A DISREGARD FOR SERVING THE PUBLIC: THE UNITED STATES GOVERNMENT AT WORK

Editor’s note: A recent reader to my blog asked: I’m interested in your perspective on the recent government stalemate regarding the debt ceiling. Is this a total disregard for serving the public or rather two sides that are firmly looking to serve their constituents? Your book addresses how to reconcile the seemingly different objectives of pursuing revenue and customer satisfaction. How would you apply the same thinking to this problem?” My response follows.

The debt of the United States is currently in excess of $20 trillion or about 117% greater than the nation’s annual economic output or GDP. Thirty years ago, in contrast, the ratio of debt to GDP hovered around 50%. Roughly two-thirds of the current debt total represents IOU’s – Treasury bills, bonds or notes – held by you and me as taxpayers and so we have a perfect right to be antsy about when or whether we’ll get paid back. 

The debt ceiling referenced by the reader is financially troubling for the nation. Each U.S. taxpayer now carries approximately $154,000 of national debt on his back. This is roughly twice the debt-load citizens carried when President Obama came to power. That administration was all about spending, driving total debt from around $10 trillion – or about 67% of GDP – to in excess of $20 trillion, while stifling GDP growth by enacting endless regulatory roadblocks, and raising taxes. It is no wonder that the nation’s average annual growth rate of 2% was the slowest in almost a generation. You don’t have to be an economist to conclude that our nation’s lot has not improved over the last ten years or so and it can be argued, quite convincingly, that it is twice as worse off.

Political leaders in other countries, in contrast, have become more responsive to their citizens by coalescing around a national metric of financial prudence. Countries such as Switzerland, and Germany, have instituted “debt brakes” to keep spending within specified limits subject only to emergency conditions. Others, notably Poland, have constitutionally mandated debt-to-GDP ratios.

Our political system lacks a unifying principle or metric, other than the vague aspiration of serving the public and providing for the “common good” to guide the actions of elected officials. The upshot of such ambiguity is that if in our wildest dreams we could imagine a Congress populated largely by selfless public servants the lack of a concrete metric to gauge the so-called common good would still lead to endless divisions and debates. Clearly, if a metric lacks clarity prescribing a course of action – never mind judging the merit of an action – is hardly an objective exercise.

The U.S. Congress, despite jawboning the matter for decades, has failed to set a similar objective standard of performance for which we as citizens can hold its members accountable – at least insofar as the nation’s debt management is concerned. It is little wonder that the debt ceiling is raised almost on cue every year. From 1980 to 2017, for instance, the debt ceiling was raised a total of 46 times. That’s 46 times in thirty-seven years. And, some years especially in the decades of the 1980’s and the 1990’s the debt ceiling was raised multiple times in a given year.

It is true, that a coterie of GOP senators has long argued for instituting spending cuts to offset debt limit increases but their enthusiasm for such an initiative has never been shared by the big spenders across the aisle. And, so the hobos dance around the barrel fire while taxpayers endure an eroding standard of living.

In business, the debate nowadays is less about revenue performance – or more correctly, earnings performance – versus customer satisfaction. That debate, in principle, has largely been reconciled although, in truth, much lip service still surrounds the need to serve customers with avidity. Executive leaders are now nearly unified in their belief – if not in their actions – that a satisfied customer is a most desirable long-term corporate objective.

The battles that now rage are more tactical and center mostly around the planning horizon over which the benefit of achieving high customer satisfaction ratings should be measured. Most executive leaders, unfortunately, are still of a mind that undertaking initiatives on behalf of the customer are fine if the benefit of such initiatives can be seen on the bottom line in the short term. This behavior, of course, is born of ingrained compensation schemes that reward executives for financial performance, this month, this quarter, this year. And, until such time as this myopic view of corporate performance is altered executives will flail in pursuit of sustainable competitive strategies while ironically lining their own pockets at the expense of shareholders.

THE DEBT CEILING DEBATE: A FINGER IN THE EYE OF THE U.S. TAXPAYER

In many ways, the hair-trigger reaction by Congress to raise the debt ceiling as spending nudges ever upward has much to do with voting constituencies that are not willing to give up any benefits that come their way. Keep in mind that roughly 65% of all federal spending goes for mandatory programs such as Social Security and Medicare so there is little Congress can do in these areas without undertaking major and radical changes. Approximately 6% goes to service the federal debt – a ratio which is apt to explode if interest rates return to historical averages. This leaves a not inconsiderable 29% of roughly $4 trillion in spending for discretionary items such as national defense, and education. It is the magnitude of the discretionary budget that gives rise to the spending jamboree which citizens witness each year as Congress kows to one political expediency or another. If that weren’t the case members of Congress would soon develop a stiff backbone and they would get serious about adopting a more prudent fiscal policy. 

The behavior of politicians in the debt ceiling debate has been nothing more than political theatre and posturing. In the process, nothing much gets done. And, until unifying principles emerge that can rally a bi-partisan Congress to satisfy the will of the people in this regard the stalemate over the debt ceiling will continue to constitute a finger in the eye of the U.S. taxpayer. If there is a positive to the endless debates about the debt ceiling, however, is that it shines a light on the seriousness of our nation’s financial mismanagement by those in Washington.

Management Advisor

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