Thursday, May 5, 2011

What It Would Take for the Governmnet to Live Within Its Means

A great analysis is out by economist Robert Murphy on the current discussion surrounding the debt ceiling. He  does the calculations,explains an alternative to raising the debt ceiling and calls out Treasury Secretary Geithner's phony charge that not raising the debt ceiling will result in default by the U.S, government. He writes:

There is more than enough revenue flowing into federal coffers to maintain interest payments on the existing debt. Geithner and others continually conflate "failure to raise the debt ceiling" with "default on Treasury debt," but those are distinct things

[In addition] it would take about $750 billion in spending cuts for the remainder of this fiscal year (which ends September 30) for the government to live within its means — that is, to spend only incoming tax receipts without having to go deeper into debt. That's a huge sum of money, but then again the government's expenditures have grown tremendously in the past few years. If the government simply returned to 2003 spending levels, then Geithner wouldn't need to issue more debt, and he wouldn't have to default on existing obligations.
Murphy also explains that there is a way to maintain the current debt ceiling without cutting spending for the current fiscal year:
In all the hoopla over the debt ceiling, I haven't heard many people raise the point that the government has a huge collection of assets that could be sold to the private sector. This would cushion the blow and make the transition easier. In other words, if people say that $750 billion in spending cuts (between now and September 30) is simply "impossible," then we still don't have to either borrow more or raise taxes. We have another option: namely, the federal government could auction off some of its holdings and fill the gap that way.

For example, the Strategic Petroleum Reserve (as of late November) had almost 727 million barrels of crude oil. At current market prices, this inventory is worth more than $80 billion. The Outer Continental Shelf (OCS) contains an estimated 59 billion barrels of technically recoverable crude oil. Obviously, a barrel of oil in the hand is worth more than one under the sea floor, but clearly the federal government could raise huge sums of money by selling this property to the private sector.

In addition to mineral resources, the federal government has enormous holdings of real estate and office buildings. A Reason report quotes then-OMB Director Peter Orszag estimating in 2010 that the federal government owned 14,000 buildings and structures that were "excess" and 55,000 that were "under- or not-utilized."


  1. this assumes they want to too which I have a sneaking suspicion they don't.