chAPTeR eleven • The BuReAucRAcy 253
Independent
Regulatory Agency
An agency outside
the major executive
departments charged with
making and implementing
rules and regulations
within a specific area.Independent Regulatory Agencies
Typically, an independent regulatory agency is responsible for a specific type of public
policy. Its function is to make and implement rules and regulations in a particular sphere of
action to protect the public interest. The earliest such agency was the Interstate Commerce
Commission (ICC), which was established in 1887 when Americans began to seek someat issue
The federal spending budget is large relative to the
size of the economy. Each year, if spending exceeds rev-
enues, the federal government runs a deficit. That defi-
cit is added to the national debt. Every year for almost
half a century, the government has run a deficit—large
or small—except for four years that began during the
Clinton administration (1993–2001).
The absolute amount of the federal deficit and
debt may not matter that much, however. What is
important is their size relative to the size of the econ-
omy (typically measured as gross domestic product,
or GDP). If GDP grows faster than the national debt,
which has happened, the government’s fiscal position
gets better, not worse. If GDP falls or fails to rise, how-
ever, there may be trouble. In 2007, just before the
Great Recession, the federal deficit was 1.15 percent
of GDP and net national debt was about 36 percent
of GDP. By 2013, after four years of trillion-dollar-
plus deficits, the net debt stood at 65 percent of GDP.
Should we be worried—or even panicked—about con-
tinuing federal deficits and the resulting increases in
the national debt?Things are LOOking UP
Recently, a number of liberal economists, such as
Nobel Prize winner Paul Krugman, have argued that
the deficit problem is mostly solved. Congress passed
budget cuts in 2011. In December 2012, due to the
“fiscal cliff ” crisis, tax rates on wealthier Americans
went up, raising more revenue. In March 2013, the so-
called sequester imposed additional budget cuts. The
Congressional Budget Office (CBO) predicts that if cur-
rent laws remain in effect, the deficit as a percentage
of GDP will fall sharply until 2015, after which it will
rise slowly. It would take only a small amount of extra
budget cutting after 2015 to stabilize the national debt
over the next decade.
Thereafter, every model predicts budget trouble
due to increased health-care costs. Liberal economistsargue that our main task should be controlling health-
care costs by eliminating inefficiencies. That is cer-
tainly doable—there is some evidence that attempts to
curb costs may already be having an effect. We should
focus our political energies there, instead of worrying
about the supposed imminent bankruptcy of the U.S.
government.We MUsT CUT—nOT JUsT
sTabiLize—The naTiOnaL DebT
Those who believe that we still have a serious debt
and deficit problem say that it is not enough to merely
stabilize the debt at a high level. High levels of debt
can be trouble all by themselves. Economists Carmen
Reinhart and Kenneth Rogoff have argued that at lev-
els only slightly higher than what the CBO predicts,
national debt interferes with economic growth. Their
paper has been widely cited by conservatives and
establishment institutions such as the Washington
Post editorial page, though other economists have
criticized it harshly.
Whether Reinhart and Rogoff are right or wrong,
high levels of debt are dangerous for another reason.
During the Great Recession, the national debt as a
percentage of GDP almost doubled. If the debt doesn’t
come down again, what happens if there is another
recession? Sooner or later, we will have one, even if
it is not as bad as the last one was. Can we afford to
ramp up the debt again? An additional serious prob-
lem—what if interest rates go back up? If that were to
happen, the costs of sustaining a large national debt
could become painful indeed.FOr CriTiCaL anaLysis
If we do have a long-term need to reduce the national debt, is it
important that we start right away—or should we wait until the
economy is booming again? Either way, why?DO We sTiLL have TO WOrry abOUT The FeDeraL DeFiCiT?
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