Fatal

It looks as if cooler heads will prevail (although one can never be certain) and the debt limit will be increased. This is, of course, no cause for celebration, but merely the expedient thing to do to avoid financial chaos created by the profligate spending of prior administrations and the truly irresponsible and downright dangerous spending of Barack Obama and his Democrat supporters. With a "negotiated deal", the president and the Washington elites will do what they always do—kick the can down the road just a little further to avoid making substantive decisions about spending and debt.

The current meme among Democrats is that this year's deficit is lower than projected. That's true, but the debt keeps growing. They fail to mention that the reason for a lower deficit is the hated sequester—a minor reduction of the increase in government spending mandated by law and proposed by Barack Obama himself (although you'd never know that listening to his trained media hamsters).

Glen Reynolds comments on our critical fiscal situation:

How bad has it gotten? In the past two years, the debt limit has grown twice as much as the economy. Can that go on forever? I doubt it very much.

As Niall Ferguson notes, while politicians crow that the deficit has dropped -- from super-enormous to merely really, really gigantic -- every year that we're in deficit adds to the debt. And the long-term trends are bad: "A very striking feature of the latest Congressional Budget Office report is how much worse it is than last year's. A year ago, the CBO's extended baseline series for the federal debt in public hands projected a figure of 52% of GDP by 2038. That figure has very nearly doubled to 100%. A year ago the debt was supposed to glide down to zero by the 2070s. This year's long-run projection for 2076 is above 200%. In this devastating reassessment, a crucial role is played here by the more realistic growth assumptions used this year."

Ah, yes. Growth. We've been pretty short of that over the last several years, as businesses -- even pro-Obama enterprises such as Google and Apple -- park increasing amounts of money overseas, unwilling to be subject not only to high U.S. taxes but, even worse, to the high levels of regulation of which Obamacare is only the most famous.

Of course, Obama and his supporters would have you believe that "everything is on the table." Yeah, right. In the five years of his presidency, Barack Obama has NOT proposed a single meaningful approach to spending reductions. Sure, he talks the talk, but when it comes to specifics, he's an empty suit. He has avoided entitlement reform as if it was the plague. He has created still another entitlement—Obamacare—that will increase our liabilities by trillions, and worse, if it goes as badly as it appears, that will be a best case scenario. We have a president and a party who believe debt can be managed via quantitative easing (i.e., printing money) and a nominated Fed chairperson, Janet Yellen, who is a proponent of that approach.

We were told that the government shutdown was a "draconian" approach to spending reduction. No ... actually, it's probably the only effective approach we have. In fact, I suspect that Obama and his supporters worry that the general public might just figure out that with the exception of attempts to maximize public discomfort, the shutdown has relatively little effect on the general public. And the government employees who are currently on paid vacation (oops, I mean furlough)? Millions of Americans in the private sector have been laid off over the past five years. Where is it written that real layoffs cannot occur at the federal level? Unfortunate, yes, but we have a serious spending problem, and reductions mean that a non-trivial number of federal jobs should be eliminated.

Reynolds comments further:

The big lesson of the shutdown is that -- in a time when so-called "draconian cuts" usually refer to mere decreases in the rate of growth of spending on programs -- America was able to do without all the "non-essential" government workers just fine. (The same AP poll cited above says that 80% have felt no impact from the shutdown; a majority also oppose increasing the debt limit.) Turns out that most of those nonessential workers really are non-essential. And it's a safe bet that some of those who stayed on the job -- like the National Park Service people who chased veterans away from an open-air memorial -- could be done without, too, in a pinch. Under the shutdown, new regulations also slowed to a trickle, suggesting that we can do just fine without those, too.

With these lessons learned, here's my budget proposal: An across-the-board cut of 5% in every government department's budget line. (You can't convince me -- and you'll certainly have a hard time convincing voters -- that there's not 5% waste to be found in any government program.) Then a five-year freeze at that level. Likewise, a one-year moratorium on new regulations, followed by strict limits on new regulatory action: Perhaps a rule that all new business regulations won't have the force of law until approved by Congress.

There is no company, no organization, no government that cannot absorb a across-the-board 5% reduction in spending—if it is managed effectively and cuts are designed to minimize effects on its customer, not maximize them (as the Obama administration has done). The medicine is bitter, but if we don't take it now, the disease the follows could very well be fatal.