January 19, 2023

Let’s Slay the Debt-Ceiling Dragon

Today, Treasury Secretary Janet Yellen announced that the United States has reached its statutory debt limit. The government apparently cannot issue additional securities to finance its operation. As a result, the Treasury Department has begun to engage in financial legerdemain, euphemistically called “extraordinary measures,” by which it makes essential payments and defers inessential ones. Absent an increase to the debt ceiling, treasury will exhaust its ability to avoid default on government obligations sometime early this summer. In its entire history, the United States has never defaulted on paying its debts. It is universally agreed that, should the U.S. do so, very bad things will happen.

The debt ceiling is an odd construct. It was invented during World War I. Congress was being asked repeatedly for more money to pursue the war. Rather than having to make these requests over and over, Congress set a limit on how big the country’s debt could be. This eliminated a certain amount of congressional irritation, but as long as there was a formal limit to the nation’s debt, that limit had to be periodically revised. In practice, this meant raising the debt limit.

It might seem logical to revise the debt ceiling in conjunction with Congress’s spending authorizations. Instead, Congress causes money to be spent and increases the debt ceiling as necessary after the fact. In other words, increases do not accommodate future spending; they authorize the treasury to pay bills already incurred. Failure to raise the debt ceiling is akin to buying goods and services on one’s credit card and refusing to pay when the credit card bill shows up.

This Alice-in-Wonderland method of managing the country’s finances makes raising the debt ceiling essential while at the same time allowing a small number of members of Congress to hold the country hostage by making their votes on increasing the debt ceiling contingent on their achieving some unrelated legislative victory. In the current instance, it appears likely that Republican House members will demand budget cuts, possibly in popular programs like Social Security.

Republicans would no doubt argue that the debt ceiling mechanism operates to keep the government accountable. I believe, and I think most Democrats believe. that it is simply an invitation to mischief.

When Donald Trump was president, Republicans offered virtually no objections to raising the debt ceiling. In fact, during the Trump presidency, the national debt was greatly expanded, in part as a result of GOP-sponsored tax cuts. Republican legislators claim they are now interested in fiscal responsibility, but the reality is that, for many of their number, the real interest is in neutering the federal government’s ability to do much of anything beyond providing for the national defense.

As of this moment, Speaker of the House Kevin McCarthy has promised a small number of House members that the House will not approve a debt ceiling measure without demanding major spending cuts. President Biden has made it clear that he expects to sign a debt ceiling increase bill unencumbered with other provisions. Ironically, if Republicans force a federal government default, it will raise the government’s cost of borrowing, thereby increasing, not decreasing the national debt. The effects, not only on the cost of borrowing but also on the perceived trustworthiness of the U.S. and the stability of the world’s financial system will likely be catastrophic.

The whole debt ceiling mechanism is irrational and counterproductive. What seemed a useful and enlightened idea during World War I has become a monkey wrench in the gears of government. It makes sense for Congress to set an upper bound on the government’s ability to borrow, but it is morally unacceptable to prevent the government from paying for spending that Congress has already authorized.

Given the radical GOP ideologues now in the House of Representatives, the country seems headed for a showdown unlikely to end well. The Biden administration, should, I think, take drastic action that could put an end to legislative blackmail.

Section 4 of the Fourteenth Amendment says, in part:

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

 Failure to allow the government to pay “public debt of the United States, authorized by law” surely constitutes “questioning” such debt. The Biden administration should declare that failure to pay existing obligations is unconstitutional and should direct the treasury to issue debt obligations as needed to continue to pay the government’s bills. If the Congress is unhappy with the level of debt, it can try to cut spending in the usual legislative process, but not through debt-ceiling blackmail.

This would be a gutsy move by President Biden, and I suspect that Republicans would try to block it through the courts. The relevant provision of the Fourteenth Amendment has never really been litigated, and a particular judicial outcome is not guaranteed. The whole debt-ceiling thing is a hypocritical mess, however, and it may be time to kill its malignant effects once and for all.


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