A separate vote for the debt ceiling is a bad idea

by on January 15, 2013 at 4:14 pm in Current Affairs, Economics | Permalink

A rather obvious statement that 84% of polled economists agree with:

Because all federal spending and taxes must be approved by both houses of Congress and the executive branch, a separate debt ceiling that has to be increased periodically creates unneeded uncertainty and can potentially lead to worse fiscal outcomes.

That is from Brad DeLong.

DocMerlin January 15, 2013 at 4:20 pm

The word “potentially” is a killer there.

Thomas January 15, 2013 at 6:15 pm

Yes. A meaningless question. It certainly doesn’t mean what Tyler thinks it means.

BC January 15, 2013 at 10:35 pm

Also, the premise that both houses of Congress approve of the federal spending and taxes is tautologically incorrect. If Congress approved of the spending, they would vote to increase the debt limit to enable that spending. When they passed the earlier spending bills, they did so with the knowledge that projected spending under the bills exceeded projected revenues and, thus, at some point the debt limit would need to be raised to actually carry out the approved spending. Thus, when passing the bills, Congress did so with an expectation that they would have an option to revoke those spending approvals in the future if no progress had been made in dealing with the fiscal imbalance. We are now at the point in the future, and Congress is considering whether to exercise the option that it gave itself with the debt ceiling law.

I’m not talking here about defaulting on debt payments. Issued debt is a binding contract, and there is sufficient tax revenue to make the required debt payments without raising the debt limit. I’m referring to spending that was previously authorized by law. Those authorizations are not binding debts. For example, even Social Security payments are not guaranteed. Congress can change the benefits paid under law anytime it wants, and such a change would not be a default. (It might be bad policy, but it would not be a default.) Given that both spending bills and the debt ceiling law are acts of Congress, I see no reason why the spending bills should necessarily be given higher precedence, especially if they were passed with the knowledge that Congress, through the debt limit, could later revoke those spending approvals if necessary.

Of course, it is worth pointing out that refusal to raise the debt limit without making progress on controlling spending should be no more binding than an $8 minimum wage on a worker whose market wage is $15 unless, of course, one has no intention to make progress on controlling spending. That’s the real story here: there are too many in Washington that would like to obstruct serious spending and entitlement reform, even if it means facing a debt limit crisis (or requires minting trillion dollar coins). They are the ones that are being irresponsible and obstructionist.

Dave January 15, 2013 at 11:50 pm

What’s the correlation between their responses and their party affiliation/ideology/vote history?

I like how the conservative economists answered “no opinion.”

Or better yet, see Robert Hall’s response: No Opinion, “This is a question about the behavior of members of Congress. I don’t see how an economist could have any expertise on this.”

Although I disagree that economists couldn’t have expertise on this (there are plenty of economists who do poli sci work, also see James Buchanan and that whole Public Choice thing we’ve been hearing about lately), I do wonder how many of the people polled have expertise on Congressional behavior besides their general interest in politics or work as econ advisers to Presidents.

Sisyphus January 16, 2013 at 11:51 pm

What Delong may know, but is not telling you (and BC presumably does not know it), is that under normal budget procedures that IS how it works.

In the normal budget process under the Budget Control Act of 1974, when Congress passes a budget they increase the debt ceiling by the amount necessary to account for project deficit spending under that budget. That’s why you rarely used to hear about votes on the debt ceiling.

But the Senate has refused to pass a budget for four fiscal years, so the debt ceiling has to get raised separately to account for annual spending. Spending gets voted on in continuing resolutions or these crisis-related bills, not in the normal budget and appropriations process, again because with a few exceptions in terms of appropriations, the Senate will not even consider appropriations bills from the House (where they Constitutionally must originate from).

The result of all this breach of the legal process in the Budget Control Act by the Senate is that we lurch from crisis to crisis, both for continuing government operations and the debt ceiling. If we merely went back to normal order, as the Republicans are finally demanding, then we wouldn’t have all this excessive policy uncertainty.

And just to be clear, this is not President Obama’s fault. It’s not even all Senate Democrats’ or the Senate Republicans’ fault. As best I can tell, Majority Leader Reid is almost entirely to blame for the Senate not passing a budget. Apparently, he has even prevented the Senate Budget Committee Chair from holding a markup on a budget the past few years, so a budget doesn’t even get out of committee. I wish the American people understood just how much damage Senator Reid is causing the country.

BC January 17, 2013 at 2:19 am

No, I did not know that. Thanks. I found some references to a “Gephardt Rule” under which, as you describe, the House is deemed to have raised the debt limit by an amount matched to whatever budget they just passed. I haven’t found a similar rule for the Senate, but I’ll take your word for it.

Interestingly, I ran across an old Ezra Klein post about the Gephardt Rule here:

http://www.washingtonpost.com/blogs/wonkblog/post/house-eliminated-debt-ceiling-votes-in-1979/2011/04/13/AFLcQxOE_blog.html

Clearly, Klein understands the mechanism, but doesn’t make the obvious connection that you have: that even with a Gephardt Rule for the Senate, the Senate’s failure to pass a budget is responsible for the lack of a debt limit increase to match that budget. Ironically, in a column about the Gephardt Rule, he blames the House Republicans for the (2011) debt limit crisis rather than the Senate Democrats or, as you say, Harry Reid by himself.

Apparently, Sen. Sessions is now proposing that a debt limit increase be tied to a requirement that Congress pass a budget.

Andrew January 15, 2013 at 4:25 pm

Does it bother anyone else that Obama always likens raising the debt ceiling to being responsible and paying your bills? Isn’t it more akin to calling your credit card company once you’ve maxed out the card and asking for a credit limit increase? Doesn’t seem too responsible to me.

Brian Donohue January 15, 2013 at 4:27 pm

One might think so. But apparaently “governments aren’t households” is a magic fairy wand.

jmo January 15, 2013 at 4:33 pm

No, it would be like writing a bunch of checks and then deciding you didn’t want to transfer money from your HELOC to your checking account.

Congress has already agreed to spend the money, in essence they wrote the checks, now they are balking at transferring the money.

Brian Donohue January 15, 2013 at 4:37 pm

I’ll buy your analogy, but the HELOC is tapped out. Now what?

I know. Let’s see if we can increase the HELOC without committing to changing any of the habits that got us here. Where’s the downside?

Tim M January 15, 2013 at 5:37 pm

But the HELOC is not tapped out. The markets are extremely willing to lend money to the US government, at very low rates. That’s what makes the short-term artificial crisis so perverse.

Brian Donohue January 15, 2013 at 6:02 pm

Honey, great news! Some idiot bank wants to lend us money on ridiculous terms, despite our balance sheet! All our problems are solved forever.

The whole point of the debt limit is for the government to force itself to come to terms with budget issues. People “bind themselves” with promises like this all the time, which is what Congress has done on each previous debt limit can-kicking. “Binding promises to self” is a whole fascinating branch of behavioral economics. But when it comes to public finance, the whole economics profession dons a “faux naive” mindset, and strategic consdierations like this apparently don’t compute.

I guess “we’re all kick-the-can-down-the-roaders” now or something.

Steve January 15, 2013 at 8:11 pm

Brian do some people disagree with the idea that if everyone saves more we will have a recession? It doesn’t seem possible that statement is incorrect but maybe I am missing something. Consumers are saving more. Businesses are saving more. And now you are saying it is time for the government to save more? Trying to understand why this is a good time to address our budget concerns.

Bill January 15, 2013 at 8:48 pm

@Brian D: “The whole point of the debt limit is for the government to force itself to come to terms with budget issues.” Gee, I thought that the annual budget process itself was the time to do that.

Real budgeting means deciding if you can afford the meal before entering the restaurant. Your view suggests it’s more effective to petulantly refuse paying after you’ve eaten the food.

Admit it — you’re just bitter that your party didn’t get the votes to achieve its goals through actual governance. Grow up.

Cliff January 15, 2013 at 8:51 pm

Steve,

Consumers are saving “more”? More than when? Not more than 2 years ago. Not more than 20 years ago. Savings is consumption spent tomorrow (invested today). So maybe a sudden jump in saving would cause a drop in GDP (depending on what it is invested in?), but long term the pace of GDP growth would pick up.

Also, if the government does not spend less we’re going to get a 20% VAT sooner rather than later, and that’s probably not so good for GDP either.

Steve January 15, 2013 at 9:16 pm

Cliff the idea that GDP will pick up later assumes that savings rates would come down later. There is no guarantee money saved now will be spent later. I guess I would be more sympathetic to the idea of trying to fix our spending problems now if the Republicans would present their plan for spending now. Without a detailed plan for spending it just looks like political theater to me.

Mo January 15, 2013 at 9:30 pm

Steve

GDP will also rise if unemployment and workforce participation increase. Add in the fact that federal costs like food stamps and UI will also go down when this happens.

Steve January 15, 2013 at 10:28 pm

Mo since the government is borrowing the money it is spending isn’t reducing government spending going to reduce GDP? I don’t think there is any debate on whether or not spending needs to be reduced there are just some people who don’t agree with reducing it now and don’t agree with the method the Republicans are using.

Hopaulius January 15, 2013 at 11:43 pm

“The markets” are not supporting deficit spending. The Federal Reserve is.

Brian Donohue January 16, 2013 at 8:00 am

@Steve, I thought it would be best to go over the fiscal cliff, which would have been even more contractionary. And if your view of the future does not extend beyond 3, or 6, or 9 months, this is of course an unmitigated horror, slower growth, higher employment. Thus, the myopic economics profession, much better at seeing the seen than the unseen, unambiguously opposed this ‘folly’.

By the CBO’s own estimate, however, such a move would actually improve the economy 2-3 years out and thereafter, as fiscal probity has a curious habit of doing.

And so with the debt ceilng. Myopia again triumphs in a walk, but there is no free lunch on this Earth. So when 2019 rolls around, and debt service is sucking up a huge chunk of revenues, and we ask: “Why can’t we have nice things?” like awesome medical benefits or fighter planes or infrastructure improvements, we can all take comfort from the fact that 84% of economists assured us this was the right move.

Brian Donohue January 16, 2013 at 8:08 am

@ Bill,

Um, I voted for Obama in 2008. I said below that Republicans deserved an ass-kicking.

I have advocated raising taxes.

Just what party do you think is my party?

Whereas you, of course, are the guy who put the jerk in knee-jerk liberal.

I laugh in your general direction.

Hazel Meade January 16, 2013 at 10:29 am

“Real budgeting means deciding if you can afford the meal before entering the restaurant. Your view suggests it’s more effective to petulantly refuse paying after you’ve eaten the food. ”

Sadly, our government is composed of compulsive eaters, and it seem the only way to get them to stop is to not pay for the food and thus have them dragged off to jail for the night. Overeating has consequences. Would you rather have your SO die of a coronary 10 years from now, or have him involuntarily commited to a fat farm now?

byomtov January 15, 2013 at 6:00 pm

The time to change the habits, if in fact they need to be changed, is in the appropriations process. That’s when Congress decides what to spend money on.

Having made commitments, we should honor them.

Cliff January 15, 2013 at 8:52 pm

In the alternative, having made shitty commitments, we should renege on them. They renege on everything else, really we’re going to hold their feet to the fire on insane spending?

Thomas January 15, 2013 at 9:15 pm

You do know that a very large percentage of our spending isn’t done through the appropriations process, right?

Andrew' January 16, 2013 at 12:48 pm

“Having made commitments, we should honor them.”

This is the underlying problem. “We” have not made commitments. Some people have made commitments on behalf of others. The more group A makes commitments of group B that benefit solely group A the more government will continue to grow adversarial.

Sisyphus January 16, 2013 at 11:55 pm

But the problem is that we aren’t going through the appropriations process. The Senate won’t consider most appropriations bills and hasn’t passed a budget in four years. Instead, we keep getting stuck with continuing resolutions and no budget so that the level of spending from the so-called Stimulus is locked in as the continuing baseline.

Colin January 15, 2013 at 6:39 pm

For some reason I can’t reply to your comment two down, but that would apply IF the bank we suggesting ridiculous terms. As of right now, the borrowing costs in question are practically non-existent. This isn’t the equivalent of walking into the bank and them telling you “Sure, you can have the money, but at 15% annual interest!

doctorpat January 15, 2013 at 8:33 pm

Isn’t the problem that the bank is offering to lend the money at a near zero honeymoon rate, with a reset in a couple of years to a rate “determined by market forces”?

john January 16, 2013 at 5:48 pm

I don’t think the check writing analogy is correct. As BC points out above spending legislation is not a commitment and is subject to revision. It’s true the government cannot fail to pay for goods and services already received but they can certainly decide not to take any more. Likewise on the social services side — one might grant the people meeting the requirements enjoy some entitlement to public support but the level of public support is not fixed. Correct me if I’m wrong on this but I don’t think any of the legislation indicates that welfare payments, social security benefits and the like can never be reduced.

FYI January 15, 2013 at 5:28 pm

checks? If the Us government had a ‘regular’ account it would never be able to write any checks. Andrew’s analogy is the only possible one here since credit cards allow you to spend money you don’t have.

The point that congress has agreed on that spending is interesting. Why are you ok with them controlling the spending and not controlling payments? Isn’t the end result the same?

byomtov January 15, 2013 at 5:58 pm

No. it’s not like your credit card example at all.

Repeat after me:

Raising the debt limit does not give Obama unlimited spending power. It merely lets him borrow money to spend as he is required to do by law.

Brian Donohue January 15, 2013 at 6:37 pm

Oh, is that all?

So…it’s not like America’s debt limit is a sign of leadership failure, and it’s not a sign that the U.S. Government can’t pay its own bills? Washington is not shifting the burden of bad choices today onto the backs of our children and grandchildren? America does not have a debt problem or a failure of leadership, and we don’t deserve better?

Well, somebody’s been serving up a crock of shit then.

GiT January 15, 2013 at 7:00 pm

America has a debt problem, but it doesn’t really have much to do with the debt ceiling. Shouldn’t we just let the market for credit tell us when we have a problem though, anyways? I mean, if they’re still lending at low rates, we must be healthy. Markets are efficient, right?

Brian Donohue January 15, 2013 at 7:24 pm

“America has a debt problem, but it doesn’t really have much to do with the debt ceiling.”

Um, the whole point of the debt ceiling is as a tool for managing the debt problem. Other than that, yes, the debt problem doesn’t really have much to do with the debt ceiling.

“Shouldn’t we just let the market for credit tell us when we have a problem though, anyways?”

This is the advice you gave Greece ten years ago, right?

The President is in an excellent position to score some fun political points in the weeks ahead, and he appears to be licking his chops. If this is the extent of his ambition, I daresay he will achieve it. Good for him.

And many people (including me) think the Republicans deserve an ass-kicking around the block a couple times for the ridiculous knots they allowed Norquist to tie them up in. And God knows they’ve been getting kicked for months now. It’s fun, but starting to get a little tedious, and, after all, they hold a majoirty in the primary institution of this government, so at some point, Democrats should think about putting down the seltzer bottle and talking turkey.

If I were advising Obama, I’d let him know that 2014 is an election year- nothing gonna happen then. By 2015, he starts his lame duck world tour. If he wants to do something meaningful with his Presidency, his window is closing in the next several months. “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure.”

doctorpat January 15, 2013 at 8:36 pm

I mean, if they’re still lending at low rates, we must be healthy. Markets are efficient, right?

A great white shark is efficient.

Andrew' January 16, 2013 at 8:22 am

The markets are lending because we are not yet in the totally F’d group. We would like to stay out of the totally F’d group.

John January 16, 2013 at 5:55 pm

One might also ask who it is that is doing the lending and consider what exactly it is that they are lending.

john personna January 15, 2013 at 7:08 pm

The House Republicans have a pretty good racket. They say “Obama should do our job, better” when Obama actually has no power to do their job and pass bills. Amazingly they have an audience who say “Yeah, it’s Obama’s fault that Congress does nothing.” Congress itself … well strangely they are credited for a good day of finger pointing.

Cliff January 15, 2013 at 8:54 pm

If only Congress did nothing. Didn’t they just vote for a giant tax increase in a slow economy?

Hazel Meade January 16, 2013 at 10:37 am

What does the President have to do with the debt ceiling in the first place?
The President doesn’t spend any money. Congress does.

The issue is that the President happens to belong to the pro-spending-more-money party while the House is held by the anti-spending-more-money party. The authorization to borrow more money is directly tied to the political impetus to spend less.

The pro-spending-more-money party wants limits on borrowing removed because that will make it politically easier to spend more money. The anti-spending-more-money party doesn’t, because they want it to be harder to spend more money.

This isn’t that complicated.

john personna January 16, 2013 at 12:33 pm

Hazel, it wouldn’t be that hard if we had an authentic “spend less” party. I’m one of those who think it is Kabuki. Republicans will not actually introduce incremental spending reductions, realistic bills, for votes because they know that it is hard to find politically popular cuts in practice. It is much easier to say you are for cuts in abstract, and to blame Obama for not making them.

Hazel Meade January 16, 2013 at 4:15 pm

Actually the Republicans have introduced bills that cut spending. The Ryan budget for instance.
The problem is that the pro-spending-more-money party immediately declares those bills dead on arrival in the Senate.
And the President, as leader of the pro-spending-more-money party is not doing anything to move his party closer to compromise. He’s in fact strongly supporting spending-more-money and encouraging Reid to instantly shoot down any spending reduction bills that the House has the temerity to propose.

The is a good reason the Republicans havn’t brought an entitlement reform bill to the lfoor. Every time they do, the Democrats immediately use it to propagandize seniors to get more votes to spend more money.

ThomasH January 15, 2013 at 7:23 pm

True, if we had not reduced taxes in 2001, emparked on a spate of DHS exdenditues, invaded Iraq, created a new Medicare benefit, we would have been able to undertake a larger stimulus in 2009-2013 with less debt accumulation.

Thomas January 15, 2013 at 7:01 pm

OK. What it does mean is that the current spending practices which necessitated the increase in the debt limit will not be reconsidered. “Required to do by law” is the problem, not a defense.

derek January 15, 2013 at 9:32 pm

Sure. How about he present a budget on time as he is required by law.

How about the Senate pass a budget? How about everyone sits down and figures out a budget.

The Administration is daring the Republicans to shut down the government either during a budget process or debt ceiling. Obama is the one saying that he would not negotiate.

Gabe January 16, 2013 at 1:15 pm

I hope we stop payments.

Gabe January 16, 2013 at 1:14 pm

I think a default would be better for my children.

Brian Donohue January 15, 2013 at 4:26 pm

“The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that “the buck stops here.” Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.”

- Senator Barack Obama, March 20, 2006

Of course, things are much better now.

MD January 15, 2013 at 4:31 pm

It’s a good thing we didn’t raise the debt ceiling back then.

Andre January 15, 2013 at 5:29 pm

Yeah after Barack said that the scales fell off the eyes of Paul Ryan and John Boehner and they held the line on spending right? That must have been what happened since we were borrowing money to fight those wars?

byomtov January 15, 2013 at 7:01 pm

Congratulations, Brian.

You’ve got a great big gotcha – the same one every other conservative on the Internet has been posting day and night. Good work.

You know the best thing about it? It completely saves you from thinking about the situation and trying to understand what’s going on. That sure makes life easy, doesn’t it?

Look, I think that was silly political posturing by Obama, and I would not have endorsed his point of view if I had known of it. Still, since the limit was sure to be raised – by the GOP-controlled Congress – that’s all it was. It didn’t threaten default. The posturing going on now is serious business, and threatens real harm.

GiT January 15, 2013 at 7:05 pm

Well, if one’s a Keynesian, Boom meet Recession, Recession meet Boom. I’ve been told you two might disagree about budget surpluses vs budget deficits.

john personna January 15, 2013 at 7:11 pm

It would be a pretty good deal if the debt limit were raised, even as a few GOP firebrands were allowed to yell loudly that it should not. As long as the firebrands are in the minority, and to not actually demand default or downgrade, it’s all fine.

Bill January 15, 2013 at 4:50 pm

I know.

Instead of calling it a debt ceiling vote, let’s call it a debt forgiveness holiday.

That way you and I and Congress can forgive us each others debts and not pay for what we already bought or committed to purchase.

Maybe we can call it John Boehner day or the Fitch Remembrance Day.

Hazel Meade January 16, 2013 at 10:41 am

You don’t think it’s a little strange that we have to borrow more money to pay our debts?

Usually when a private individual has to do that it’s a very bad sign.

Matt C January 15, 2013 at 4:51 pm

Was the original intent of the debt ceiling to set a limit on debt that would actually be respected?

I can’t see much point in keeping a “debt ceiling” that’s inevitably raised every time we reach it. Just abolish it. I’m sure our benevolent leaders can find something different to grandstand about.

James Hare January 15, 2013 at 8:07 pm

No. The original intent of the debt ceiling was to make the procedure for issuing debt easier during WWI:
“From the founding of the United States until 1917, Congress directly authorized each individual debt issuance separately. In order to provide more flexibility to finance the United States’ involvement in World War I, Congress modified the method by which it authorizes debt in the Second Liberty Bond Act of 1917.[49] Under this act Congress established an aggregate limit, or “ceiling,” on the total amount of bonds that could be issued.”

I’m using wikipedia (http://en.wikipedia.org/wiki/United_States_public_debt#Debt_ceiling) solely for ease of research. I understand some folks question the legitimacy of wikipedia as a source, but their description is consistent with everything else I’ve read about the origin of the debt ceiling. Obviously something intended to make issuing debt easier was not intended to limit debt.

Thomas January 15, 2013 at 9:20 pm

I agree we should do away with it. We should go back to the pre-1917 rule.

James Hare January 15, 2013 at 10:29 pm

So the congress did nothing but issue bonds? I can see where that might be a positive development from a “first do no harm” perspective, but I’m not sure our congress as currently constructed could get the job done. I also doubt it would lead to less spending — our current congress would find plenty of ways to use constant necessary bond issue votes as a way to push for favored projects.

Hazel Meade January 16, 2013 at 10:46 am

I do think we should go back to the pre-1917 rule.

Thing is they will likely juke the stats and under-authorize borrowing all the time, just as they do with the budget.
But it WOULD be nice if every “doc fix” or “tax extender” was attached to an explicit borrowing authorization.

FE January 15, 2013 at 4:56 pm

I agree that a separate vote on the debt ceiling is a bad idea. That said, I see much of the anti-ceiling commentary as part of a broader effort to de-legitimize Congress’s power of the purse. When the actual fiscal votes are taken, we are told Congress must yield to the President’s priorities, because it would be irresponsible to shut down the government over a budget dispute. After the fiscal votes are counted, we are told it would be irresponsible for Congress not to raise the ceiling. And so we crank the ratchet.

byomtov January 15, 2013 at 6:04 pm

I see much of the anti-ceiling commentary as part of a broader effort to de-legitimize Congress’s power of the purse.

You are mistaken. Congress sets expenditure levels. The President is obligated to spend the money as Congress directs.

You are correct that it would be irresponsible to shut the government down over a fiscal dispute, but that is not an issue during the normal appropriations process. It only becomes one when there get to be too many two-year olds in Congress.

Laura Sinclair January 16, 2013 at 1:43 am

Whether the president is obligated to spend the money as Congress appropriates is a constitutional question. The rule which you mention as if were fact is one Congress only maneuvered to apply after the presidency was weakened by watergate. Then within a few years, they added an automatic sequester mechanism which was the law of the land until about ten years ago. The problem isn’t the debt ceiling; its the absence of either a sequester rule or presidential discretion.

Joe Smith January 15, 2013 at 6:24 pm

“broader effort to de-legitimize Congress’s power of the purse.”

No. What is really going on is that the Republicans want to gut entitlements but want Obama to take the blame for it. That is all that is going on. Because the Republicans don’t have the balls to say what they want, or the public support to achieve it, they are threatening to burn the place down. They hope to achieve through procedure what they could never achieve on substance.

lxm January 15, 2013 at 6:36 pm

+1

Cournot January 15, 2013 at 6:49 pm

In the same way that Obama and Pelosi passed Obamacare? If you want tricks let tricks be used. All is fair in war.

MD January 15, 2013 at 6:54 pm

What was the trick?

Joe Smith January 15, 2013 at 7:21 pm

“What was the trick?”

They had a democratically elected majority. :-)

TMC January 15, 2013 at 9:39 pm

They used b.s numbers so they’d only need 50% +1 to pass a huge tax.
Even the CBO put a footnote that the numbers were garbage.

MD January 16, 2013 at 12:29 am

Tax increases don’t require congressional supermajorities. You must be thinking of that paragon of conservativism, California.

Thomas January 15, 2013 at 7:04 pm

We have a projected deficit of more than $8 trillion over the next 10 years. Assuming we don’t have another recession anytime in that 10 years. Does Obama favor adding another $8 trillion to the debt? Does the public? You hope to achieve through misdirection and inertia what you can’t achieve on substance.

Joe Smith January 15, 2013 at 7:24 pm

“You hope to achieve through misdirection and inertia what you can’t achieve on substance.”

No. I am all for a straight up open debate. The Republicans want spending cuts. They can lay out their asking list and we can have a straight up debate about it. Obama was straight up and said he wanted to increase taxes. Now its the Republicans’ turn.

Thomas January 15, 2013 at 9:18 pm

Has the Democratic Senate passed a “clean” increase in the debt ceiling?

Has a bill to accomplish a clean increase been introduced?

Obama hasn’t said he wants only tax increases, has he?

Has Obama proposed another $5 trillion in tax increases? If not, then he’s going to need to propose some spending cuts.

Ricardo January 15, 2013 at 5:02 pm

Suppose I accept a proposal of marriage, but then change my mind. Should this be illegal?

Suppose I enter a degree program at State U, but then change my mind. Should this be illegal?

Suppose I agree to go to Maui with you next September, but then change my mind. Should this be illegal?

Can Congress change its mind? Can Congress say: “wow, this spending looked really good back when we did our budget, but now that we realize we can’t afford it, we’d better reconsider”?

Urso January 15, 2013 at 5:09 pm

Congress is free to pass a new budget whenever it likes, assuming it can muster the political will to do so.

Ricardo January 15, 2013 at 5:16 pm

I am saying that this is precisely what Congress does when it refuses to raise the debt ceiling: it repeals its previous budget. I am asking whether this is permissible. The answer seems to be yes.

Andre January 15, 2013 at 5:31 pm

That would be handy for the Republican’s wouldn’t it? “We declare the previous budget repealed, now we call on Obama and the democratic overlords to say which part is repealed.” Redefining government for the 21st century.

Orange14 January 15, 2013 at 5:33 pm

Your wording is not quite right. It’s not repealing the previous budget but rather defaulting on it. Same concept of you having taken a mortgage out to buy a new house or a loan to buy a car. You then think, wow that was a dumb idea, I think I will just eliminate my debt ceiling. That’s find and dandy but it’s called defaulting on your loan and it screws up your credit rating for a long time to come.

This whole issue of the debt ceiling is a red herring big time. Congress has always had the power to authorize and appropriate expenditures. There are some things that they lock in over multiple years such as entitlements and of course there is the payment of interest on the debt. The tea party Republicans in the House can eliminate the debt ceiling tomorrow and then pass whatever authorizations they feel are correct (eliminate basic research, eliminate defense spending, etc). That’s where the real food fight should take place and not over something as artificial as the debt ceiling. Trouble is they never want to list out the discretionary items that they want to cut but rather just speak in broad platitudes (reform entitlement spending and so forth). Entitlements will do nothing in the short run to impact current account deficits.

Ricardo January 15, 2013 at 5:56 pm

“Default” would be applicable if you borrowed money and then didn’t pay it back. But the Treasury will still have plenty of money from tax revenues to pay off our creditors. We won’t default on our bonds.

“Default” might also be applicable if, say, the gov’t promised to pay you $xxx per month when you retired, but then reneged. However, courts have found that such promises are not binding, so the gov’t is free to do this. In fact, this is one thing that both parties agree on! (cf. chained CPI)

“Default” is not applicable if you promise to give someone $100 next week (not because you owe them the money, but because you feel they deserve it) and then next week comes and you don’t give it to them.

Orange14 January 15, 2013 at 6:10 pm

@Ricardo – I cannot respond directly to your post because we’ve apparently made enough chained comments. I still don’t think you are correct. The debt ceiling is basically like a mortgage ceiling to be simplistic. The Treasury cannot pay any bills above the ceiling and tax revenues come in at a constant rate except for April when many of us pay extra to cover capital gains and interest accrued. Where do you propose the money comes from (other than the mysterious platinum coin that will not be minted)?

Urso January 15, 2013 at 6:13 pm

But that’s exactly what Congress isn’t doing.

You seem to believe that what will happen is, the Treasury will keep paying debt, and stop paying other things (although what other things? who knows? someone will have to pick what gets paid and what doesn’t) and everything will be just fine.

But that isn’t how it will work. The Treasury is legally obligated to pay for everything that the budget tells it to. Which means that every day the Treasury will pay out every cent it brings in until one day it cannot – and that day will inevitably come, because both revenues and obligations are lumpy, not even distributed. Which means that on Feb 15, $9 billion will come in, and $30 billion in interest will come due. Then what?

http://cdn.theatlantic.com/static/mt/assets/business/BPCScary.png

byomtov January 15, 2013 at 7:05 pm

“Default” is not applicable if you promise to give someone $100 next week (not because you owe them the money, but because you feel they deserve it) and then next week comes and you don’t give it to them.

What if you hired someone to work for you and then didn’t pay them as promised?

What if you contracted for some goods or services and then refused to pay?

Cliff January 15, 2013 at 8:59 pm

No, the Constitution requires that debt repayment be prioritized. Default is literally impossible.

Ricardo January 16, 2013 at 2:08 pm

@Orange14,

An interesting exchange, thank you.

Suppose an agency gets $100M in this year’s budget. Is the agency required to spend $100M? I think the answer is no. I think the budget says: “you’re allowed to spend $100M.” This means the agency can rack up $100M worth of bills, and the Treasury will pay them. But the agency isn’t *required* to spend $100M.

So the right answer is for the Treasury to instruct agencies that they can’t spend 100% of their budgets just yet. Each agency must decide how to respond. Alternatively, the Treasury can sell assets, or solicit donations.

But none of these things is the same as “not paying the bills.” We are talking about expenses not yet incurred. It seems to me that Congress is basically saying: “don’t incur them.” Yes, Congress is exhibiting time inconsistency. Yes, Congress is giving conflicting instructions. Yes, Congress may even be reneging on pseudo-promises to Social Security recipients and veterans. These might be reprehensible actions, but they are not the same as defaulting.

The best lesson one can possibly take away from this experience is: when Congress tells you it’s going to give you $100, don’t believe it until the money’s in your hand. Don’t rely on Congress.

byomtov January 15, 2013 at 6:11 pm

No. It doesn’t pass a new budget. It just abdicates responsibility for the sake of throwing a tantrum.

If it wanted to cut spending it could introduce and pass laws specifying what to cut. It’s not doing that.

Cliff January 15, 2013 at 8:59 pm

Or, alternatively, it could refuse to raise the debt ceiling. I don’t get your point.

Urso January 16, 2013 at 11:39 am

So then who decides what gets paid and what doesn’t? The Treasury? Obama? Even assuming that the 14A requires them to prioritize debt repayment ahead of other spending (something I’m not sure about, because it says “repudiate” and not “default,” but I’m not a Constitutional scholar), are you suggesting that the Treasury is then authorized to *only* repay debts? In that case, going forward, fed’l spending drops to, literally, zero. No federal employees get paid, no SSI checks, nothing.

Or is the Treasury is allowed to pay some federal spending, but not others? Then you have to figure out who decides what to pay. The Constitution makes abundantly clear that Congress has to make this choice, but they won’t. So that power devolves to the bureaucrats? To me that’s a worse outcome, from the long-term perspective of separation of powers, than anything else that comes out of this whole mess.

derek January 15, 2013 at 9:53 pm

Congress has passed budgets every year. The Senate hasn’t. The administration missed their deadline last week. Do you remember how many votes the administration budget proposal got last year?

There is no budget process. There isn’t a budget negotiated and passed. All that has been done for the last few years is a continuing resolution.

Are you saying that Obama is ready to negotiate on a budget? I didn’t think so.

Obama and the House Republicans are using the debt ceiling deadline as a political bludgeon. Last time around Obama got what he wanted, a tax increase on everyone. Lets see what comes out of this one.

Matt January 15, 2013 at 5:11 pm

The debt ceiling is a normal and natural thing that makes up everyone’s mental framework. That is, unless you are a nutter who thinks borrowed money is free, everyone has a threshold above which debt should not go as it then becomes troublesome. What the left is saying is not abolish the debt ceiling, but rather that it should be much higher than it currently is. Unless of course they are nutters who think borrowed money is free.

GiT January 15, 2013 at 8:50 pm

Yes, it’s a normal and natural thing that makes up everyone’s mental framework… when they budget their expenses. It doesn’t need to be reified.

marris January 15, 2013 at 5:24 pm

Do we need a confidence deflator? There are quite a few economists who are *not confident* in their Strongly Agree and Agree responses. I think this should give us pause before accepting the word of Goolsbee when he says “Strongly Agree, 10, OBVIOUSly.”

libert January 15, 2013 at 6:10 pm

Click the link. If you weight for confidence, it becomes 97% either agree or strongly agree.

ladderff January 15, 2013 at 6:01 pm

Just want to comment on the above-mentioned notion that “the markets are extremely willing to lend money to the US government, at very low rates. That’s what makes the short-term artificial crisis so perverse.”

In a market context low interest rates are properly interpreted that way, but in a fiat cash context when the government is the borrower it’s not so. Maybe low interest rates represent an eagerness to lend to a borrower with a very low perceived default risk, but we can pretty much rule that out in this case with one look at the balance sheet. In fact the low interest rates are just a “doubling down” by lenders. They can’t figure out what else to do with the money: they are afraid to invest it in real capital projects and have no smart ideas for hedging against the collapse of the dollar. Since their fortunes are tied to the government’s anyway, they may as well hold their bonds. It’s like punching the throttle to the max on a crashing plane in hope you get some last minute lift.

Ray Lopez January 15, 2013 at 6:24 pm

“They can’t figure out what else to do with the money: they are afraid to invest it in real capital projects and [or] have no smart ideas for hedging against the collapse of the dollar.” Wait–those two statements are inconsistent. Surely you should have “or” inserted? If you are afraid to invest in real capital projects why would you double down in fiat money? As for collapse, why not invest in gold? Is that not smart? I think today’s low interest rates is simply lack of demand, just like the Keynesians claim, not really anything structural. Why would a $7 trillion dollar collapse in 2001 with the dot-com bubble not be the same as the $7 trillion dollar collapse in 2007 with the real estate bubble? Why should the latter be worse than the former? Housing is more sacred than stocks? A financial crisis is worse than an over-investment crisis? No. The only thing I can think of is fear of fear itself. That said, I think we are heading long term to a Jared Diamond Easter Island extinction event due to bloated US government, but I don’t think we are near that singularity yet.

Steve January 15, 2013 at 8:53 pm

“why not invest in gold?”

I wish we would switch our idea for the fiat money substitute to some other material than gold. Rhodium maybe.

Roy January 16, 2013 at 3:15 pm

If it is going to be based on an actual material, I can’t think of one better than gold. I understand theidea the gold standard is stupid, but I completely fail to see how changing from gold to cowrie shells or tantalum is any better.

Ray Lopez January 15, 2013 at 6:06 pm

“A rather obvious statement that 84% of polled economists agree with:” — if it’s rather obvious, it’s sometimes wrong. Like the advert “four out of five doctors recommend…” but you then wonder–what about the fifth guy? Didn’t they also graduate from med school?

James Hare January 15, 2013 at 8:15 pm

Where is your argument? If you’re going to claim the judgment of 84% of economists surveyed is wrong you should at least provide some evidence. You don’t even say a little birdie told you.

Cliff January 15, 2013 at 9:01 pm

I guess 16% of economists told him?

Mo January 15, 2013 at 9:49 pm

The fifth dentist recommends no gum, not sugared gum.

Steven Kopits January 15, 2013 at 6:06 pm

Let’s see if economists agree with this statement:

“Democracies suffer a non-market failure which permits a persistent gap between revenues and spending without direct feedback to voters. Thus, many, if not most democracies suffer a deficit bias. This failure should be compensated by directly linking either the incentives of taxpayers or of politicians to fiscal sustainability.”

Here’s an example of a taxpayer incentive:
A trillion dollar deficit equals $10,000 per US household. Suppose that on one’s tax return one had to sign the following: “Federal borrowing in the closing fiscal year totalled [$1 trillion]. Your share of this debt, based upon your adjusted gross income, is [$10,000]. The US Treasury may collect this debt from you at any time and, at its discretion, may transfer, factor or sell this debt to any financial institution, which in turn will be eligible to seek payment from you. This debt may affect your credit score and creditworthiness. Federal law requires you to acknowledge and accept this obligation with your signature, below.”

Here’s an example of a politician incentive:

Any member of Congress shall be paid according to the following formula: 0.25% * Basis / 535, where

the Basis = GDP Growth – Change in Federal Debt, both in dollar terms (and 535 is the number of members of the House and Senate).

From my perspective, either of these would be adequate replacement for the debt ceiling, although I personally would strongly prefer the politician incentive scheme.

James Hare January 15, 2013 at 8:18 pm

This idea that politician’s salaries are a real incentive is very interesting. The example of folks like Jim DeMint would seem to argue against it — it would seem the average member of congress could probably make far more money selling their influence than serving in congress. Why would tying their salary really impact their decisions when they’ve already accepted making less than they could just to be members of congress?

DocMerlin January 16, 2013 at 8:45 am

Their salary is a tiny part of their income. Most of their income comes in the form of insider knowledge and in power.

Steven Kopits January 16, 2013 at 10:23 am

James, Doc -

Well, let’s consider some actual data. The median wealth of a representative in 2009 was $765,010, while that of a senator was almost $2.38 million. So, in a good year, the proposed incentive program would triple the net worth of the typical representative and almost double that of the median senator. So I would say that incentives would influence the behavior of well over half of the House and at least a quarter to a third of the Senate, and maybe more. Moreover, it would create a substantial lobby for pro-growth, low deficit policies. So, if you’re a motivated senator, you’re going to be prodding your less motivated colleagues to support your pro-growth policies. In short, I think there is ample reason to believe the proposed incentive structure would influence behavior.

In any event, I think we all agree that 3% GDP growth with no deficit is a laudable goal, and something we have witnessed only a couple of years in the last forty. So, if I’m wrong and incentives have no force, then there is no harm in installing an incentive system. It will cost nothing.

If I am right, and the proposed incentive influences behavior, then 3% growth with no deficit will cost the average household $10 per year. How do you rate the cost/benefit of this? The risk is that each household pays $10 unnecessarily, that the country would have achieved 3% GDP growth with no deficit growth without an incentive. (It’s hard to write that without bursting into laughter.) Are you willing to risk a couple of lattes a year that I’m right?

Personally, I want to feel like this country has a future again, and I am by no means unwilling to try low cost, low risk, albeit unconventional approaches merely because they are unconventional. Let’s try it, and see what happens.

Steven Kopits January 17, 2013 at 8:18 am

Update on Congressional wealth: The median Congressman has a net worth of $1 million. (It’s not apparent whether this includes real estate or just securities and cash. $1 million in real estate in New Jersey means you own your own home and have a not too extravagant IRA. You’re certainly not “rich” in your own mind.)

It does not change the conclusions from my comment above.

http://money.cnn.com/2013/01/16/news/economy/congress-worth/

CONOR January 15, 2013 at 6:20 pm

This is a political question that’s being dressed up in such a way that economists think they can answer it. They can’t. This is about politics and not economics.

Mario Rizzo January 15, 2013 at 6:21 pm

There is a value in being reminded from time to time about the cumulative effect of your individual decisions. The debt ceiling vote reminds us all what world we have created.

ladderff January 15, 2013 at 6:26 pm

I ain’t created nothing.

Brian January 15, 2013 at 9:08 pm

Wow, didn’t think Mario Rizzio would be this foolish. Even my libertarian, Austrian economics advocate friends want to abolish the debt ceiling.

GiT January 15, 2013 at 9:27 pm

Pretty sure the debt clock that just fine by itself.

GiT January 15, 2013 at 9:27 pm

debt *does* that just fine…

uffy January 16, 2013 at 5:48 am

Alan Simpson: “I think that would be a grave mistake. I don’t think that would solve anything. I know they are going to try it, and how far you go with a game of chicken, I have no idea. But I can tell you … you can’t, you really can’t … This is stuff we’ve already indebted ourselves. If you’re a real conservative – a really honest conservative, without hypocrisy – you’d want to pay your debt. And that’s what this is, they are not running up anything new.”

Cliff January 16, 2013 at 10:44 am

Red herring. This is not about debt repayment.

joshua January 15, 2013 at 6:51 pm

If you think a separate vote on the debt ceiling is a bad idea, perhaps you have never been in a financial situation where you deliberately set up hurdles that you were perfectly capable of removing in order to try to make you think twice about spending that money.

If you think a separate vote on the debt ceiling is a bad idea, perhaps you think that legislation never has accounting tricks or underestimated costs that should be accounted for when reality reveals the actual results.

If you think a separate vote on the debt ceiling is a bad idea, perhaps you believe there is some other more likely achievable mechanism or incentive within our government that could lead to reduced spending.

Extract spending cuts and then raise the ceiling. It’s a crude tool, but I don’t see any others that have even come close to encouraging fiscal sustainability, or are likely to in the near future. Even this tool seems hardly effective sometimes. But it seems to be all we have at the moment.

Thomas January 15, 2013 at 7:07 pm

You can think that a debt ceiling is a bad idea, but better than the alternatives. The question doesn’t ask about alternatives!

joshua January 15, 2013 at 7:13 pm

An excellent point! I retract my comment, though I still think it is the “worst bad idea” for the above reasons (though I am open to being convinced of a better one…. I can think of several, but none that are politically plausible.)

joshua January 15, 2013 at 7:14 pm

Argh… “best bad idea”

James Hare January 15, 2013 at 8:21 pm

In a democracy you could present your case for spending cuts to the people. After winning you would have the ability to make said spending cuts. That would seem a more legitimate way to make cuts in spending than taking the entire polity hostage and demanding those cuts as ransom.

Cliff January 15, 2013 at 9:03 pm

What’s more legitimate about it? Why don’t you take your case for abolishing the debt limit to the people and after winning, you can eliminate it.

dbp January 15, 2013 at 7:26 pm

One way of thinking of it, is that it is a way for the current Congress to have some say over programs created by earlier Congresses.

James Hare January 15, 2013 at 8:23 pm

A previous congress cannot tie the hands of the current congress. If the Republican party wants to amend the budget they have the power to do so. Doing so would require they take ownership of the cuts they desire. Given the ideological makeup of the Senate they might be able to get somewhere if they proposed and passed a bill cutting spending. The Republicans in the House want to cut spending but they don’t want to own the cuts they make. That way they can run ads against the spending cuts they wanted in the first place.

Chris D January 15, 2013 at 7:37 pm

The really scary thing is that only 84% of economists agree with that.

Benny Lava January 15, 2013 at 7:51 pm

People who advocate for default often argue that the President has the power of impoundment or line item veto and the president can simply pay the bills at his discretion.

Of course he doesn’t, and the Supreme Court has long held that the power of the purse is solely Congress’ domain. So why would so many “small government” advocates pine for a vast and unconstitutional increase in the powers of the President?

My only guess is that they assume that once these new executive powers are installed they can win the next election and the next Republican President can simply decide to spend zero dollars on things Republicans don’t like such as SNAP, the department of science, the department of education, etc.

mike January 15, 2013 at 8:46 pm

lol at “department of science”. Benny Lava opens his mouth and removes all doubt.

Brent January 15, 2013 at 8:26 pm

Tyler,

With all due respect, the debt ceiling was *not* a separate vote until congress — i.e., the Senate — quit passing budgets. The budget – the outline of the rules for the next year on federal spending and taxes – would also adjust the debt ceiling.

Just to add a little bit more nuasance to this, the Executive, House, and Senate, each have requirements to submit budgets. The Executive has been late the past few years and the Senate hasn’t even bothered to do it at all.

CG January 15, 2013 at 9:31 pm

Then why have we had separate votes on the debt ceiling since 1917? Did Congress not pass budgets that entire time?

Ricardo January 16, 2013 at 3:08 am

This is incorrect. The debt limit was not tied to budget resolutions until Dick Gephardt got the House to agree that they should be in 1979. This so-called “Gephardt rule” was abolished in 1995 and since then the debt limit and budget resolutions have been separate votes.

There is actually a pending bill in the House to re-establish the Gephardt rule. It currently has no Republican cosponsors and will probably die in committee: http://www.govtrack.us/congress/bills/113/hres11

jorod January 15, 2013 at 9:28 pm

On the other hand, the real battle is over spending.

Jay January 15, 2013 at 9:34 pm

Think if the SS Administration had taken the FICA tax receipts and purchased marketable securities that it could sell to cover outflows if necessary. Instead you are stuck with a bunch of securities that are only valuable when the US Federal Government is scheduled to make payment.

Chris D January 16, 2013 at 11:15 am

Yeah! God knows the financial markets will never let you down!

Brian Donohue January 16, 2013 at 12:04 pm

Interestingly enough, I imagine the ‘return’ on the Social Security trust fund has been better than investing in stocks to date. I’m not sure of the maturity of the bonds, but the Fund started to swell in the late 1990s. Since 2000, bonds have trounced stocks as investments.

If so, it’s just a quirk of historical timing, but I find this interesting anyway.

Robert January 16, 2013 at 12:49 am

Instead of raising the debt ceiling, can we lower the debt floor?

8 January 16, 2013 at 3:39 am

Here’s the solution: tell all your Republican friends to buy more gold. If Republicans owned more gold, there would be no debt ceiling debate.

Andrew' January 16, 2013 at 5:28 am

Then why is it there?

The economists are wrong, btw. Of course. I’m not completely sure how. Here is one way: democracy is going to do what it does. The Republic’s last stand might be to demand some concessions through any means available.

Andrew' January 16, 2013 at 8:06 am

Oh, and it’s not like Republicans are strong-arming people for more F-22s. Well, maybe some are. Boot those. All people want is a credible commitment to entitlement reform. “Want debt-ceiling raised? Address, or at least acknowledge the problem that causes there to be catastrophe if it isn’t raised.” Symmetry.

Xmas January 16, 2013 at 7:37 am

There is a terrible falsehood in that statement by Brad DeLong.

Budget bills, where you set taxes and spending for the year are Predictive. Debt Limit bills are Reactive.

At the beginning of the government’s fiscal year, they may have predicted 2 Trillion in spending and 2 Trillion in tax revenues. But 8 months later, they may discover that they have 3 Trillion in spending and only 1.5 Trillion in tax revenues. Running into a 1.5 Trillion budget shortfall with 4 months left in the fiscal year may be a good time to adjust your current spending and taxes.

And let’s not forget that Congressional predictions can sometimes be less than accurate, particularly when it comes to costs and revenues.

Andrew' January 16, 2013 at 7:53 am

That was something like my next point. It is obvious we have a problem. It is like the problem where Congress has lower approval than head lice but incumbents keep being elected by locals. Economists might not like term-limits but, okay, what else you got? Each spending idea can seem like a good idea until you figure out what the cost is, which is the total cost, which is currently only sanity-checked by the debt ceiling.

Additionally, that survey just seems to me to say that majority economists don’t understand why that fence was put up before they plan to take it down.

Hazel Meade January 16, 2013 at 10:24 am

Wouldn’t it be nice if all spending bills were explicitly tied to a combination of tax increases or debt ceiling increases or spending cut elsewhere?

That would mean that all spending would have to be paid for in some manner, in the same bill. You either increase taxes, cut spending, or state explicitly that you’re going to borrow more. Every debt limit increase would require a congressional vote and every spending bill that isn’t paid for would require explicit authorization of borrowing by congress.

eccdogg January 16, 2013 at 10:56 am

Not a bad idea, but you would still get people gaming the numbers so that the projected spending is always less than the actual spending.

At least with the debt ceiling you are dealing with actual spending and borrowing facts, not budgetary fantasy land.

Hazel Meade January 16, 2013 at 9:42 pm

On the other hand, when their projections turn out to be bullshit and they have to borrow more money than planned, that will force them to hold a separate vote explicitly authorizing more borrowing. Which would be an impetus to get the projections right in the first place, or else limit programs to spend only what is explicitly authorized. Would make it a lot harder for defense programs to run over budget if congress has to hold an explicit vote on giving them more money every time they do.

It might actually force them to STOP juking the stats.

Vivian Darkbloom January 16, 2013 at 12:18 pm

“Because all federal spending and taxes must be approved by both houses of Congress and the executive branch, a separate debt ceiling that has to be increased periodically creates unneeded uncertainty and can potentially lead to worse fiscal outcomes.”

Great example of a leading (and misleading) question.

First, the question refers to *a*…debt ceiling which sounds like a hypothetical. But, I’m sure that almost everyone responding to that would interpret it to mean “the debt ceiling (legislation) we’ve currently got”. I’m not surprised that few people would vote for the one we’ve now got. I wouldn’t. The existing legislation is inefficient and ineffective. But, that does not mean that *a* debt ceiling, that is, a properly crafted limit on the amount of debt a government can incur, or one that sets up additional hurdles to incur such debt, would not be a good idea. I’m reminded here of Professor Buchanan’s teachings about why politicians do the things that they do…

Second, “a *separate* debt ceiling”. This wording suggests that if the current debt ceiling were to be thrown out, we’d still have one. I question that. I guess the idea is that whenever Congress passes a spending bill and does not pay for it there is an implied decision to raise the debt limit. But, the general idea of a “debt limit” is that Congress should decide up-front what an appropriate limit is and, if that limit is to be exceeded, consciously and explicitly decide that a deficit-financed spending measure is worth the borrowing cost. Those ideas definitely have merit. One of the problems with the existing debt limit legislation is that it applies after the spending has been committed. Add this to the rather artificial rules as to how the cost of legislation is scored and it adds to a real mess (the one we’re now in). In an earlier thread to an earlier post, a commenter suggested that Denmark was the only other country to have “*a* debt limit”. But, that’s not true. A number of countries, primarily fiscally responsible ones, have “*a* debt limit”, that is, special legislation or constitutional limits on how much debt can be incurred. Germany has this written into its constitution and Switzerland similarly has a “debt brake”. The key is to prevent the irresponsible deficit spending *before* it occurs, rather than after the fact. The fact that Switzerland calls its rule a “debt brake” makes sense—you apply the brakes before you go over the cliff, not afterwards.

Most of those who are against *the* debt limit are against it because it puts an obstacle in front of their future spending (and/or taxing) plans. It’s clear why they don’t want *any* debt brake to apply before or after spending decisions are made. Others are against it because the current one is badly designed. The latter would likely accept a better designed limit and would say so if only they were asked that question directly.

Hazel Meade January 16, 2013 at 4:25 pm

Thing is that by handing over borrowing authority to the executive, it changes the incentives presented to Congressmen. Since they aren’t the ones authorizing the actual borrowing, they don’t have to pay the political price for it. They shuck off responsibility for their own spending into the ether or on the executive. This debt thing! It’s not us! It’s the demon liquor! Removing the debt ceiling altogether would be even worse. Like giving a drunk a lifetime supply of whiskey. The correct thing to do is go back to the pre-1917 system where all borrowing had to be explicitly authorized by Congress in the form of new bond issuances.

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