Misplaced Outrage About the Debt Ceiling
It is irksome to read pieces like the recent one in the Wall Street Journal by Alan Blinder – who was on President Bill Clinton‘s Council of Economic Advisers from January 1993 to June 1994 – lecturing proponents of using the debt ceiling, i.e., Republicans, as a means of slowing the growth of government spending and indebtedness. Their action, Blinder claims, puts us at risk of a US government default.
I think the risk is dramatically overstated, even though it goes without saying that no one wants the federal government to default on its debt obligations. The consequences would indeed be nasty and, as always, those who would suffer the greatest pains would be America’s most vulnerable. If pushed to an extreme, the strategy of using the debt ceiling to extract some budget reform can carry some costs, for sure, but so is letting President Biden and Congress pass another $3.5 trillion through reconciliation.
Now I will grant that Republicans aren’t credible when it comes to fiscal responsibility. For one thing, protesting one $3.5 trillion spending bill (as worthwhile as such a protest might be to advance the battle of ideas) doesn’t seem very noble or genuine in light of the explosion of spending Republicans allowed during the Trump years (or Bush years for that matter).
It is also a fact that this strategy hasn’t been that effective overall. For instance, we have seen how it played out over the last 10 years with Republicans and Democrats repeatedly removing the spending caps put in place in exchange for raising the debt ceiling in 2011 and spending going up unrestrained. I still believed that in 2011 this was a fight worth waging because 1) we hadn’t tried this tactic before, and 2) most Republicans at the time seemed on board with the idea that some fiscal responsibility was prudent. I should have known, of course, that this GOP support for reducing government spending and deficits at the time mostly boiled down to political expediency. Today, the cultural and political landscape is radically different, and only a few in Congress and around the country care about spending and deficits, thus making this strategy probably dead-on-arrival.
That said, Blinder isn’t any more credible than are the Republicans he criticizes. He wants to bring back the Gephardt rule, which he describes as a requirement that “When Congress passes a budget, it shall be deemed to have authorized whatever borrowing is implied by that budget,” in order to return to an era where there were no battles over raising the debt ceiling. This concerned citizen is, however, entirely silent on the problems caused by the Democrats’ $3.5 trillion bill now making its way through Congress. He’s also silent on the potential impact (other than a default linked to a debt ceiling fight) of our actual debt trajectory on the U.S economy.
I understand the idea behind the Gephardt rule. Yes, Congress shouldn’t be allowed to pass a budget without being sure that the U.S. government will honor its commitment to repay its resulting debt. However, it is also wrong to allow that so much of the burden of government spending be put on future generations thorough borrowing, especially since it isn’t hard to figure out that all that spending will not create high return for those future taxpayers. (The proof that government indebtedness is borne by future taxpayers is among the earliest contributions of Nobel Laureate James Buchanan.) Moreover, if people today had to pay, through taxation, for all the government programs they currently consume, they would temper, at least at the margin, their demands for bigger government. For instance, some of the middle class and upper middle class families receiving monthly payments from Uncle Sam because they have kids may be slightly less enthusiastic about the payments.
The bottom line is that I would be more willing to listen to elites’ outrages over using the debt ceiling as a pressure point in the fight against spending if it came from those whose concern about the fiscal health of this country wasn’t limited to the risk of default during a debt ceiling debate.