Aug 4, 2011

Debt Ceiling Post Mortem

It is the government that sets the budget and the government that sets the tax rate.  In other words, it mandates that a certain amount of money be spent, and it mandates that money be collected at a certain rate.  When there is a discrepancy, the government has to borrow money to make it up, especially as revenue comes in piecemeal but payments must be made on schedule.  Thus, even a budget that runs a surplus for the year as a whole might run a deficit for a given month.  The debt ceiling is saying "to here you shall borrow, and no further", and never-you-mind that this was necessitated by the budget and tax rates that the government itself approved.  It was therefore a way for politicians to appear to oppose deficits without actually doing anything about either the spending or the revenue stream (tax rates) from which they result by simple arithmetic.  In other words, much like excessive deficits, it was an attempt to have your cake and eat it, too.

Despite its rather supercilious nature, the debt ceiling was nonetheless something of a problem if it were ever to be reached: it would mean, in short, that the government would be forbidden to borrow the money necessary to meet the obligations which it itself had approved.  This is, in effect, a default.  Even if the debt itself were not defaulted on, a default would still have occurred, to the severe detriment of our economy and credit.

Thus, raising the debt ceiling was rightly regarded as necessary, but everyone took the opportunity to talk about how SUPER SERIOUS they were this time around, and that they REALLY MEANT IT and were GRAVELY CONCERNED about borrowing and FULLY INTENDED to stop when the new limit was reached.  Imagine the code that had to be entered on Lost to stop the island from blowing up, except if everyone got on their high horses about FISCAL RESPONSIBILITY and how THIS IS THE VERY LAST TIME before they got around to punching in the numbers.

This happened more than 70 times--and yes, Obama participated.

But this time it's different.  To understand what the current batch of Republicans did, simply extend the analogy: now we have someone barricading themselves in the room and refusing to let the code be entered until their demands are met.  After that, the analogy breaks down: on the island, the proper response would be to agree to whatever they want and then beat them to within an inch of their life as soon as they open the door, but you can't exactly do that with elected officials.  The Radical Republicans in Congress in effect held a gun to the head of the US and world economy and said "It goes off unless we get our way."

And so they got their way, because they really did look crazy enough to actually do it.  This sticks in the craw, not only because what they so richly deserved was to be tarred and feathered and ridden out of town on a rail rather than given a few trillion dollars in concessions, but also because rewarding such behavior encourages more of the same.  The merits of the deal aside, the circumstances of it turned what was a Kabuki annoyance into a sword of Damocles and set the stage for more such fights in the future, whether over the debt ceiling itself or over appropriations.

This was my main reasons for advocating for the 14th amendment solution.  In effect, since the debt ceiling prevents the government from meeting the obligations it has already entered into, and since that calls into question the public debt of the United States, a President could theoretically declare it unconstitutional.  A President could also, as an emergency measure, mint trillion-dollar platinum coins, deposit them in the government's account, and keep on trucking--at least as a stopgap until a deal might have been reached.  Obama, however, ruled those out, and to be fair there are good arguments for so doing--though I suspect that, had no deal been reached, he would have pulled one of them (or something similar) out of his sleeve rather than allowing the default situation to occur.

I do wonder what he is thinking, though.  Perhaps since the Republicans did in fact campaign on the promise to pull stunts like this and yet did quite well in the elections, he feels that they have some sort of right to.  But the Republicans are not arguing in good faith.  They care nothing for the debt, as their record proves--more than half of it was accumulated under their most recent three presidents.  This is about power, populism, and a healthy dollop of anti-government denialism.

Now: let the record show that I in fact believe that federal spending and federal revenues must eventually undergo a realignment.  But the time at the very least should wait until employment and the economy are in working order, as fixing those things will go a long way towards fixing the federal budget as well.  As for the rest, the circumstances of that realignment will have to be worked out through compromise, but the proper setting for that negotiation is categorically NOT when one party has a gun to the head of the economy.  It is also ludicrous to suggest--as Republicans have--that the painful realignment of revenues and spending should occur without the slightest little adjustment in the lowest federal revenues (as percent of GDP) in decades.  It is perhaps understandable to make such a claim at the outset of a negotiation so that it can then be negotiated away for concessions, but to truly believe it--as Republicans demonstrate by their Grover Norquist pledges that they do--can only be explained by bad faith or bad math.

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