Abolish the Debt Ceiling?
Aug 6th, 2011 | 25 responses
In an interesting mailing I just received from a political group—Democratic, I believe—I find some points that I think merit some discussion by the experts among you. (I was going to say “among us,” but I will readily admit I am not one when it comes to economic issues.)
So, let me just “throw it out there,” after deleting or modifying some of the more partisan words and claims.
First, the main point of the mailing is that the debt ceiling should be abolished:
If one thing became clear during this most recent default crisis it’s this — the debt ceiling serves no useful purpose and should be abolished.
Why?
• There’s nothing in the Constitution about the debt ceiling. And if Congress wants to reduce spending there’s a process to do so — it’s called the budget process. But despite the cries from [some] about out-of-control government spending, the debt limit doesn’t have much at all to do with spending.
• Instead, the debt ceiling artificially prohibits the government from issuing new debt to pay the bills that are already due based upon previous budgets duly approved by Congress — including budgets supported by many of the people who used the debt ceiling as an excuse to push their policy agenda through [blah, blah blah.]
• America is virtually alone in the developed world in having a debt ceiling, and its existence has now become a major liability to the continued functioning of our democracy.
• …Our country does not have a near-term debt problem. In fact, we face a far greater crisis from the lack of government spending in the midst of an unemployment crisis and a weak economy. And the cuts to spending that were agreed to as a condition of raising the ceiling will only throw more people out of work while simultaneously shredding the social safety net.
• And let’s be clear. The pain and suffering that will result, including but not limited to the additional pain caused by an even weaker economy, was demanded in order to protect the tax breaks for the wealthiest among us and unneeded subsidies for giant corporations.
I have left out some of what might be called demagoguery, but there you have it. What you say?
And, just as I have tried to leave out some of the hyperbole and rhetoric, perhaps the responders—if any—can, too.
Thanks
25 Responses to “Abolish the Debt Ceiling?”
They’re right. The debt ceiling makes no real contribution to government or the economy. It is a law like any other that can be repealed. Doing so would be a good idea, as the recent travesty showed.
For once I agree with Jim. Whenever Congress authorizes new spending, they are authorizing borrowing needed to cover it. No additional authorization should be needed.
After reading the views of two usually opposing sides, I have to jump in and say that I agree with both of them and, generally, with the points made in the post.
I’ll now sit down and listen
I think this is one of those issues where people who care about policy will agree but people who care about politics will refuse to implement any change.
Both parties love the debt ceiling in spite of its bad policy ramifications because it gives them a tool to beat the other side up with. Let’s remember that no less than President Obama himself voted against raising the debt ceiling when he was a Senator under a Republican President. Now the partisan tables are reversed, but the underlying dynamic is exactly the same — the debt ceiling is a useful political weapon at the same time it threatens to be a policy disaster.
It is just like the filibuster, which in 2005 Republicans hated and threatened to abolish with the “nuclear option” that Democrats insisted was a direct assault on democracy itself, and in 2011 the Democrats hate and threaten to abolish with a “nuclear option”.
Round and round we go. In a spiral. Downward.
It makes sense in theory, but is it just liberal griping about what the GOP did? The timing is sooo suspicious, after all.
(It’s like Hillary Clinton predictably calling for abolition of the Electoral College and for direct election of the President after Bush beat Gore in the close 2000 election.)
Well, hell, Congress keeps raising the ceiling, so like other budget-related controls short of a Constitutional amendment (written in a correct fashion), that Congress routinely enacts exemptions or other escapes from, it’s pretty moot. Initial impression is that it removes a needed disciplinary device, but Congress disregards them all.
[shrug]
Let ‘em borrow all they want and let’s see how much faster we hit a debt trap or face demands for increased interest rates, et cetera.
I was told once that it was “illegal” for the U.S. Government to make a “profit” because it then competes with private business. So the best you can shoot for is breakeven anyway.
Without debt, the government can never visualize the future when planning because the budget would have to be balanced each year. A situation whereby “tax and Spend” is the only option that remains. Without debt, there is no other source of revenue for government besides taxes and reimbursement fees.
We had a deficit surplus when Clinton left office finally overcoming a deficit problem created during the Reagan years. Remember The Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act of 1985? It didn’t work either. But Republicans like to borrow and spend because when they do this THEY don’t have to raise taxes. Rather it’s left for the incoming Democrats, but this time the Republicans would not allow the democrats to raise taxes and now we have this horrible problem.
Raising taxes can get this problem over with quickly. Just as it did under Clinton.
Great idea, great post, and full agreement from me.
Debt is usually bad, particularly just to fund on-going operations. (How long can any reader and poster here live off their credit cards?)
(Notice how badly the “stimulus” funds were mis-spent, too — the funds meant for new things, for repairs, etc., were often not only used for pork projects, but merely to fund on-going state operations! Scandalously as well as disgustingly irresponsible!)
Let us not become overly sentimental about this.
http://books.google.com/books?id=GG3oEO6HlMUC&lpg=PP1&pg=PP1#v=onepage&q&f=false
Debt is not inherently good or bad. It depends on how much of it there is in relation to income and what it is used to accomplish.
Shocking. Just shocking. I posted something that Logan agreed with and he follows up with a post that I agree with. Can hell freezing over help with AGW? Inquiring minds want to know.
Of course I wonder if he’d agree with my opinion that the filibuster needs to be amended so they really have to stay there and talk. Their entire side of the aisle, not just one or two of them. Nothing but meal and bathroom breaks. Just sleep in the chairs and the aisles.
I would be fine with abolishing the filibuster entirely. It serves no purpose other than to empower a minority, and the existence of two houses of the legislature provides sufficient checks anyway.
“How long can any reader and poster here live off their credit cards?”
That’s the whole point of the post and of the issue:
If the credit card holder (or any other person) would have a realistic budget, stick to that budget,live within his means he or she would not have to keep increasing his or her line of credit, or–in this case—our nation’s debt limit, if we had a sound “budget process.”
Dorian-
We just got ahead of growth, or, growth fell behind our expectations. Which would clearly have been George Bush’s expectations that cutting taxes would stimulate growth. It did not.
President Obama must have relied upon that fundamental economic fallacy. Which further proves that cutting taxes does nothing to stimulate the economy. It proves that borrow and spend, is inferior to tax and spend, because it can quickly get out of hand.
Raising taxes appreciably with moderate spending cuts remains the only solution that will work for solving this issue. It will work regardless of the state of recession. Indeed, raising taxes will end recession.
Any argument against raising taxes today is really a moot point.
DDW your OP really touches on two points, the first being whether it is reasonable to have a debt ceiling, and the second veers into more traditional Democratic economic thinking, namely that spending cuts are bad, we need to increase taxes on the rich, and entitlements shouldn’t be touched.
You can make a strong case against the debt ceiling. It’s inconsistent for Congress to approve budgets that spend a given amount of money, then take away the ability to borrow money to finance the very programs they voted for.
The second part of your essay is more debatable, and really just kicks the spending can down the road again. I understand the argument against cutting spending in a fragile economy, but the history of both parties has been to always find some reason that spending can not be cut. That mindset can’t work forever.
Spending cuts are bad. Do them in moderation.
Taxes are Good, raise them in abundance.
Worked under Clinton, It will work now.
GC:
I tend to agree with Allen [partially] on this:
“Raising taxes [moderately] with moderate spending cuts remains the only solution that will work for solving this issue. It will work regardless of the state of recession.”
(I have replaced “appreciably” with “moderately” and left out, “Indeed, raising taxes will end recession.”) We must also live within our means and thus I come back to don’t spend (much) more than you take in.
Once we do this—probably along with some other measures–(as I said i am not an expert), we should be able to abolish the debt ceiling. It will become a mute point.
@Dorian,
IMO, the Laffer Curve is viable; has been proven during Kennedy, Reagan, GWB. IMO, raising taxes will result in less tax revenue coming into government coffers. Raising taxes may or may not be “fair”, but raising taxes will not increase tax revenue.
“but raising taxes will not increase tax revenue”
Closing loopholes, on the other hand….
If we’re past the peak (the Laffer curve isn’t specific to him and his supply-side camp, but just illustrates a principle of taxation and of economics we all know about, or should know about), then yes, the tax revenue will fall (and as taxes rise, their other effects or disincentives will take their toll).
Presumably there’s an ideal point where tax revenue is maximized, then (so the theory goes), and we don’t even have to resort to the Laffer curve (which irritates liberals), but rather say that government could, if it wanted, charge (as taxes) all the traffic (people) could bear.
If taxes are too low, then we can raise them, though at a cost, of course. “Too low” is loaded politically, because liberals insist they always are too low; there’s also the distorted view we have often seen where taxes in Europe are wrongly seen as the “norm” and thusly in the USA, much too low.
Yes. Liberals always think taxes are too low, and conservatives always think they are too high.
That’s why we need moderates to tip the balance.
@Logan
Your reasoning is one of many instances in which the reasoning behind “moderation” is flawed.
A perfect tax rate exists. How to discover it?
Moderation reasoning says: discover it, or at least minimize how much we miss hitting it exactly, via finding a midpoint between opposing views.
Problem: the two opposing views are VERY opposed to each other; arrived at via completely different methodology. In this situation, one of the opposing views is going to be VERY wrong, and one of the opposing views is going to be very much closer to correct. In this situation, moderation reasoning is useless, and only guarantees missing the mark by a significant margin. In this situation, the sensible action is to reason out the correct tax rate as best we can. Moderation reasoning is useless.
Consider a different situaiton, in which , both opposing views were trying to arrive at the answer via using similar methodology: THEN, in this situation, moderation reasoning might make some sense. Or not.
However, in the current situation, in which diametrically opposed methodology is used, moderation reasoning does not work. One of the calcuation ideologies is correct; one is badly incorrect. Moderation has no place in this decision process.
one of the opposing views is going to be VERY wrong, and one of the opposing views is going to be very much closer to correct.
Since the Laffer curve is a curve (I picture it as a parabola) it is possible that both parties are very wrong and a tax rate in the middle (the moderate value) is correct. It’s not accurate that one of the two extreme views must be correct.
I’d add that I don’t think we are seeing two extreme views right now, since the Democrats are not suggesting across-the-board tax hikes. just tax hikes on the rich. Since some moderates here at TMV are suggesting across-the-board tax hikes, in that sense they are more “extreme” than either party.
Of course, it is correct that an in between tax rate might be a best solution.
My point: when two sides approach the problem via radically different methodologies, then moderation reasoning, i.e., settling on a mid point, i.e. splitting the difference, is invalidated as a method of ascertaining a best solution.