What Is Fiscal Sustainability?
When people introduce a new meme into politics, their standard operating procedure is often to just start talking about some label, say that it's a problem, make various dire predictions, and then keep writing more and more screeds to try to get everyone else to think that it's a problem. The meme or label used in campaigns like this is value loaded in some way, and the label often has little to do with what the writer is talking about, because the label is rarely explicitly defined and journalists, pundits, or commentators think it's very pedantic and academic to start talking about definitions. Pretty soon after a process like this gets going, there's very little connection between a label and what is being talked about under that label. So it is with fiscal sustainability.
In the past few months there's been a lot of talk about “fiscal sustainability,” and also an assumption that we all know what this means. It refers, of course, to: the annual Federal Deficit (the gap between Federal Spending and Federal Tax Revenues), the public National Debt (the accumulated inflation adjusted sum of deficits and surpluses since the inception of the Republic), and the debt held by the public to GDP ratio. People who write about this then, see things this way: continuing and growing deficits are a sign that fiscal sustainability is going down; continuing and growing increases in the national debt are a sign that fiscal sustainability is going down; and an increasing debt-to-GDP ratio is a sign that fiscal sustainability is going down.
But what is Fiscal Sustainability? Is it really about deficits, national debts, and debt-to-GDP ratios? Well, that depends on what we mean, or at least ought to mean by that phrase. In another post, I pointed out that:
”Fiscal situation” ought to be taken to refer to Government spending and its impact on the economy as a whole, including the private sector and the international environment. Why? Because isn’t our interest in the value, both positive and negative, produced by Government spending, and isn’t the public purpose of Government to do the best it can to produce positive value and to both minimize certain negative consequences and completely avoid those consequences that are entirely unacceptable?”
And then I defined “fiscal sustainability” this way:
”Fiscal sustainability” is the extent to which patterns of Government spending do not undermine the capability of the Government to continue to spend to achieve its public purposes.”
This definition can be consistent with worries about deficits, debts, and debt-to-GDP ratios; but only if the Government's ability to spend is operationally limited by its ability to tax or to borrow. If it could not tax or could not borrow any additional money to use to increase spending to accomplish its public purposes, then it would be true that any short-term increase in spending that outran its ability to gather revenues over time would be "fiscally unsustainable."
On the other hand, however, if a Government's ability to spend isn't dependent on its ability to borrow or tax, then these debt-related indicators of fiscal sustainability aren't valid any more, because they no longer measure it. We then need new measures. So, in the United States today, is the Government's ability to spend dependent on its ability to tax or to borrow? If not, what is it dependent upon? If not, is the Peterson Foundation and the Administration making much ado about nothing? Are they focused on a non-problem, a distraction? Are they preparing legislation to cut Social Security and Medicare, entitlements, as they call them, out of a mere confusion, an error in their understanding about how the Government actually spends money? More generally, is their whole orientation to any new legislation that involves considerable Government spending based on a misunderstanding about the ability of the Government to spend?
These are some of the questions that will be addressed at the Fiscal Sustainability Teach-In Counter-Conference to be held on April 28th in Washington, DC at the George Washington University. Don't miss the Teach-In Counter-Conference. Help us make it a success. Follow-up afterwards by watching the youtubes and the documentary therealnews.com will be making about the event, and by organizing fiscal sustainability teach-ins in your community.
Carry the anti-deficit hawk message of the event. We. Are. Not. Running. Out. Of. Money. The. Money. Was. There. All. Along. The. Money. Is. There. Now. The. Money. Will. Be. There. Tomorrow.
Let's make this the start of a movement that sweeps Peterson and the deficit hawks aside, and that forces this Administration to end the recession and rebuild our nation. Here's the event web site with all kinds of information about it, our speakers, the issues being addressed, press releases, schedules, location, associated blogs and so on.