouldstartbytackling“thepandemicdebt”:1)theincrementtothedebtarisingfromthelossofrevenueandincreasesinspendingthatwouldhaveresultedfromthepandemic(evenwithoutthefederalgovernment’spolicyresponse);and2)thecostofthatpolicyresponse.(Afterthepandemicdebtisundercontrol,thenationstillwillneedtoaddressitsprepandemicdebtproblem,aswewilldiscussbelow.)

Theamountofthepandemicdebtsodefinedwillbesubjecttojudgment,andcannotbeknownyetinanyevent,becausethepublichealthandconsequenteconomiccrisesarenotyetover.However,thereisreasontohopethatwithaneconomicreboundandthenation’svaccinationprogrambothwellunderway,itmaybepossibletoclosethebookon

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thebudgetaryimpactofthepandemicintheforeseeablefuture.Atthecurrentpaceofvaccinations,70percentofAmericanswillhaveatleastoneinjectionbythefirstofJuly,allofthosecouldbefullyvaccinatedlessthanonemonthlater,andmorepersonswillhavetheregimenbegunbythattime.7Thatcouldachievewhatsomeexpertsbelievewillbeeffective“herdimmunity,”atwhichtimetherateofnewinfectionsshouldbegintorecede.(Uncertaintyaroundtheattainmentof“herdimmunity”remains,especiallyastheviruscontinuestoreplicateandmutateintheUnitedStatesandaroundtheworld,andsomeAmericansexhibitanunfortunatedegreeof“vaccinehesitancy”).

Whyisolate,andthenaddress,thepandemicdebt?Itisadefinableanddoablefirststepinaddressingthetotalityofthedebtandaclearindicationofresponsibleintenttoothernationsandfinancialmarketsaroundtheworld.ThisstepwouldbehighlybeneficialfortheUSeconomy.IftheUnitedStatesdemonstratesitcanmanagetheadditionaldebtresponsiblyandaffordably,thenthedebtmarketswillbemorewillingtofinancefutureissuesofpublicdebtwhilealsomaintainingthestabilityandconfidenceneededtocontinueprivaterisktakingandinvestment.Andpolicymakerscanbemoreconfidentinundertakingfurtheressentialrecoveryexpenditures,ifnecessary.

Furthermore,therecoveryefforthasnoconnectiontotheeverydayactivitiesofgovernment.Whenthepandemicisover,thatspendingwillend.Ifthefederalgovernmenthadaspecificplantomanagethisextraordinaryone-timeexpense,financingitinthemarketswouldbemucheasier.Therefore,itmakesperfectsensetosegregatethefinancingofthisdebtfromnormalgovernmentfinancesandcreateafullydedicatedmechanismtopayforit.

Finally,thisfirststepwouldbeunderstandableandmanageable.TheUSpublicdebtasawholeissubjecttoenormousuncertainty.Futurerevenuesarepredicableonlywithconsiderablemarginforerror;thesameistrueofoutlaysforentitlementsandnationalcontingencies.Theseoutcomestheninfluencetheinterestratesatwhichweserviceourpre-existingdebtandournewdeficits;thoseinterestratesarefurtherdrivenbyfinancialdevelopmentsallaroundtheworld.Thus,theoverallbudgetbottomline,andthedebt,arealmostamatterofspeculation.Incontrast,althoughitisasomewhatarbitraryconcept,thepandemicdebtincrementcanbedefinedonceandforallafterviralinfec-tionstailoff,andtheeconomycanbuildonthatstablefoundation.(Interestratesatwhichthepandemicdebtisfinancedcanalsobesetforthelongterm,whichisdiscussedlater.)Thetotaldebtisanerraticallymovingtarget;thepandemicdebtisaveritablesittingduck.Asafirststeptowardreestablishingthenation’sfiscalresponsibility,attackingthepandemicdebtisfarmoreachievable.

Whatisthelikelyeventualsizeofthepandemicdebt?

Congresshasenactedsixpiecesoflegislationasreliefandstimulusresponsestothecoronaviruspandemicwithbipartisansupport(exceptforthemostrecent$1.9trillionbill,whichwasmorecontroversialregardingtheprogramsincluded)butincludednooffsettingspendingcutsortaxincreases.Thecombinedcostofthosesixbillsis$5.335trillion.8Thatamountwouldfitwithinourdefinitionofthepandemicdebt.

Theadministrationhasproposedordiscussedtwoadditionallegislativepackages,the“AmericanJobsPlan”9andthe“AmericanFamiliesPlan.”10Theconnectionofthesebills

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tothepandemicdebtislessclear.Theadministration’sowndiscussionoftheAmericanJobsPlanhasindicateditisgenerallydirectedtowardproblemsthatpredatedthepandemic—problemsthepandemicrevealedratherthancreated.Theself-describedpurposeoftheplanistomaketheeconomygrowfasterinthefuture,nottoaddresslossesofoutputcausedbythepandemic.Perhapsreinforcingthisdescription,theeight-year,one-timeincreasesinspendingintheAmericanJobsPlanareproposedtobepaidforwithpermanenttaxincreasesover15years.TheAmericanFamiliesPlanisidenticalintheserespectstotheAmericanJobsPlan.Assumingthatanylegislationenactedfollowsalongtheselines,itsspendingwouldnotbeappropriatelyincludedunderourconceptofpandemicdebt.Anyotherfuturelegislationwouldneedtobeevaluatedbythesamestandards.

ThechangesintheCBO’seconomicandbudgetprojectionssinceearly2020increasetheprojectedpublicdebtby$1.3trillionthrough2025,bywhichtimeCBOanticipatesthattheunemploymentratewillhavedeclinedto4percent,whichisareasonabledefinitionofeconomicrecovery(thoughmanyAmericanswillstillbesufferinglossesofincomeandwealthatthattime).Addingthattothelegislationpassedtodateindicatesthatareasonabledefinitionofthepandemicincrementtothepublicdebtwouldbe(inroundnumbers)$6.5trillion.

Financingandattackingthepandemicdebt

Howcanthenationborrowthatmuchmoneyontopofthealreadydauntingriseinpublicdebt?AndhowcantheTreasuryservicethatdebt—thatis,paytheinterestonit,andredeemitwhendue?

ThenovelcoronavirusoutbreakandthepublicpolicyresponseareofascaleunknowntoanylivingAmerican.IthasgonefarbeyondSARSandMERSandtheannualfluinitscombinationofcommunicabilityandvirulence.11Ithasbeendescribedasa“once-in-a-lifetimepathogen.”Forthisreason,itwouldmakeperfectsensetofinancetheextraordinaryrecoveryeffortsoveralifetimeperiod.

Interestratesareverylow,andthefinancialmarketshaveshownthemselveswillingtoconsiderverylong-termsecurities.Thereismerittoconsolidatingallofthepandemicdebtinasingleseparatefinancialentity(probablyorganizedasapubliccorporation)andfinancingitwithfixed-ratebondswitha40-orevena50-yearmaturity(orevenlongerifthemarketswillacceptit)—longerthanthe30-yearTreasurybondsthatarethelongestthefederalgovernmentsellstoday.

Proposalsto“refinancethenationaldebt”usingexclusively,orlargely,very-long-termsecuritiesto“lockin”historicallylowratesarenotwellfounded.Foronething,investorsinthefinancialmarketswantarangeofmaturities.SomeinvestorsinTreasurysecuritieswantasafe,long-termreturnontheirmoney,butothersarelookingforsecurityalongwiththeopportunitytoreallocatetheirfundsjustafewyears—orevenafewmonths—downtheroad.TheTreasurycannotforce-feedthemarketswithlong-termbondsthatitdoesnotwanttobuy—withoutpayingalargepremiumoninterestratestoconvinceinvestorstochangetheirminds.12Andforthatmatter,yieldsonlonger-termsecuritiestodayaremuchhigherthanthoseonshortermaturities;asofthesecondquarterof2021,three-monthTreasurybillsyieldclosetozero,but30-yearTreasurybondsyieldcloseto

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2.5percent.Thus,goingall-inonlengtheningTreasurymaturitieswouldcarryaverylargeshort-termcostonabetthatrateswillrisesignificantlyinthenot-too-distantfuture.Thatbetcouldproveexpensive.

However,thereisadifferentpurposeinfinancingthepandemicdebtwithvery-long-termsecurities.Thisportionofthedebt—nottheentirepublicdebt—hasbeenincurredtoaddressaonce-in-a-lifetimecontingencyandwouldbeappropriatelyfinancedoverasimilarlylongtimehorizon.Weseeapublicvalueinlockinginthecostoversuchatimehorizontoprovidecertaintythattheobligationhasbeenaddressed.Thatverycertaintyisapublicvalue;itisthatverycertaintythatwebelievewillreassureandthereforestabilizefinancialmarketsandallowUSbusinesstoundertakerisks,invest,andgrow.Thus,financingthepandemicdebtlendsitselftouniformlong-termfinancinginawaythatthetotalpublicdebtdoesnot.

Furthermore,otherthanintheirmaturity,thesebondsshouldbeidenticaltoallotherUSTreasurybonds.TreasuryfinancingisatthelowestpossibleratesinpartbecauseallTreasurysecuritiesareidenticalandinterchangeable,makingthemarketdeepandefficient.InvestorsknowthattherewillbeactivetradinginTreasurysecuritiesofanygiveneffectivematurityshouldtheyeverneedtosell.Tocarrythatadvantagetothefinancingofthepandemicdebt,thebondsissuedforthatpurposeshould,10or20yearshence,beinterchangeablewithnew,long-termTreasurybondswiththesamematurityissuedatthattime.

Whatwouldthatmeanindollarterms?Theestimateofthepandemicdebt,asdefinedinthisbrief,isabout$6.5trillion.At3.5percentrates,thatwouldincurinterestcostsofroughly$225billion,whichasof2025wouldbeabout1percentofGDP.Forcredibilitywiththefinancialmarkets—butonlyaftertheeconomyisfullyrecovered—thenationmustsetasidetheadditional,incrementalfundstopaythatinterestbilltoaccom-plishourcoreobjectiveoffinancingthepandemicdebtwithoutincreasingthetotalpublicdeficitordebt.

Thebillforpandemicdebtcanbepaid,effectivelyandcredibly,onlythroughtheimpositionofadedicatedtax.Theabilityofthepoliticalprocesstodeliverpromisedfuturespendingcutsissubjecttowell-deservedskepticisminthefinancialmarkets.Therearetwowell-knownepisodesthatdocumentthisconcern.In1997,Congresspassed,andthepresidentsigned,legislationthatwouldtriggerautomaticMedicarespendingcutsifthecostoftheprogramshouldexceedspecifiedlevels.13Spendinggrew,andtheautomaticspendingcutsweretriggered.Newlegislationwasthenpassedeachyeartopostponethecuts,evenunderapenaltyspecifiedinthelawthatwouldincreasethesizeofthespendingcutsinthenextyearbyacorrespondingamount.Eventually,inAprilof2015,theCongressendedthecharade,andthesupposedlyautomaticspendingcutswererepealedaltogether,withouteverhavingtakeneffect.

Similarly,asaconditionfortheenactmentofanincreaseinthedebtlimit,theCongresspassedandthepresidentsignedtheBudgetControlActof2011,whichcreatedaCongressionalJointSelectCommitteeonDeficitReduction(knowncommonlyasthe“supercommittee”)andchargeditwithachieving$1.5trillionoffuturedeficitreduction.Ifthesupercommitteefailedtosaveatleast$1.2trillion,thelawcalledforautomaticfuturereductionsinannuallyappropriated(alsoknownas“discretionary”)spending

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totaling$1.2trillion.Thesupercommitteefailedtoagreeonanysavings,14andthenthesupposedlyautomaticspendingcutsweresuspendedyearafteryearuntiltheyeventuallyexpiredwithouteverhavinghadanyeffect.

TheseexamplesillustratehoweasyitwouldbefortheCongresstoschedulefuturespendingcutsbutthenfailtofollowthroughorperhapsevencutspendingforoneprogrambutthenturnaroundandincreasespendingforanother,tozeronetbudgetaryeffect.Themereappearanceofsleightofhandwouldbeenoughtodestroytheconfi-denceandcredibilityinfinancialmarketsessentialforultimatesuccess—meaningfinancialstability,risktaking,andinvestment.

Changestorevenuescouldeasilybesubjecttosimilarnonfeasanceormanipulation.Promisesoffuturerevenueincreaseswouldhavenomorecredibilitythanpromisesoffuturespendingcuts.Withtaxlawchanges—includingtaxcuts—occurringvirtuallyeveryyear,anincreaseinonetaxthatmightnominallybededicatedtothedebtcouldbelostthroughothertaxcuts,atthesametimeorshortlythereafter.Allgoodintentionscouldbelostinthefungibilityofmoney.Inthebestofallworlds,policymakerswouldfaceuptothedebtproblemanddealwithitinacomprehensiveway.Inthisworld,however,seeingnosuchaction,extraordinarymeansthatisolatethedebtanditsfinancingareneededtoprovidemaximumpublictransparencyandscrutiny.

Therearenumerouscurrentproposalsfortaxincreases(tofinanceadditionalspendingprogramsandsomeothertaxcuts).Importantly,whilethoseproposalsaremerelythat—proposals—thepandemi