Epstein Suggests a Debt Limit Compromise

A ‘Debt Limit’ Compromise
Richard A. Epstein
Defining Ideas
July 19, 2011

Sometime soon, politicians in Washington DC will decide whether to lift the statutory limit on federal borrowing, the so-called ‘debt limit.’ In thinking about this monumental issue, it would be inappropriate to side completely with either the Democrats or the Republicans. The whole matter has careened so far out of control that the abundant blame for this unfortunate impasse has to be shared on both sides of the aisle.

Nonetheless, before assigning blame, it is best to chart the correct course of action. Here, the first question is not how to fund government expenditures, but what in principle is the proper size of the federal government? It is not sufficient to simply argue that government is either too large or too small. Rather, the challenge is to take each class of expenditures separately, in order to determine whether the last dollar spent on any particular area produces a gain that is greater than the next best use of those dollars. It could be the case, therefore, that the overall size of government is too large, even if certain types of expenditures are too low.

Thus, although there is constant pressure on both sides of the aisle to cut defense spending, it seems that the current four percent of gross domestic product spent on defense is too low for a nation that faces dire threats around the world. An expenditure cut could easily lead to dangerous confrontations, requiring the nation to ramp up its military strength at great cost and in a desperate hurry.

At the same time, the present inefficiencies in defense spending need prompt correction. The proper function of the defense establishment is to defend the United States. It is not to raise labor costs, which it does by allowing civilian employees to join unions or by insisting that defense contractors meet various affirmative action quotas. Price and quality of service are the only two factors that should determine how the Department of Defense spends its money. Thus cutting the budget on the civilian side might in fact lead to more efficient military operations.

Faculty: 
Richard A. Epstein