Debt Ceiling Politics

The decision to raise the debt ceiling will be the first test of whether the Republicans can move from tree shaking to jelly making.

Some, like Rep. Mike Kelly (R-PA), don’t seem particularly keen on making jelly just yet, declaring

Raising the debt ceiling to me is absolutely irresponsible.

Rep. Michele Bachmann (R-MN) has an online petition in which people are asked to agree that:

With national debt $13.8 trillion and counting, Congress’ spending frenzy cannot continue. It’s time to force our elected officials to stop spending cold turkey, and we can start by making sure they do not raise the debt ceiling.

That’s why I’m asking you to personally tell Congress not to increase the amount of money the government can borrow by adding your name to the “Don’t Raise the Debt Ceiling” petition.

Which inspires me to reproduce a statement I made four years ago:

There is of course an accounting identity that relates the government budget deficit (the excess of spending over receipts) to the government debt (the total amount that the government has borrowed). A deficit necessarily implies an increase in the debt by the same magnitude.

One of the peculiar embarrassments of the American political process is the fact that Congress votes separately on the deficit and debt, as if they were two different decisions. This bizarre arrangement allows Congress the luxury of instructing the Treasury to spend more than it takes in as revenue while at the same time voting to deny the authority to borrow the funds that would be necessary to implement the plan.

If the government is (a) required by the deficit legislation to spend, and (b) precluded by the debt legislation from borrowing, the Treasury would be forced into default. The greater the likelihood markets attach to such an event, the higher will be the interest rate the government has to pay on Treasury debt. A politician who votes for the spending and tax measures that produced the deficit but against a debt ceiling consistent with these is deliberately wasting taxpayer dollars for no purpose other than to grandstand before voters as a “fiscal conservative”. Anyone playing such a game has complete contempt for the intelligence of their constituents.

When I first wrote those words, many readers responded with passionate objections. And I expect the same this time, only with the partisans trading hats.

But I stand by my statement in both cases. If you have a concrete proposal to raise tax revenue or cut spending, then put it on the table. But if you simply want to grandstand on the debt ceiling as if it were a stand-alone issue, it is clear that you have nothing but contempt for the voters.

And if so, then you deserve the same in return.

Debt ceiling politics

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About James D. Hamilton 244 Articles

James D. Hamilton is Professor of Economics at the University of California, San Diego.

Visit: Econbrowser

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