It's hard to keep up with the drumbeat of bad economic news these days. Attention has been focused on the debt ceiling debate, and for good reason. No one knows exactly how long the U.S. can finagle the accounting system so that it can continue to borrow absent a deal. No one knows when the rating agencies will finally make good on their warnings to downgrade the federal government’s credit unless Washington makes serious changes to its trajectory of runaway spending and debt accumulation. And no one knows exactly what that downgrade will mean for the United States, and even the world, economy.
Yet there's more disturbing news than just the debt ceiling debate. Our already anemic economic growth is slowing again, sending warning signs that we may be slipping back toward an actual recession. Rather than a rebounding job market, the unemployment rate is once again ticking up. And this increasing rate of unemployment comes despite the steady flow of workers exiting the labor force, giving up on looking for work entirely.
Many lament Washington's reaction to these terrifying economic signals. Washington's struggle to agree on a debt limit increase pales in comparison to its more frightening inability to confront the more fundamental problem of government's bloat and long-term crushing debt. Increasing the debt limit and trimming future spending increases isn't even a band-aid for what ails us. A debt ceiling increase may be necessary, but it shouldn't be an excuse to continue business as usual.
While the media reports the potential credit-downgrade as a consequences of our failure to adequately raise the debt limit, rating agencies have been warning of a potential downgrade long before the debt ceiling became the issue. It's the underlying runaway debt—not the debt limit—that drives uncertainty about America's long-term ability to pay creditors and general economic prospects.
Congress's reluctance to make even modest changes in future outlays suggests that the American system is incapable of contemplating the kinds of meaningful reforms—real changes to our entitlement programs and cuts to bloated agency budgets—that are unavoidable if we are serious about getting our fiscal house in order.
Yet it's not just our federal government that seems unaware that this economic crisis requires new thinking, not just business-as-usual. One might assume that state governments at least would be looking for ways to reduce burdens on employers in order to facilitate job creation. Yet many states are instead crafting new burdens to put on business.