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The Debt Ceiling
America's biggest own goal
Imagine a group of executives making a budget for their company for the following fiscal year. They argue and debate over how much should be spent on hiring, salaries, rent, advertising, R&D, and everything else a company needs. Various factions want to prioritize different things. One group wants to focus on building a larger customer base and spend more on advertising. Another wants to make a better product and spend more on R&D. Eventually a budget takes shape that no one is completely happy with, but no one is completely unhappy with either. The new fiscal year starts, with the entire company aware of the strategic goals management has set out and an idea of the resources allocated to achieve those goals.
Then, six months later, someone in accounting calls up to the C-suite and says, "Boss, something’s wrong. This budget won't work. We are spending more money this year than the executives from 5 years ago said we should ever spend. They wrote into the company bylaws that this spending maximum can't ever be passed!"
The boss says, "Wait a second, that was an entirely different group of people. The current executives all agreed on the budget. Inflation over the last few years means the old group never would have set the spending limit so low. Most importantly, why would they even set a spending limit? They set the budget to begin with, so why wouldn't they have just set the budget to be at a spending level they found acceptable?"
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This is how America's debt ceiling works. It would be bad enough if it was about passing a budget or agreeing to allocate funds. It's way worse than that. The insanity of the debt ceiling is that even if Congress were to unanimously pass a budget that the President signed into law, if spending money allocated in that budget exceeds the debt ceiling, then the money can't be spent. It's THE takeaway point so it bears repeating: the debt ceiling prevents money that has already been budgeted for from being spent.
It’s ridiculous. The debt ceiling has no actual purpose other than to create a game of chicken between Congress and the world financial system. Supporters of the debt ceiling argue that it helps to reign in reckless spending. This one graph disputes that:
Notice the number of times the debt ceiling has been increased - over 40 times since 1980! If the debt ceiling worked at decreasing our debt, then it wouldn't have to be increased every year.
Wanting to decrease the national debt and spend money responsibly makes sense. It's a coherent and rational policy to pursue. There's a great way to do this - through the budget process. Every year Congress has to pass either an appropriations act or continuing resolution to fund the US government. Most years they succeed in doing this. Sometimes they don't - and the result is a government shutdown. As counterproductive as these government shutdowns can be, at least they make sense: without a budget, the government isn't allowed to spend money. But if the government agrees that money should be spent, then it should be spent!
It is also worth noting that both parties are guilty of starting this game of chicken. Currently, the Republicans are saying they will only increase the debt ceiling if the Democrats agree to undo key priorities. This clearly won't happen. In 2006, the shoe was on the other foot, and a Democratic Senator from Delaware named Joe Biden voted against a debt ceiling increase to protest spending on the Iraq War. Republicans are free to say that money shouldn’t be spent on climate change and Democrats are free to say money shouldn’t be spent on war. But there’s already a great place to do this - when debating the budget!
This is indefensible policy. Hardly any other country in the world has a debt ceiling, for good reason. It accomplishes no goals and threatens the US economy with real harm. Secretary of Treasury Janet Yellen says the debt ceiling may be reached as soon as June 1. This is almost certainly an underestimate, but the ceiling will be reached at some point this year. What would happen if the US hit the debt ceiling? Then we enter uncharted territory. In practice, it's hard to say what the result would be, other than it would be bad for the US economy. Maybe some seniors don't get their Social Security checks. Maybe the US defaults on some of its debt, something that has never happened. Maybe the effect is a parking ticket, maybe it's a head-on collision. There is, however, no good immediate outcome.
The only solution is to get rid of the debt ceiling. No more debt ceiling increases or temporary suspensions. The debt ceiling needs to go the way of prohibition and immediately be consigned to an exhibit of history where people say, "Why would you even do this?"