“The debt limit is coming! The sky is falling!” Or maybe a more apropos parable is the boy who cried wolf.
Much of what we’re being told about having to increase the debt limit doesn’t make sense. Here are some rather obvious questions that need to be considered regarding the debt limit:
• If you can raise the limit whenever it becomes a limit, what’s the point?
• If not raising the limit would be catastrophic, is it possible to have a limit? If adhering to the limit creates havoc, is it even an option?
• How will not raising the limit result in default? Doesn’t it simply mean that from that point on, your current expenditures cannot exceed your current revenue?
The limit doesn’t even mean you cannot issue new bonds to replace maturing ones. It just means you can’t increase the total amount of outstanding indebtedness. It does not mean that all federal government payments of any kind must stop immediately, as former treasury secretary Alice Rivlin has claimed. There might well be some explanation for the debt limit-default connection, but it is anything but obvious.
When you reach the limit, you basically have three choices — decrease spending, raise taxes, or raise the limit. Have we already reached the point where there are zero discretionary expenditures? Are there no purchases that can be canceled or at least postponed? Are there no positions that can be eliminated or at least left unfilled?
The first federal debt limit was imposed in 1917. It has been raised an average of every fifteen months since then, including eleven times in the past fourteen years.
If the limit can be raised more or less at will, is it a complete joke? No, it’s only a 90 percent joke. In the current iteration of the dance, for example, Republicans hope to use it as leverage to extract spending limitations from the Democrats.
According to H.L. Mencken, “The whole aim of practical politics is to keep the populace alarmed — and hence clamorous to be led to safety — by menacing it with a series of hobgoblins, all of them imaginary.” Fear mongering is part of a politician’s DNA, but lately it has been resorted to in unprecedented levels.
We were told in 2008 that the Troubled Asset Relief Program (TARP) had to be passed in a matter of hours or days or financial Armageddon would surely follow. In retrospect, that is very much in doubt, to put it mildly. TARP probably caused more damage than it prevented.
The stimulus package was rushed though in the first two weeks of the Obama presidency, again under the guise that we had little choice and no time to debate. We were told that passing the stimulus bill would be the only way to prevent the unemployment rate from exceeding 8 percent. The stimulus bill passed, government spending exploded, and the deficit shot up. Nevertheless, the unemployment rate went well above 8 percent and has remained there.
The stimulus has definitely not lived up to its official title — the American Recovery and Reinvestment Act. Two and half years after it was passed, there is no “American Recovery” in sight. We are living through what is by far the longest recession in the nation’s history.
Once again we’re hearing the same calamitous warnings of impending disaster if we don’t put aside our skepticism and just put our trust in the authorities in Washington, D.C. and on Wall Street. Have they earned our trust? What has been their track record?
There are indications that the scare tactics aren’t working like they used to. A New York Times poll last week asked, “Do you favor or oppose raising the debt limit?” Only 27 percent said they were in favor versus 63 percent who were opposed. The results did not change much when the question was followed up with the possibility that a limit might increase interest rates.
Having a debt limit is not the problem. It is only a symptom, or even a symptom of a symptom. Spending beyond our means is the problem.
A budget is one of the most basic and widely used tools of human action. It is a highly useful method for dealing with reality. Failing to face facts about a budget is the same as running away from reality. The simplest and most common budget rule is to balance income with spending. There’s nothing wrong with temporary imbalances, but any serious observer knows that permanent deficits are an invitation to disaster.
Those who argue it’s too soon for the government to live within its means are like a drunk who says he couldn’t possibly sober up unless he first gets another drink. The debt limit is a little bit like an “intervention.”
Everyone admits that the debt limit will once again be raised. Nevertheless, the fact that it has become such a hot issue this time is a good omen. The public, at least, appears ready to get serious.