Do Americans favor debt ceiling conditionality?

I don’t think there should be a debt ceiling at all, and I also don’t favor conditionality on raising it, as I don’t think hostage-taking leads to better policy in the long run or even in the short run for that matter.  Yet it seems to me this is an under-reported angle on the recent controversies:

Americans by a 2-to-1 ratio disagree with President Barack Obama’s contention that Congress should raise the U.S. debt limit without conditions.

Instead, 61 percent say that it’s “right to require spending cuts when the debt ceiling is raised even if it risks default,” because Congress lacks spending discipline, according to a Bloomberg National Poll conducted Sept. 20-23.

That sentiment is shared by almost three-quarters of Republicans, two-thirds of independents, and a plurality of Democrats. Just 28 percent of respondents backed Obama’s call for a clean bill that has no add-on provisions.

The Bloomberg article is here, and I would say this means the Republican strategy may be working somewhat better, and be less insane and out of touch, than its critics often suggest.  (I do, by the way, understand that the framing of the initial question is going to influence the poll results significantly.)

As they sometimes say, it is time to elect a new people.


Time to elect a new people, indeed. If there's anything the last 10 years have shown us, it's that the politicians and technocrats in the US and EU know exactly what they're doing, particularly when it comes to sovereign debt levels, and shouldn't have to be constrained by the "people," most of whom never even obtained a PhD from a school in the northeast US.

"Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide."
--John Adams

"Looking back, we had, in the person of Teddy Roosevelt, the finest President in the history of this country. He had the spirit and determination that matched the times and the land. Then the women got the vote, and everything went to hell. While our boys was overseas fighting the Kaiser, the women got Prohibition put in. Drinking and gambling and whoring were declared unlawful. All those things which come natural to men became crimes. "
--Life and Times of Judge Roy Bean

Instead of focusing on the specific recommendations of these unwashed hoi polloi, Tyler should note that people are quite sensibly concerned about runaway government spending.

Do these people show any indication of understanding the debt limit and default, or is this poll just a general expression of the sentiment that "deficits are bad."
Also, is it 'runaway' spending when the deficit is falling rapidly? And can it be 'runaway' if the spending is based on passed budgets? The spending doesn't happen without authorization from the House. They can cut the military, social security, or medicare/medicaid to have a budget with no deficit - also raise taxes significantly - but of course those actions cuts would be wildly unpopular and that type of austerity would hurt the economy (leading to further unpopularity).
What the 'people' want is to have their cake and eat it too. But when they are eating their cake, they do like to chat about how bad it is for them...
Tyler is absolutely right that the debt ceiling is foolish in general, and catastrophic in the hands of the current Republican party in the House. A general (misinformed) sentiment of the people shouldn't change that.

Memo to Senator Obama...

The people aren't always right, and they are skilled at cognitive dissonance, but they are right about this, and you are wrong.

2013 has been a good year for responsible government so far. I wonder why. Why do you want to let these bums off the hook so easily? No debt ceiling? That makes debt the path of NO resistance- isn't that obvious by now?

You could use a public choice refresher.

Debt is/was the path of no resistance with or without a debt ceiling.

If this were true, why all the screaming and shouting about having to pass a debt limit bill every 18 months or so?

Only while Democrats have been president since 1980 has raising the debt ceiling been a big crisis with Republicans demanding cuts to spending.

When Republicans were in power, the debt ceiling hike was a must pass that became the Christmas tree with all the gifts added to it.

If Republicans are so concerned about the deficit and debt, how is it possible that the 2000 balanced budget (by $5B) turned into a $400-500B deficit by the time the voters threw out a bunch of Republicans and replaced them with Democrats. Even then, the only thing the Republicans wanted to do was make the deficits worse after 2010 by making their temporary tax cuts permanent.

I maintained a list of tax cut laws, and during the Bush presidency, he proposed and signed more tax cuts, (and not one tax hike), than the previous five presidents combined. Taxes while Obama has been president are 25% lower than while Clinton was president - 15% of GDP from 2009-2012 vs 20% of GDP from 1993-2000.

Taxes on capital have been the lowest than anytime since the 20s, the share of production going to capital is the highest since the 20s, but the economy is growing slowly because capital is using its share of GDP to lend to government so it can consume all the production capital won't buy because labor has no income to buy the excess production of labor.

Only while Democrats have been president since 1980 has raising the debt ceiling been a big crisis with Republicans demanding cuts to spending.

This is completely accurate, but misleading.

The party in power always loves increasing the debt ceiling and the party not in power always decries any increase. You can look up Senator Obama's vote.

A little harsh, but absent default this might be the best scenario. Absent the risk of default, there is no bargaining power.

Democrats can't see the logic of this because (on net) they believe the government is us.

You can have unlimited debt. You can have unlimited interest rates. But, you cannot have both. Milton Friedman said that about the welfare state and open borders.

"I don’t think there should be a debt ceiling at all - "

The national debt will never be repaid. That is axiomatic. However, it must be serviced, i.e., semi-annual interest paid to bond holders.

Presently (FRB financial repression, er, zero-interest rates/QEternity), the average interest rate on the national debt is approximately 2.4%. Historical, US aggegate debt interest rates were over 5%. If/when rates revert to the old normal, the US Treasury will pay out in interest $835 billion ($16.7 trillion * .05), or 80%-plus of tax revenues. That will leave left to pay off voters.

This is one reason there can be no QE TAPER.

The Republican position is that Democrats take cuts because the Republicans will never agree to negotiate over taxes equal to the cuts, and Republicans are demned committed to keeping as much of the decade of job killing tax cuts they got passed from 2001-2010 that drove the melt down and massive debt and deficit increases from 2000.

So, given the Republicans are offering only to cut off the limbs of Democrats, default is the best choice for Democrats because that will cut off the limbs of Republicans as well as Democrats, and the Democrats will be better off in that bargain, even if the limbs cut off are the same as caving to Republican ultimatums.

Given Obama campaigned for the past decade on balanced solutions of higher taxes and cuts to entitlements and has won both times with over 51% of voters, he is hardly going back on any campaign promises to refuse to negotiate the size of cuts only with Republicans.

And Obama hardly needs to worry about public opinion at this point.

Boehner and McConnell are looking both to the left and right to gauge public opinion, trying to figure out how to please the right to win their primary while not angering the left so much they defeat them in November 2014.

And Democrats see the government representing all of us, while Republicans see themselves as representing only the half that elected them. They keep emphasizing that you lose if Democrats get health insurance like you have because you will be competing to see doctors with Democratic voters and everyone knows competition is bad because Democrats should not be allowed to see doctors.

Exactly. The debt ceiling is useful precisely because it forces both voters and representatives to at some level confront and resolve the dissonance between "I want to spend all this money" and "I don't want to be at an unsustainable debt level".

The debt ceiling makes more sense, not less, in light of both behavior economics and public choice lessons.

As with the banking crisis, it's not my fault they chose "fail to disaster" as the only other option.

But the debt ceiling doesn't create "fail to disaster".

1. In practice, it forces negotiation. Which, while messy and unpleasant, is, of course, the best way we have of resolving disputes.
2. The level of "fail" entailed in missing the debt ceiling is, unfortunately, endogenous to the process. That is, as with other budget cuts, the standard bureaucratic tactic of making the required cuts as catastrophic as possible has been put in place.

In a world without strategic lying and miscalculation, we wouldn't need the threat of the debt ceiling, but the threat itself, would be less onerous if the executive worked to minimize the impact rather than maximize it.

It never forced negotiation before. The budget was where the negotiations came in - the decision on where to spend the money.
That's already been decided, the debt ceiling is just to pay bills that have come due.
It's all well and good for (to use a poor analogy) a family to sit around and discus the purchase of a home. But It's not proper for the husband to later threaten to not pay the mortgage and allow foreclosure if he is not able to have an affair. That's not negotiation, its extortion.

So, this post should've been titled "Behavioral biases in political punditry, installment #1637"?

I keep thinking that the next constitution should ban all forms of borrowing by the federal government. The reason is exactly what you mention. Public debt allows some portion of the citizenry to avoid making choices. Sophisticated monetization techniques have eliminated the debt markets as a final backstop. The result is "public choice" is in the barn with Bigfoot and the unicorns.

The way to do that is the Constitution requires the president to hike taxes to pay all the bills that Congress legislates should be incurred but fails to levy taxes sufficient to pay.

Congress would thus specify the way the president levies the higher taxes, and they would thus be able to spend to win votes without having to hike taxes to pay for it, and the president would take all the heat from voters.

Most of these comments read to me like flimsy rationalization from people who want the size of government to shrink under all political and economic circumstances. This isn't complicated:

Is default a good outcome under any circumstance? No.

Is the threat of default credible if there is no chance refusing to raise the debt ceiling will result in default? No.

Do any of us trust our legislators enough to play politics with the possibility of US sovereign default? God I hope not.

Therefore the debt ceiling should be repealed. People who think otherwise are not rationally considering the costs of servicing debt.

As one of The People, I am sure I suffer from a lot of political ignorance and cognitive dissonance on this issue. But last time this fight happened I remember there was an argument that reaching the debt ceiling was not a necessarily a "default" -- i.e., a default of our bond obligations. I guess it would be a default on some planned payment streams, such as discretionary spending or entitlement spending, but would "defaulting" there be as catastrophic as defaulting on our bonds?

I don't know, it could be. But I don't understand why and I would honestly like someone to explain it to me why both types of default would be equally bad.


The argument is that as we have periodical (monthly) payments to make on our debt (our bonds - not making social security payments or other spending is NOT called defaulting). By not raising the debt ceiling, the treasury would be unable to sell more bonds (i.e. you give me $1000 now and I give you $102 a year for 10 years) in order to pay off all of its obligations that are due this month. During these negotiations, the treasury usually comes up with some date at which it will run out of money. Since it doesn't stop paying social security and other obligations a couple weeks before this deadline, it really wouldn't have money to make its payments. If the treasury stops paying everything except its bond payments, and still doesn't have enough cash to cover them all (or just decides to pay some fraction of SS checks, some but not all bond obligations), it has defaulted. Now, not all defaults are created equal. "I can't pay you right now" isn't the same as "I'm not going to pay you back this loan." Obviously the latter is worse, but in either case the event will cause people buying US Treasuries to require a higher interest rate to make the transaction. This could be the trigger that makes us unable to recover to a sustainable point, and we may have to sell Kansas to Russia.

Hopefully the Chinese will settle for Florida instead of demanding California.


Miles, thanks a lot for the reply. That makes more sense. I guess if the Republicans were more serious and not just grandstanding, they would propose budgets or at least temporary spending resolutions that would decrease other spending enough to free up enough to make our immediate debt payments.

But I guess they won't do that, because they aren't that serious...probably because telling everyone that they'd be getting 20% less on their SS checks this month and that all federal workers would be furloughed every Friday would be massively unpopular, way more unpopular than not having to raise the debt ceiling, and then they would immediately lose the debate.

As best I understand it, all attempts by the legislative branch to prioritize payment in the event of reaching the debt ceiling have met with an immediate veto threat (and a little beyond that - a truly dangerous implication that the Executive can and will deal with it however it sees fit).

This is basically a mutual hostage-taking situation if it's one at all. I could really live without the "hostage taking" metaphor though.

The government takes in revenue, plenty of revenue to pay the few hundred billion in interest payments.

In other words, any sized can may be indefinitely kicked down any stretch of road.

We don't need to make any hard decisions, ever ever ever.

I see the allure of such magical thinking.

You can choose to read it that way if you like. My actual thoughts are more like this: We should learn to make hard decisions without the threat of sovereign default. And here, 'hard decisions' to me does not always mean 'cut spending', it means 'run a balanced budget'.

I agree, except that saying something 'should' be the case, by itself, doesn't get you anywhere.

Of course it doesn't always mean 'cut spending.' Several tax increases have come into force this year. I'm on a personal crusade to get whatever we can outta the damn boomers before they all head off to Del Webb, considering they have been the primary beneficiaries of the years of fiscal indiscipline earlier this century. I also carry a $250K liability for my family's share of the debt on my balance sheet, even though economists tell me I have a lot of nerve behaving in such a rational/Ricardian way. I'd like to lower this amount.

So, where do we go from here? Are taxes too low?

My personal opinion -- yes, tax receipts are too low to deal with an aging population and the size of our safety net. Tax incentives are also phenomenally screwed up at the lower end of the income scale. But the biggest thing we can do to make our future debt problems look less scary is to squeeze healthcare costs. One of my biggest frustrations since the ACA was passed is the total lack of Republican interest in healthcare cost control. The right appears to be sincerely interested in cutting government spending, except for the programs that will be most responsible for real debt problems. It is maddening.

"Is default a good outcome under any circumstance? No"

Okay, try again.

Default would be better than every television station running a constant Two and a Half Men marathon, that's for sure. (Is that one of the options?)

They can abolish the debt ceiling if they get that crap off the air.

People think I'm kidding when I say that my net TV utility is less than it was 30 years ago.

No. You try again. Default is a terrible outcome.

Forget it. This is a blog for libertarians. They think that Republicans threatening to shoot themselves and the country in the head if the Democrats don't give them what they want is negotiating. I will agree with one perspective: if you take it as given that government deficits are a hideous evil (ie, you're the kind of person who wants a balanced budget requirement), than I can see how you might rationally prefer this kind of hostage taking over policy. But in that case it's the prior that government deficits are a problem that is simply dead wrong in my opinion.

I'd agree with no debt ceiling if the Federal Government was mandated to run balanced budgets (or at least a balanced budget adjusted for five year CAPEX plans) to ensure that one generation cannot plunder the next (as is taking place right now). Would be a different story if the government raised taxes and forced this generation to pay for all the waste they seem to want so bad.

This is exactly why default needs to be a possibility. You can't just vote yourself debts on my kids unless we can threaten the bond buyers.

Until 1980, Republicans knew what the first and most important power of Congress was, and what was meant by the second power of Congress.

Then Reagan was advised by conservatives that the first power of Congress was unconstitutional, and the second power of Congress meant Congress could borrow without limit because America is exceptional, and that means the rules of debt do not apply to America, just to everyone else.

Those two powers of Congress were simply recognition of the existential threat of borrowing without repaying the debt: The Revolutionary War would be for nought and Britain would resume control and tax Americans without representation, and without paying those debts that funded the war.

Time to elect new people? Aren't we the ones who put these people there in the first place? Oh the wisdom of the American people. You know, the ones who think we can balance the budget by cutting foreign aid, which they thought claimed 27% of the budget when in reality it's closer to 0.7%. Or the ones who couldn't tell the difference between Iraq and Afghanistan?

It seems to me WE are the problem. We keep recycling idiots who think sabotaging our government and redirecting government funds to private pockets will lead us to prosperity. Maybe what we need to do first is get ourselves a little bit of education. Otherwise, we'll just send the same kooks to Washington but feel better about having done something and complain when things don't change.

The worst thing that happened to politics is the invention of "the poll".

I wonder of people assume foreign aid is so high because we see so little of the money.

Maybe I should run for congress. I'd spend my 2 years (because I wouldn't last longer than that) sticking it to the people who think I should just forego using my brain because 61% of the people think I should jump in a pool of dung.

The other thing I would do is push for a constitutional amendment forbidding any business from making a profit from government money. Maybe then people would be elected to govern rather than funnel government money to their sponsors.

Interesting. However, PLEASE offer me the option of where we curb spending without bankruptcy.

Fiscal Accountability Law.

For each member of the House, Senate and the Pres and VP, an incentive payment calculated as

-- GDP growth - deficit (both as percent of GDP, measured in dollars)

--- times 0.25% (bonus factor, ie, you're paying 2.5 cents for every $10 of sustainable GDP the Congress creates)

-- divided 537 pool participants.

In this plan, each incremental percent of deficit in GDP or GDP growth, is worth $500k to each member of the House, Senate and Pres,VP.

I can assure you, it would be highly motivational without need for bankruptcy.

Cost per household: about $5 / year, one cup of Starbucks coffee.

It's on Boehner's desk.

It needs a 10 year clawback.

I like the basic idea, sadly, it'd ultimately result in "tweaks" to how GDP and the deficit are measured. Could probably push that out by being very careful with the wording, but ultimately....

The version on Boehner's desk has a five year clawback. I didn't write about it here as I thought it might be a bit geeky.

In essence, there are two issues with a clawback (ie, a mechanism by which the bonus is paid out over a number of years and offset by any accrued losses from subsequent periods). First, an incentive plan must incent. If it's too long in payout, then its incentive effect is greatly lessened. Do I care about a payout ten years hence? Yes, but not that much.

Second, the plan needs to capture full business cycle dynamics. We want to avoid "short termism", for which the banks, for example, were criticized prior to the recession. Thus, the recipients should believe that any programs instituted must be able to resist the effects of a cyclical downturn. The US has suffered a recession, in the last 150 years, approximately every five years on average. Therefore, a five year payout would create the impression that any programs passed by Congress would be subjected to at least one downturn.

So, balancing full cycle expectations and maintaining the incentive effect would tend to argue for a 5 year clawback period. I think one could justify a range of 4-7 years, but probably not more or less. Personally, I would stay with five.

Thomas Sewell argues that linking incentives to GDP and deficits would result in distortions in those measurements--like including the change in R&D in GDP, for example! No doubt, there would be some gaming of the system, and under some circumstances it could get out of hand. One could include a neutral third party, say the IMF, as an external control--and I would use them for rolling out the plan to other countries. But I think the system in the US would work fine for a while as regards measurement, at least.

There are other ways to game the system. One of these is off balance sheet debt, and I think we'd see more of that, but it's hard to put $300 bn of annual debt off balance sheet (for example, in public private partnerships). And most of that has to go into investment (can't PPP social security payments), so I'm not sure it's such a bad thing. Again, you have to run the system for a while and see what abuses are most common.

Of course, I know how I'd game the system. I'd run the budget in structural surplus. (That's a negative deficit.) And I'd justify it by saying that debt to GDP is too high, and we have to reduce it, etc. And it has the added benefit of being true, or at least plausible. That doesn't bother me either.

So, Andrew', if we allow a five year clawback, are you on board?

(And also, if Tyler would like a post, happy to oblige. If MR ran a post on it, everyone in DC would be talking about it.)

Cut Defense by 30% with the possibility of further cuts. Means test every government benefit. Tax brackets include any form of revenue which allows you to cut taxes for the top to a ceiling of 28%. Cut funding to colleges that charge more than $10,000 in tuition and fees. Invest some of the surplus in research. Encourage recent graduates to public service in the third world for 2 years.

I would go on but I think I met my goal.

Encourage recent graduates to public service in the third world for 2 years.

Exactly. Because after all, nobody wants to go in public service in boring old Detroit or East St. Louis or Chicago's South Side or Meth County USA. That doesn't make for a very exotic Facebook page!

No. Because then they wouldn't be competing for jobs in the U.S. Some of them will even prefer to stay abroad and create goodwill for the U.S. so later we don't have to bomb them into buying our products, or so we get a future ally or trading partner.

You think politicians dream up these things for altruistic reasons?

You probably want to harmonise all the government benefit rules first, so you can then just means test once, rather than today, where you'd have to do it for all of them, making the means testing often more expensive than not doing it!

Require every candidate to pledge to exercise the first power of Congress.

That would eliminate most Republicans.

I think "time to elect new people" was meant literally - we need a new set of We the People who understand these things, not "new people as elected leaders."

It seems to me the correct time to have a debate is when you acquire the debt, not when the bill comes due.

Except that doesn't happen. It can't happen. We know it can't happen. In fact, I think this is purposeful.

"Of course we have a way to avoid bankruptcy, the debt ceiling. So, no problem."

"We obviously can't USE the debt ceiling. That's bankruptcy."

There you have it folks, the ultimate lament of the lefty: the people didn't live up to my expectations!

But the conservative Republicans ONLY recognize it when they are out of power, like in the 90s. In the 80s, Republicans had no problems with interpreting the first power of Congress to be "to cut taxes to run up infinite debt and spend with abandon creating defense industry jobs in the South".

When Clinton took office, they sought to cut spending to cut taxes, but Clinton unilaterally blocked them on cutting taxes until the budget was balanced.

But once Jan 20, 2001 passed, Republicans were back to cutting taxes and spending with abandon because debt and deficits don't matter when Republicans are in power.

But once Jan 20, 2009 passed, Republicans were now fully committed to cutting spending because Obama would be blamed for the pain it caused, leading to Republicans being back in power and tax cutting and spending with abandon.

After all, with all the screams about entitlement spending needing to be cut because the deficit and debt are just so out of control, not once has the House passed a bill that cuts Social Security benefits by just 10% starting immediately.

Wouldn't that simply motivate those on Social Security to go start a small business and create jobs - they have all the experience, are the best off of all the generations, and small businesses create 200% of all new jobs????

I have no idea what this has to do with my comment.

You like to dredge up the annals of history from time to time. In this case, you haven't gone far enough.

The 1980s crisis was fueled in large part by the huge expansion of government known as "The Great Society", which set the stage for the 'modern era' in American politics.

Ever since, the objective has been to get a headlock on Leviathan. This is a simple, easy to understand goal, I approve of it, and it is obviously a very difficult task - Leviathan is a big lumbering version of Adrian Peterson - and yes, there are serious Democrats who understand all this and whom I like and craven Republicans I despise.

The Republicans badly fumbled their shot at hegemony in 2000, just like decades of Democratic hegemony cooked up the Great Society Leviathan in the first place. It is abundantly clear to me that modern politics in America goes off the rails under single party rule and rolls up its sleeves (Reagan/O'Neil, Clinton/Gingrich, Obama/Boehner?) when forced to hash things out.

We face the CERTAINTY (note: not an economic forecast) of debilitating debt service cost plus entitlement spending in just a few years unless we get serious now, but most people don't look more than a few months ahead.

The fact is, our leaders understand the financial straits just around the corner (baby boomer retirement entitlements) and are, at long last, doing their jobs, rather than just distributing goodies, which is a lot more fun. (It's fun for people like economists too, because the salad days are a time for indulging all manner of far-flung silliness.)

Doing their jobs means breaking the news to the American people, knowing full well that ANY step in ANY direction will provoke howls, because EVERYONE thinks they're not quite getting a fair shake. Human beings are funny like that. This, by the way, is why these difficult stretches have to be a time of non-partisanship. Neither party can or will take these bullets alone.

But politicians have indulged this dissonance for years ("You aren't quite getting a fair shake, are you?"), so this is a problem of their own making.

The job description looks something like this: Power, celebrity, long hours. And every so often, delivering home truths.

>>And every so often, delivering home truths.<<

...and then getting voted out of office and replaced by someone who turns the gravy train back on.

Wait, what? Who's not in favor of distributing goodies? Who's doing their job? The Republicans still want to cut taxes and increase military spending. Democrats still want to increase entitlement spending (although they do seem willing to raise taxes to pay for it). The only reason the deficit is shrinking is that the economy is recovering and gridlock in Washington bumbled into some dumb-ass cuts through the sequester. History suggests neither the recovery nor the gridlock will last forever.

Yes of course, everyone loves the Santa Claus part of the job description.

Washington is doing its job this year- thank-you once again gridlock. The unmistakable sign is the squealing from all across the land, as if the citizenry is being force-fed spinach. Which it is.

Without external pressure, these guys would be running "all Santa Claus all the time." If it weren't for periodic debt ceiling reality checks, we'd prolly slam into the oncoming 2020 "entitlement/debt service and that's about it" scenario without even tapping the brakes. I'm not hear to wreck the welfare state, I'm here to save it.

Nope. We don't need the debt ceiling to stir a debate on the deficit. Any party who wants to talk it can do it every single time there is a budget or an appropriations bill.

Why is it the politicians who are to blame here? We vote for them.

Fair point. Ultimately, we get the government we deserve. I'm only blaming politicians for their role in this rhythm of irresponsibility, crisis, tough decisions that has punctuated the last forty years.

I guess I'm really only blaming politicians for being predictably human under the circumstances. Same goes for the citizenry. Wouldn't it be great if every day was Christmas?

I actually think the system is kind of working, and 2013 marks a shift toward responsibility. Baby steps so far, but she's a big ship.

I've voted in every election since I was eligible to vote. No candidate I've voted for has ever been elected to national office. Why should I accept any of the blame?

Can you explain why there shouldn't be a debt ceiling?

Why woudn't this be the time for adding conditions? When else will there be a better time? Given that debt, not taxes, are linked to spending, why woudn't this be the time for an input/output debate?

Why are you using the emotional and highly-misrepresentative words of hostage-taking? The Rs are just doing standard grandstanding, which is normal behavior of both parties. Standard negotiations are exchanges of objects of worth, something that is at the core of econ, and is seems to be without merit to accept demonizing of one side in the debt ceiling debate when both parties are responding to basic incentives and rational self-serving gain.

If the Rs didn't ask for something, there would be pundits talking about how they gave up their one significant bargining chip to the Ds. Has there not been much ink spilled over their failure to get any meaningful concessions out of the last go around?

I'd like to know the value of this debt ceiling to bond buyers. Perhaps it tends to reduce long-term interest rates.

You could have a less blunt instrument that dictated a LIFO spending plan (ACA I'm lookin' at you fool) but this is the one we have.

It is hostage taking because the debate is not over the substance - let's not acquire so much debt - but a contrived situation to get one party's way.

As you point out, it is a "bargaining chip," not a substantive debate. The Rs are basically threatening to kill the economy through a US default, if they don't get their way on various unrelated other issues. "Give me what I want or the economy gets it" isn't so far away from "I will shoot one hostage every hour until I get ten million dollars and a helicopter."

Problem for the GOP: if they DID have the debate on the the merits and at the appropriate time - when debt is acquired, not when the bill comes - they'd have to actually cut programs that people like, which would be unpopular. It is much easier to rail against unspecified "debt."

Benefits always sound good. It's the costs that people don't like. Same here.

That's a good question. If there is one, there is a risk of default. If there isn't one there is the risk of increased borrowing indefinitely. However, even with the debt ceiling, we've acting like there isn't one by raising it when we're close to it. It's been raised 78 times since 1960, 49 times under R administrations and 29 times under D administrations without any particular fuss except for the last 2 times. The risk of default is actually greater than the risk of increased borrowing because you can't fix the damage caused by default but you can plan around borrowing. So it makes more sense to have no ceiling or a ceiling so high it would not be reached every 6 months.

Who cares what the pundits say? Their job is to agitate the masses so they get more ad revenues. They will always have something to say. If Obama announced tomorrow that he found a cure for cancer they'll running a special about how he stuck it to republican oncologists. If McConnell announced he is ok with eliminating the debt ceiling, it'll be about how he co-opted the D's message... This will go on until the end of times or until we find a way to fund journalism without ad revenues.

There should not be a debt ceiling because the debt is merely the consequence of other policy choices. The focus should be on the primary choice, not the residual effect. They had an opportunity to place conditions in the annual budget resolution, in the appropriations Acts, and in the taxing legislation. It is the cumulative effect of those policy choices that results in a debt. Because each of those bills is scored by CBO, Congress has already seen and explicitly endorsed the level of debt. If they ignored the data or failed to follow the primary process, that is not an excuse for holding the nation's finances hostage.

They have eaten to excess and now their pants don't fit. Rather than buy new pants, they threaten to run around naked. Yeah, that's mature.

You have put forth a thoughtful argument that I'm sure is applicable on some planet. Not this one though:

Isn't that right LBJ? "A health program yesterday runs $300 million, but the fools had to go to projecting it down the road five or six years, and when you project it the first year, it runs $900 million. Now I don't know whether I would approve $900 million second year or not. I might approve 450 or 500. But the first thing Dick Russell comes running in saying, 'My God, you've got a billion-dollar program for next year on health, therefore I'm against any of it now.' Do you follow me?'"

But there is a debt ceiling, a point at which no one would lend you money, a point at which the interest on the debt becomes a burden. Lots of countries have run into that debt limit, and it wasn't some polling question that decided it. The borrowing limit that has to be raised legislatively is a good discipline, because as bad as any effects from political posturing and fights, it is far less than hitting the real one.

I'm not sure a ceiling you always raise is a ceiling. More like a lift. ("give me $5 and I'll push the 'up' button")


Two different things. The 'debt ceiling' is an artificial legal device that prohibits the Fed. gov't's debt from growing beyond some arbitrary number. The debt ceiling you're talking about is a market limit on what the market will and will not let you borrow.

The legal device is destructive since if one takes it seriously it can force the gov't to default on its debt even though the market is perfectly willing to lend money to it.

IMO it should be tossed out with other legal devices. One candidate is minting the 'trillion dollar coin'. Another is to simply ignore it on the grounds it is unconstitutional. The constitution says the President must follow the law as passed by Congress on taxes. Must follow the law passed by Congress on spending. And to boot the 14th amendment actually says the debt of the US must be honored (back then there was fear the Democrats might try to force a default as a way to get the Congress to make good on Confederate bonds). The debt ceiling, though, appears nowhere in the Constitution as a power of Congress. Therefore stuff that's in the Constitution IMO trumps stuff that isn't.

How it is possible to default when there are the following conditions currently in effect: A) A default means failure to repay an existing bond or interest on a bond B) Government revenue exceeds interest payments by more than 5X C) New debt can be issued to pay old debt because you can rollover the existing debt

I believe you can force default via one of two means:

1. It's not simply paying interest but paying off bonds that are maturing. If a huge portion of the debt is due to mature at a certain date, you may have to issue a greater amount of bonds in order to roll it over. If the debt ceiling makes that legally impossible, you may end up without enough cash on hand to pay off maturing bonds and interest on all the other ones.

2. Approved spending is larger than approved taxes. Assuming Congress changes neither spending or taxes Treasury is in a mathematical bind. You could argue that the President could 'solve' the problem by, say, simply not issuing social security checks for everyone with an odd SSI number therefore default can be avoided. But by what right does the President have to pick and choose among approved spending? Perhaps he could also resolve the issue by simply docking social security checks going to people who live in districts with Tea Party representatives!

I don't know the specifics of the law, but it would be absurd if they cannot issue new debt because the expiring debt comes off the cap. If $100 billion is due tomorrow, they can issue $100 billion in new bonds. At the moment, the debt ceiling hasn't gone up for months thanks to accounting gimmicks, so even if the law is strict, it seems 1 wouldn't be an issue.

On 2, if they can't spend the money, it doesn't count as a default. Default is a specific financial event, bond holders don't give a crap who you don't pay as long as you return principal and pay interest. Sometimes companies have stricter rules that can force a default earlier, but USG has no such strictures placed on its debt.


I think even in a balanced budget situation you could run into a default problem due to the fact that even with a balanced budget, spending and revenue are unequal over periods of time. For example, taxes trickle in during the year, probably with a spike around April but tax refunds go out big time from Feb-April. Even a budget that is balanced over the year may rquire short term borrowing in, say, Feb. with 3 and 6 month notes that get paid off before the year ends.

So now consider at that moment you need to borrow $10B short term exactly when $100B bonds are expiring. You need to borrow $110B to retire $100B. If you are at the debt limit and consider it binding you are now at a loss. You either must default on some of the incoming debt or defaut on some current bills. Pow the legal device has forced a default on you even though your budget is balanced!

On 2, if they can’t spend the money, it doesn’t count as a default. Default is a specific financial event, bond holders don’t give a crap who you don’t pay as long as you return principal and pay interest.

Who can't spend the money? IMO the Constitution doesn't seem to give the President the ability to just declare he isn't going to spend money that has been allocated by law. Nor does it give him authority to do things like take more in taxes from people than approved by Congress or withhold tax refunds.

1. No, rolling over always means exactly the same amount of debt. All existing debt can be rolled over, there are no restrictions on rolling over debt.

2. No, Treasury can prioritize, according to CRS. People forget none of this is new -- Reagan actually threatened to cut off SS checks if Dems didn't raise the ceiling. And no, you can't violate the Equal Protection Clause to punish your political enemies, although the IRS seems to be doing it pretty regularly.

Constitutionality. That's funny.

Again, if you have to default on your debt when you can't increase debt, that's a problem.

Next, the legal construct just might keep the bankruptcy from happening deeper in the woods.

The legal construct, if taken literally will cause a 'bankruptcy'. Since the deficit has been falling and debt as a % of gdp is not all that troubling I'm unclear how this unnecessary and ultimately staged 'drama' is going to prevent anything 'deeper in the woods'.

Not troubling?

Deficit/GDP 1.2 Trillion / 14.8 Trillion = 8.1%
Debt growth 1.2 Trillion/ 17.5 Trillion = 6.9%
GDP growth = 2.5%
Debt growth/GDP growth = 2.76

Deficit/GDP 850 Billion / 15.2 Trillion = 5.6%
Debt growth 850 Billion / 18.35 Trillion = 4.6%
GDP growth 2.6%
Debt growth/GDP growth = 1.8

Debt growth is expected to continue to dominate GDP growth. We are nearing a precarious Debt/GDP ratio, and continue to head further toward that end. There are still politicians and large sectors of the population who demand more spending. The economic drag of interest payments will continue to increase. Is this an inevitable consequence of public choice vis-a-vis rational irrationality?

"Again, if you have to default on your debt when you can’t increase debt, that’s a problem."

That's how corporations work all the time. Many financially sound corporations have to sell commercial paper or short-term debt instruments to fund cashflow. You wouldn't say IBM has a problem if they do it, why the federal government?

I like the people just fine. As Montesquieu sometimes said, "if you don't have fights, you don't have a democracy". Do the model people you prefer never argue and negotiate?

Rabble rabble rabble obstructionism rabble rabble.

The debt ceiling is a bizarre, misnamed institution and I'm skeptical Americans at large really understand it. There's no indication in the article that the people interviewed have a clear grasp of it either.

If the question were "Should there be conditions on raising the money to pay bills Congress has already incurred?", that would say something.

But Congress hasn't already incurred it. They have planned to spend the money, but they could still not spend it.

"time to elect a new people"

Who is the non-economist idiot who came up with the idea we have to do our jobs AND their jobs too?

The way it is supposed to works is you get to screw up and we get to retire you because we are too nice to assassinate dudes.

Politician A: "So I asked them 'would you rather we made even more unmeetable obligations or renegged on current obligations?' and can you believe some of them chose the latter?"
Politician B: "The rubes."
Politicians A & B: "bahahahahahaha!!!"


"it is time to elect a new people." This is the Tyler Cowen disease for which no condom is thick enough to prevent infection if you stand too close to the overpuffed vehicle.

Electing new economists would be more efficient

“it is time to elect a new people.”

You guys know he didn't make that up don't you?

The absurdity of the whole exercise is that the Republicans spend almost as much as Democrats, and they are only willing to cut enough to balance the budget sometimes in the 2020s, assuming optimistic GDP growth forecasts. Unless there is a Simpson-Bowles type reform package that really bends the cost curve on Medicare and Medicaid (and they probably do need to repeal Obamacare to hold spending down) , the country is going to hit the "natural debt limit" anyway.

As they sometimes say, it is time to elect a new people.

That day is coming and if you're still alive to see it, you'll find out why so many people were so desperate to get away from their own countrymen.

And good luck getting all those new people to pay that debt they didn't incur.

This is an exceptionally weird set of comments. "Time to elect a new people" was a joke, folks.

I agree with Tyler on this. Congress has (we hope!) passed spending bills. It is illegal for the President not to spend the money Congress has told him to spend. The debt ceiling says "Don't spend that money." Contradictory laws are not good.


It's difficult to predict which topics will give rise to bizzare behavior in the comments section; it's almost like some posts trigger a switch in the comments to go in to "moral\narrative thinking mode". Would be interesting to have access to MR archives to investigate this quantitatively.

Just look at very post by Tyler that generated more than 40 comments. I think he designs them that way. Maybe he has a bet with Alex about who's going to generate more comments. Alex's posts are more technical, Tyler's posts are more political.

Granted that the marginal comment is decreasing in quality, but I would have said the opposite with respect to Tyler \ Alex. And neither seems to be "comment-maximizing" ; that would require Krugman style abusive language toward your opponent.

Why not? Maybe it will teach Congress to stop passing bills that we can't pay for.

We are in really strange territory, printing money and buying our own debt with it. You want NO constraints on that process? I don't think this ends well.

'“Time to elect a new people” was a joke, folks.'

Well, it is a joke, but the post starts this way - 'I don’t think there should be a debt ceiling at all, and I also don’t favor conditionality on raising it, as I don’t think hostage-taking leads to better policy in the long run or even in the short run for that matter.'

In other words, Prof. Cowen does not agree with these stated numbers - 'Americans by a 2-to-1 ratio disagree with President Barack Obama’s contention that Congress should raise the U.S. debt limit without conditions.'

But as an educator with a profound commitment to free online education that espouses a certain framework, I'm sure what Prof. Cowen really meant, in an age where average is increasingly over, is that we all just need to be marketed to in a way that convinces us what is in our best interests, instead of our mistaken beliefs. Possibly, since Prof. Cowen seemingly supports President Obama's call for an unconditional debt ceiling increase, maybe what is really required are people skilled in reeducation, to let the misguided become aware of their flawed approach to being involved in political decision making.

Except that he's only half joking. Whereas I think the people are usually trying and the politicians cherry-pick the options they provide to the people. Such as the "well, I already made the red-line comment, so now do you want the US to lose face or save face?"

And since the people are busy because they want the politicians to do THEIR job that they were elected to do I have slightly more sympathy for the folks who don't want to have to also be experts at politics.

"Elect a new people" might have been a joke, but the attitude therein utterly banal. The foremost crime in all times and places is failure of the peasantry to suspend critical thought and bow before the masters. Republican voters? Damn kulaks, the lot of them. This neo-feudalism is just as prevalent in the US now as it is in Russia:

"As they sometimes say, it is time to elect a new people."

I have no doubt that you and people you know sometimes say this, because you are a treasonous, status-obsessed flunky.

I think politicians should be honest and run on the platform that they are willing to default on the federal debt and shut down the government until the House gets its way.

Like they did under Gingrich...

What happened the next election?

Maybe that will be a better answer than some poorly worded poll question.

Yes, and I think it is like TC's views on Jeffersonian agrarianism. To me it's too soon to tell, but I know what the kids collecting firewood would have thought as they realized the Hellfire anti-tank missile was about to hit them.

Why don't you ask about the overall quality of government we got in the 1990s, which of course had nothing to do with holding politicians' feet to the fire rather than allowing them to feed the cognitive dissonance of the American people, did it?

This is not hard people, unless you're a political hack.

"What happened the next election?"

The Republicans lost 2 seats in the house but retained control, gained 2 seats in the Senate and retained control, and the incumbent Democratic president was re-elected. In other words, pretty much nothing.

What happened to the economy?

It's time to elect a new comment section.

As with most of what happens publicly in Washington, the panic over possible default if the debt ceiling is raised is pure Kabuki theater, for political effect. Where were these people when Sen. Obama was saying that it's a patriotic duty to oppose increasing the debt ceiling?

The government revenue is far more than sufficient to keep paying interest on the existing debt. It's not at all a question of default, but rather of spending less than we'd planned to spend.

As to the bonds that need to be refinanced, how can rolling those over in the same face amount be a problem under the debt ceiling?

The "we mustn't default" crowd are cynically using a red herring argument to panic the public.

In the first sentence, "if" should be "unless".

How do we on the one hand know that politicians spend considerable signal time trying confuse their own side let alone the other side, while simultaneously expecting an efficient voting to policy chain?

We don't. We just want to ridicule the other side when suspending disbelief is useful.

In the first sentence, "if" should read "unless".

If you think default is a real possibility, you can make a fortune right now, because bondholders are oblivious to this frightening possibility.

This has nothing to do with default and everything to do with making politicians do their job by depriving them of an all-purpose escape hatch with no strings attached.

So, if they shut down the government and aid to the poor is suspended, does tax spending get affected? Say, do homeowners loose their favored tax deductibility for the period the government is shut down? This would really help address the debt but, oh no, if would adversely affect the rich donors to the Tea Party congressmen.

Correct me if I'm wrong, but I believe government employees got 'reimbursed' for shutdown days last time. I'm less sure about getting 'reimbursed' for furlough days, but I'm interested if someone knows the answer to this one way or another. Anyone? Bueller?

There is an argument, I suppose, that productivity didn't drop off on the days they weren't there.

"rich donors to the Tea Party congressmen"

...I'll remember that next time I see Air Force One land at a Hollywood fundraiser. As if D's don't completely dominate in election spending and fundraising.

"As if D’s don’t completely dominate in election spending and fundraising."

I don't believe that's correct.

Believe whatever you want, but can you name one recent (< 8 years) significant race where the Democrat was considerably outspent and not the other way around? From Obama/Romney, Obama/McCain (more than double), Mcauliffe/Cuccinelli current gubernatorial race, the trend is pretty clear.

"Still, the running 2012 tally for the Democratic groups – which comes from Federal Election Commission filings and voluntary disclosures released Friday evening – is dwarfed by the $21.5 million raised in the first two months of the year alone by the two main GOP super PACs. Those groups are the Karl Rove-linked American Crossroads and the pro-Mitt Romney Restore Our Future.

Those groups had $34.1 million in the bank as of their most recent reports, while the Democratic ones showed about $8.3 million on hand after Friday’s reports."

What if instead of conditions to raise the debt ceiling, it was conditions to abolish the debt ceiling. For instance: Abolish Medicare in exchange for abolishing the debt ceiling.

Just wait til he sees what the new people think...

Check out Andrew's comments on this one. Sullivan, not '

I agree with Tyler that there should be no legal debt ceiling, and I agree with boonton that it is unconstitutional.

I would also note that while quite a few countries are committed to not exceeding certain percentages of GDP on budget deficits or debts, in none of these are these limits binding, and the US is the only nation in world history to have had a nominal debt ceiling. That we have had it since 1917 makes people in the US forget, if they even knew, which the vast majority did not, how totally weird and ridiculous the whole thing is.

The only other democratic country with a debt ceiling is Denmark, although their's is set well above the debt level and has no practical effect, it is simply a work-around for a constitutional quirk, when borrowing reached 75% of the limit it was doubled. Every other democracy gives the relevant authorities broad discretion to borrow as necessary.

Democracy huh? NOBODY does that, do they?

Universal public education? But that's unheard of!

But women have NEVER had the vote!

Gay marriage? Unprecedented!

Article 1 Section 8 of the Constitution gives Congress the power to borrow money on the credit of the United States. So you have 2 choices under the constitution:

1. Congress takes a vote every time a new series of bonds are issued (this is how it was done prior to 1917) or:

2. Congress sets a debt ceiling and delegates the issuance of bonds to the executive branch.

It would be unconstitutional to abolish the debt ceiling because Congress cannot abdicate the responsibility it was entrusted under the constitution.

Now that is straightened out can we please abolish the stupid and idiotic idea that failure to raise the debt ceiling results in a default? Plenty of tax revenues are coming in to service interest payments on the debt. Running out of money to finish a highway project is not a default. It's a disappointment, not a disaster for the financial markets that will increase our interest rates.

Also, just because Congress passes an appropriations bill doesn't mean that there's enough money around to pay for it.

Obviously, this is why the founding fathers assigned 2 separate fiscal powers to the Congress: the power to appropriate and the power to borrower.

When desires (appropriations) conflict with reality (tax revenues available) then borrowing is not a dependent variable that automatically adjusts to satisfy desires. That's the brilliance of our constitution! It's known as a budget constraint (having borrowing limits as an independent variable) which is something that I'd expect economists like Tyler to understand.

The debt limit is the only device that could possibly force the Congress to match tax revenues to appropriations.

My recommendation is to have a debt limit referendum. Amend the constitution so that Congress has to submit requests to increase the debt limit to a vote of the people. That focuses the electorate's mind upon the imbalance between what they want and how much they wish to pay for it.

Re: It would be unconstitutional to abolish the debt ceiling because Congress cannot abdicate the responsibility it was entrusted under the constitution. -

The Constitution does not establish a debt ceiling. Congress created it and could, with the president's signature, abolish it as well.

Appropriations aren't "promises" or "desires"; they are laws. If the executive were to decide to decrease defense spending below the legally proscribed amount, it would be breaking the law just as much as it would if it borrowed beyond the legally proscribed debt-limit. They're equivalently contradictory.

And as a bondholder I would VERY much care if the US government started stopped honoring other obigations in order to keep me whole. That path can only lead to increased instability and eventual default. I would MUCH rather they continue to borrow from willing lenders who understand that--temporary congressional nonsense aside--that the U.S. government is one of the safest bets in the world.

This reminds me of the last time the debt ceiling came up and conservatives thought it would be a good idea to trample on the Constitution and create an imperial Presidency so that a short term goal of spending cuts would be enacted.

Congress can abolish the debt ceiling, but then it would be forced to take votes each and every time any debt was issued. Remember, the debt ceiling was a labor saving device instituted by Congress to free up their calendar from having to take so many votes on debt issuance.

Congress cannot decide that it will abdicate authority that was entrusted to it by the Constitution just because they feel lazy about taking votes.

Congress could pass a law authorizing debt to be issued as needed to pay for things authorized by laws passed by Congress.

Why is this in response to me? I didn't mention abolishing the debt ceiling. Although I do question your credentials as a Constitutional lawyer/scholar.

There is no provision in the Constitution requiring that every bond issue needs individual Congressional approval. Congress must approve taxes and spending. That's it. Time to mint that trillion dollar coin and end this nonesense (BTW, Congress did actually authorize that!)

Every now an then one has cause to agree with Alexander Hamilton: "The People, sir, are a great beast."

I like the idea of Paying for the Bills that have been Passed. Presumably, those are the result of our Political Process. That's what We, in the sense of having a Govt, want. The Taxes we choose should be based on some notion of Ability to Pay and the Most Efficient Manner of gathering the taxes. To Pass the Bills, and then to try and Not Fund Them, seems a Very Odd System to Me.

I'm not saying we should have any kind of Mechanical Plan like a Balanced Budget Amendment. I am saying that maybe we should understand the Value of Compromise, which, according to Burke, is the Basis of any Decent society, and accept the fact that people are going to disagree with us and have different priorities than we do, and that none of us are nearly as good or as smart as we think we are. Strength of Conviction is No Indicator of Correctness. A lot of Americans seem to think it is.

Is there any way to avert a constant slowing of our economic growth if we continue to grow debt faster than GDP? What is the multiplier of interest payments? Is there any realistic way out aside from lowering our deficits? Is there any realistic way to tax our way out of this deficit? What IS the debt-supporters plan to manage our economy?

To your second question,

Interest has been running at about $300-450 billion per year for almost two decades.

Since 2000, two factors have offset: (a) higher debt, (b) lower interest rates.

Rates have nudged back up 1% this year, but most people think they may still be a bit 'artificially low' due to Fed stimulus. If rates go up another point, we may see interest on the debt double to $800 billion per year or so.

To put that in perspective, the additional $400 billion in interest expense, by itself, is worth the food stamp program plus four other programs of similar size.

We are taxing our way out a bit this year, but taxes are pretty high now, at least on the rich. The deficit has halved, so the growth in debt is slowing, but it would be a really good idea to get some shrinkage here over the next couple years, although it is Gospel on the left that we will never ever ever have to worry about repaying principal regardless of how big the debt is, and I don't see that mantra changing.

It's gonna be a tough slog: tax the rich, cut defense, cut discretionary spending- this is the easy stuff (although the knee-jerk reaction to a haircut on food stamps is not encouraging.)

But these are ell preliminaries: someday soon, Americans will need to decide on some combination of higher taxes on everybody and scaled back entitlements.

I remain hopeful.

Isn't this poll a bit slanted? For example, it asks whether people would be more satisfied with targeted cuts or whether they are satisfied with across the board cuts. Wouldn't most people prefer targeted cuts? The issue is which cuts - Some people would prefer it to target the environmental agencies, some would prefer it to target the defense agency, some would prefer it to target the health and human services agencies, etc etc. It is out of a sample size of 1,000 people, but I can't tell at all how the sample was derived.

Bingo. The question wording heavily influences the responses, something glided right over with the sentence "I do, by the way, understand that the framing of the initial question is going to influence the poll results significantly."

Beg the question much? The language "because a congress lacks discipline" is not language a pollster interested in unbiased responses would use, it's a blatant prime. And half the respondents think the deficit is growing, so the notion that this single poll with questionable wording that contradicts other polls, and demonstrates an ignorant response population has any meaning beyond supporting an already held ideological viewpoint is absurd.

Given extensive polling data that contradicts this one, this is a disappointing cherry pick from Cowen who is usually a lot more intellectually honest than this. The National Review Online acknowledges it, and they aren't exactly unbiased in this debate:

1) There is zero risk of default. Zero. Debt services is a small fraction of revenues, and CRS has ruled Treasury can prioritize.

2) Not raising the debt limit amounts to saying "the federal government cannot spend more than it raises in taxes." That may sound horrifying to the Beltway, the rest of the country thinks you're insane.

3) If the nonexistent specter of default is so horrible why doesn't anyone pointing in horror at said specter ever seriously suggest cutting spending to the level of taxation? Zero-baseline budgeting works great in Texas.

The real issue here is that spending cuts are too horrible to contemplate. Not default.

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