Why the U.S. Congress Must Raise the National Debt Ceiling
What follows is a simple discourse. This is not meant to be a political statement, and while this essay is inspired by a distinct political leaning, I do not intend to deride one philosophy of government or champion another. Nor am I armed with authoritative degrees in economics or political philosophy. The several college level economics classes I have taken should not belie my rudimentary understanding of this particular branch of knowledge. I do hope, however, that a reader with even a high school level understanding of economic conditions—as I have—should understand and be sympathetic to my arguments and my conclusion. A little learning is a dangerous thing.(1) And I am not the person to determine how much, or for how long, or with what conditions our elected officials must act. Nevertheless, I am convinced that the U.S. Congress must raise the debt ceiling before August 2, 2011.
Inarguably, the national debt is a terrible burden on our country. It is neither healthy nor good practice to put off addressing the issue. At 14.3 trillion dollars (2), it is a millstone that will negatively affect our economy probably longer than most of us will live—which of course makes this our children’s problem, and our children’s children’s problem. It is entirely possible that no matter what happens in the next week, we may never—ever—completely rid ourselves of a national debt. Consider: though the debt has sometimes decreased over our history, we have never fully paid off our debt since Andrew Jackson was President of the United States.(3)
I am going to write with overarching generalizations. This is for the sake of simplicity. I hope, as you read this, you will tolerate my ignoring nuances of political philosophy.
Very generally, the liberals’ (Democrats’) philosophy of government is that its central role is to ensure the welfare (meaning well-being) of the state and of its citizens. In particular, the philosophy assumes that a central government is necessary to the model. Today, that philosophy generally aligns with accepting or tolerating certain unwanted redundancies and inefficiencies in government to guarantee care for those who need it, and to preserve stability in the economy. To liberals, government is there as a check against inequalities of the free market, especially against conditions that make the playing field—in their eyes—unbalanced.
Very generally (still), conservatives (Republicans, Tea Party) consider the national debt symptomatic of big government, which they consider anathema. Fair enough. You don’t have to be a Facebook fan of Glenn Beck to conceptualize redundancies in government, or to observe programs that prima facie seem without merit or that overreach and maybe shouldn’t be within federal purview.
But these are constant arguments—What is the role of government? How large should it be? and, Who should pay for it and how?
Arguments over the debt ceiling actually are not related to this perfectly healthy, democratic debate.
A casual television viewer today might assume that liberals (Democrats) want to increase the debt ceiling in order to pay for more (and desirable) social programs, and that conservatives (Republicans to some degree but especially Tea Party members) want to avoid raising the debt ceiling in order to avoid paying for more (and undesirable) social programs.
Conservatives (at least conservative Republicans) are not by nature opposed to the debt ceiling either, however. When George W. Bush was president, Congress raised the debt ceiling enough times to settle any dispute on the matter. The national debt ceiling was raised 7 times during his tenure.(4) That quantity might even be less important than the amount of money by which the ceiling was raised: from $5.95 trillion to $11.315 trillion. Under Reagan’s tenure as president, the debt was raised 18 times, from $935.1 billion to $2.8 trillion. For now, let’s table the notion that increasing or lowering the debt ceiling is a partisan issue.
So why do we care about the debt ceiling now?
Short answer is it is probably a political issue. This isn’t really the fault of the party not controlling the executive branch of government. Historical precedent and common practice dictates—maybe even demands—that the party out of power do what it can to make the party in power look bad and lose the next election. Of course, the complete answer must be far more complex and nuanced. Perhaps only now do we have the fresh faces with uncompromising wills to forego “traditional” or “insider” or “beltway” politics and “fight for the common people.” All of which is well and good. Without thinking too hard on it, I am inclined to think regular turnover of our legislatures is a healthy habit.
But I remain convinced of my main arguments:
1. Failure of Congress to act will result in permanent damage to our status as a lead nation.
2. Lowering the national debt is not our most pressing issue.
3. Success in lowering the national debt will have an inverse effect on improving the economy.
Let us be clear on one detail that I assume is a common misconception. Raising the debt ceiling does not straightaway allow for spending on new programs, social or otherwise. The potential problem created by a debt ceiling is that it prevents the federal government from paying money it already owes. This does not—repeat not—have to do with allowing for new funding or for spending it (frivolously or responsibly or whatever) on new things. It has only to do with bills that we (the people, the government) have already accrued.
So say what you will about whether to amend or maintain programs that pay for most of the country’s medical residents and nursing home workers, funds that pay for upkeep of our interstate highways, federally funded bridges and our national parks, agencies that build and maintain federal dams, departments that oversee the regulation of clean air, of clean water, and those that oversee financial markets in order to help prevent economic disasters resulting from corporate greed. Say what you will about the departments that help dispose of our nuclear waste, or coordinate aviation traffic, or maintain the satellites that give us our weather forecasts. Say what you will about federal programs that help people secure loans to buy houses, to attend colleges and graduate schools, to support infants of indigent single mothers. Say what you will about soldiers overseas in Afghanistan, in Iraq, in the Mediterranean, on the Korean peninsula, in the United Kingdom, in Germany, in Japan, in Kuwait, in Cuba, on the horn of Africa, in western South America, in Indonesia, in Haiti and in dozens more foreign countries.(5)
Say what you will about our nation’s war veterans.
Raising the debt ceiling is the only way to fulfill the promises we have already made to them.
But so what? What happens if we just don’t pay those bills?
It is possible that nothing significant will happen, especially in the short-term, and especially if the default is short-lived. In all likelihood, though, something irrevocably damaging will happen immediately, and the circle of disaster will widen the longer our nation is—for the first time in its history—in default of its loans. I’m no psychic, nor doomsday prophet. But any of the following might occur:
Our nation’s credit rating will be downgraded. It is possible that this is already inevitable. What this means is that it will be more difficult to borrow money. But since our current system—as broken as you like—is dependent in the near and far future on loans, failure to adjust the debt ceiling will almost certainly mean damage to our economy in the short-term. Unemployment will almost certainly increase (get worse). We may experience what economists call a “double-dip” recession, where employment goes down for a significant period of time (as it has), then starts to recover (as it may be doing), then sinks again for another significant period of time. That time might be half a year, or two years, or a decade. Or more. No one can know.
Complete dissolution of the United States as a counterweight against worldwide catastrophe—economically and militarily. Like it or not, a consequence of a global economy is that we sink and swim together. See no further than the tsunami and subsequent nuclear disaster in Japan and its impact on companies in the United States to realize how interdependent our country is on others. That is at least a sufficient reason for our recent military involvement in Libya (or any other country where we have or have had a military presence).
People will die. Depending on how it shakes out, the absence of certain government programs might prevent keeping alive certain people who are dependent on medicine, doctors or treatments that are keeping them alive. And if world economies collapse, that may trigger famine, which may trigger revolt, which may trigger conflict, which may trigger large-scale international war. I’m not saying this is inevitable. I hope it’s not even likely. But I can’t see how it’s not possible. And that means it’s on the table.
Congressmen, news reporters, bloggers and even citizens passively observing the current political quagmire have latched onto the phrase “heading for the cliff” when referencing the consequence of this potential impasse. I think of it more as a meteor hurtling toward our planet. It might be a near miss, as we experienced literally on June 27 of this year.(6) Or it might hit, the extent of the damage as yet unknown. But whether it is on the order of Tunguska or of Chicxulub remains to be seen.(7)(8) The difference here is that Congress controls our destiny. Let us hope they have the collective power to prevent any degree of disaster.
So if this is such a potential disaster, what is the holdup?
Led by the belief of the Tea Party (and others) that the national debt is the biggest current crisis and the principal obstacle to economic reform, the two houses of Congress have thus far been unable to agree to any lasting solution. Again, this is based on the philosophy that big government is wasteful, that it inhibits economic progress, and that it must be stopped at all cost.
The go-to analogy seems to compare the federal coffers to a family bank account. Perhaps the most cogent financial practice for a family is to avoid overspending. Don’t run up an unnecessary debt. Don’t overspend. Don’t live beyond your means. Though even in financially sound families, this generally doesn’t hold for the purchase of big-ticket items. Most people can’t write a check to buy a car outright, or certainly not a house, or to pay for college. Those often require loans. So the logic is amended in these cases. Don’t take on loans unless you’re sure you can pay them. I certainly couldn’t pay in cash for my car when I bought it. But I needed it for my job. I assumed I would keep my job at least long enough to pay off the car loans. I did. But I knew I shouldn’t be spending disposable income lavishly. So no fancy trips to Europe. No eating out at restaurants every night. No throwing away clothes or furniture that still had use left in them.
In principal, this seems a sound argument on the national scale. Don’t pay for programs unless you have the funds (in reserve or from taxes) to pay for them. And up to a point that is a very good, sound, argument. But the analogy falls apart when considering the natural ebbs and flows of the market. A single person, or a family, should not spend money it doesn’t have. If I can’t afford it, I simply can’t, or won’t, eat at my favorite restaurant. But part of the job of the federal government—I think people will agree, regardless of political affiliation—is to maintain economic stability. This means it is the last line of defense against inflation and unemployment.
How does our federal government combat inflation?
The Federal Reserve System. The modern iteration of the Federal Reserve opened in 1914 to insure against financial panics.(9) It became the “lender of last resort.” Its job is to manage the stable expansion of our economy.(10)
How does our federal government combat unemployment?
In part, in creates and enhances work programs. It acts as a lender to revenue generating entities when banks and private lenders cannot afford to take those risks. In short, it spends money when no one else has it. That spending stimulates the economy. By giving workers money, it provides them the means to spend—hopefully within the economy. That money goes to someone else, who then has money to spend. It works to increase the volume of money in the economy and the velocity at which that money moves through consumers.
Conservatives and Liberals debate who should get that money first. Conservatives tend to defend the “trickle-down” method. It may be a pejorative term, but the concept, based on the supply-side macroeconomic school, is to give wealthy people and/or business owners money (perhaps in the form of tax breaks) to enhance and grow their businesses, which will employ more lower wage workers who will spend money on goods and services, and the economy will thus improve. Liberals tend to defend the opposite theory, that investing in lower wage workers directly will best provide them the means to invest in the economy by purchasing goods and services, which helps the business owners who provide them, and thereby improves every economic level that way. Again, here is not the place to end that debate. What is crucial to understand is that from both perspectives, in a bad economy, it is the job of the government to spend capital, to be the driving force that impels the economy toward recovery. Simply put, the agreed upon theory is that the federal government must spend during a recession in order to help the economy recover.
So the argument about the debt ceiling really comes down to one question: Which is more important now, improving our economy or reducing our national debt?
We must always pay our debts when they are due. But the best time to lower the principal and to work toward lowering, even eliminating, our national debt is when we are at the other end of the economic cycle. It would have been great to do it over the last decade when we were in the boom part of the cycle. It would have been great to do it in the eighties when we experienced unprecedented growth. We didn’t. Perhaps that means we will never be disciplined enough to deal with the problem. We need to be most disciplined at the most opportune time. Unfortunately, at the nadir of recent economic prosperity is not an appropriate time, lest we forego any chance of improving the economy and giving ourselves an opportunity to correctly address our national debt.
I agree that the national debt is a terrible burden to our society. But I also agree that the federal government has a responsibility to invest in its people to improve and stabilize our economy. Where I think people have it wrong is in their assumption that both problems can be fixed simultaneously. They cannot. Solving our national debt means making unprecedented cuts in precisely the programs the government needs to stimulate the economy, not to mention prevent it from causing a double-dip recession, possibly a long-term depression with dire consequences for our international authority and for our ability to continue to be a stabilizing force in the global economy. And focusing on the economy surely means exacerbating the national debt. But holding the line on the debt ceiling, let’s not forget, doesn’t even mean growing our involvement in federal programs. It means not taking care of, and not settling our debts with, the programs we already have. To violate our word, our bond, while ignoring—even harming—our efforts to improve the economy is such a more immediate problem that not raising the debt ceiling isn’t a mere political maneuver. Not raising the debt ceiling is the forfeiture of our nation’s good name, of our standing as an economic global leader, and it creates direct, intentional harm to the people of our nation. It is the bigger issue.
1. http://poetry.eserver.org/essay-on-criticism.html
2. http://www.usdebtclock.org/
3. http://www.davemanuel.com/2009/07/11/when-was-the-last-time-that-the-united-states-had-zero-federal-debt/
4. http://www.politifact.com/truth-o-meter/statements/2011/jul/26/barack-obama/obama-says-reagan-raised-debt-ceiling-18-times-geo/
5. http://usgovinfo.about.com/gi/o.htm?zi=1/XJ&zTi=1&sdn=usgovinfo&cdn=newsissues&tm=17&f=00&su=p284.9.336.ip_&tt=2&bt=1&bts=1&zu=http://www.heritage.org/Research/NationalSecurity/cda04-11.cfm
6. http://www.geek.com/articles/geek-cetera/asteroid-to-pass-earth-closer-than-the-moon-today-20110627/
7. http://www.universetoday.com/37487/tunguska-event/
8. http://www.jpl.nasa.gov/news/features.cfm?feature=8
9. http://www.newyorkfed.org/aboutthefed/history_article.html
10. http://www.investopedia.com/articles/08/fight-recession.asp#axzz1TVq4kp5M
Addendum:
Here are some good reads regarding the debt crisis:
One blogger's “ten craziest things about the debt-ceiling crisis.”
CNN’s basic account of what the debt ceiling IS.
Another tempered account, from a business perspective, on potential consequences and their various likelihoods of occurring.
The Treasury Secretary’s two cents on the interference of politics on this economic issue.
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