With the fiscal cliff behind us, for now, what can we expect from the debt ceiling debate? While the partisan rhetoric is already gushing, fallacious constitutional interpretations forming, threats of a government shutdown, and economic scare-mongering growing. It looks as though we are in store for more of the same. Here are few things to keep in mind as the discussion picks up.
1. High Ceilings
If there is anything that we should learn from the history of the debt ceiling is that it has never acted as a limit for very long. It has gone up 75 times in the past 51 years (74 since 2010 plus one in 2011)! The last time it went up it was with Budget Control Act of 2011 — the same measures we just threw out the window. Clearly, the attempts to lower the debt ceiling have always been short-lived.
2. Both Sides of the Aisle
The debt ceiling is both a partisan and bipartisan problem. It is partisan in the sense that whenever the other party tries to raise the debt ceiling they are greeted with severe or at least mild opposition but both parties overwhelmingly support increases in the debt ceiling when their party is in power.
3. The Downgrade
Many people fault the downgrade by Standard & Poor's on the refusal to raise the debt ceiling. President Obama has also weighed in and blamed the refusal to raise the debt ceiling on the bad economy in the wake of the downgrade by saying that “last time congress threatened course of action our economy suffered for it.” Those who promote this fallacy often quote the line, “Political brinksmanship… less stable, less effective, and less predictable than what we previously believed” as evidence that this is why we were downgraded, but they do not even read the rest of the paragraph where it says, “The resulting agreement fell well short of the comprehensive fiscal consolidation program.” S&P went on to say: “elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a 'AAA' rating.”
There is no reason to believe that failure to raise the debt ceiling caused S&P to downgrade U.S. government debt. Actually, they noted, “Congressional Joint Select Committee on Deficit Reduction…or coupled with other initiatives, such as the lapsing of the 2001 and 2003 tax cuts for high earners [essentially the last fiscal cliff scenario] — lead to fiscal consolidation measures beyond the minimum mandated… the long-term rating could stabilize at 'AA+.'”
4. The Fourteenth Amendment
The Obama administration has said that it does not interpret the Fourteenth Amendment to mean that it has the ability to just ignore the debt ceiling as many other Democrats are encouraging him to do. Nancy Pelosi said, “I would do it, in a second, but I'm not the president of the United States.” These constitutional dolts read just the president has the ability to uphold “validity of the public debt,” but then fail to read “authorized by law” clearly a debt ceiling is law that does not authorize the government to increase its debts. Unless we have decided that congress no longer makes the laws anymore.
5. Government Shutdowns = Defaults?
Government shutdowns could happen if we do not raise the debt ceiling. This does not sound as menacing as people make it out to be. This just means that congress will have to agree on which budgets are considered essential — police, fire, armed forces — and which are not. This may not be the optimal austerity plan, but maybe when there are real limitations on congress they will find a way to agree to cuts.
Default is avoidable since the Treasury could easily make all the minimum interest payments a priority given that they only amount to $37 billion and should be well-covered by tax revenue. Therefore, not raising the debt ceiling may be a real limit on spending growth and could possibly improve our credit rating long term.