Repeal the debt ceiling
Thinking Differently | Monday, October 28, 2013
If you follow politics, you know the past few weeks have been pretty volatile in our nation’s capital. The federal government shut down Oct. 1 after Congress failed to pass a budget resolution that would have allowed the government to continue operating. But while macroeconomic forecasts are already showing the negative effect the shutdown had on our economy, Congress narrowly managed to avoid bringing about an even bigger catastrophe – hitting the debt ceiling. The debt ceiling limits the maximum amount of debt our government can take on. We were set to hit that limit around Oct. 17 before the government finally agreed on a continuing resolution to fund itself through mid-January and extend the debt ceiling until early February. This is a good thing, and I’m glad to see it happen, but frankly, our government should go further. It’s time to get rid of the debt ceiling.
Many people have a difficult time understanding what the debt ceiling actually is, which makes debates surrounding its existence quite difficult. Let’s begin with what raising the debt ceiling doesn’t do. It does not increase our national debt, at least, not directly. The debt ceiling sets the overall limit on how much our government is allowed to borrow, the same way a credit card’s maximum limit sets the overall maximum a person is allowed to borrow. But the debt ceiling doesn’t – and this is important – decide how much our government actually spends. Congress does that by passing a budget each year.
This concept is why the debt ceiling, at present, doesn’t make any sense. We already have a process by which our government decides how much money to spend each year – when Congress passes a budget and allocates funding to the various parts of our government. We already have a process by which our government decides how much money to collect in revenues in each year – when Congress sets tax rates and passes a budget and when the Internal Revenue Service collects taxes. Moreover, when Congress does those things, it has a reasonably accurate idea of whether it needs to issue bonds to finance some of that spending and how much borrowing it actually needs to do. According to the Constitution, Congress has the authority to borrow money. So why do we have this extra arbitrary hoop that Congress has to jump through?
Once upon a time, the debt ceiling served a purpose. Back during World War I, we didn’t always have a forward-looking budget process, and military expenditures especially were not always budgeted for in advance. Instead of having Congress pass a new spending bill allowing the military to borrow money every few weeks, Congress decided to simplify the process by just creating a ‘debt ceiling’ and allowing the War Department to borrow money, as long as it stayed under that limit.
But today, in the context of the modern budget process, the debt ceiling no longer serves that purpose. Instead, the existence of the debt ceiling just serves as a relic of the way things were done decades ago, much like many other quirks in our government.
Yet, this is a particularly dangerous quirk. So long as the debt ceiling was an arbitrary number that our politicians all just agreed to raise every few years, it posed no threat. In recent years, however, the debt ceiling has become grounds for a new level of political theater, a place where our politicians can rail against the irresponsibility of the national debt, to the point that whether or not it gets raised has become no guarantee. It’s hard to overstate how bad that is. If the federal government hit the debt ceiling and became unable to borrow further – despite the fact that Congress had already passed bills mandating that the government do so – then the government would be forced to default on some of our debts. This would induce severe volatility into our financial markets, potentially setting off another global financial crisis. It would also result in higher interest rates for borrowing, making our public finances in worse shape and reducing confidence in our political system.
I’m as much an opponent of higher national debts as anyone. Just this past week, I spent several days in Washington, D.C., with Fix the Debt, a national advocacy group pushing for solutions to our long-term fiscal challenges. Yet, having a debt ceiling doesn’t do anything to help solve those challenges, and the uncertainty it induces just makes things worse. One of the ideas I heard from those I met with in Washington was how low expectations are right now with respect to what Congress can do. Even things like getting the government running again are seen as major achievements. Right now, Congress is in enough of a mess without nonsensical policies getting in the way. It’s time to get one such obstacle off its plate by getting rid of the debt ceiling.
Conor Durkin is a senior studying economics and political science. He can be contacted at [email protected]
The views expressed in this column are those of the author and not necessarily those of The Observer.