Yes, get rid of it. But do it the right way.
Get rid of the debt ceiling.
Yes, get rid of it.
Although Ezra Klein and I are generally on opposite ends of the political spectrum, we agree, as he opines in the Washington Post today, that we should “get rid of the debt ceiling forever.”
Klein notes that eliminating the statutory limit on the president’s borrowing authority would obviate the recurring Beltway debt-limit staredowns, which, as we saw two years ago, and may see again soon, can rattle Wall Street and play mumbledy-peg with Uncle Sam’s credit rating.
No one enjoys such fights. They’re annoying. They’re kind of scary. And more importantly, they don’t product helpful policy changes: they don’t lead to balanced budgets or smaller government.
The Budget Control Act that came out of the Great Debt Ceiling Debate of 2011 didn’t produce a workable plan for ending Uncle Sam’s debt addiction. Instead, it produced a ludicrously inconsequential (and unconstitutional) “super committee,” followed by a universally despised set of across-the-board spending trims known as the “sequester.”
After all that sturm und drang, all we got was this lousy tee shirt, and a humiliating downgrade of the US government’s credit rating. And the government just kept growing. Sigh.
Klein argues that the debt ceiling is also economically dangerous:
The debt ceiling is an anachronism … But it’s not an adorable anachronism, like grandfather clocks. It’s a dangerous one, like bloodletting, lobotomies and burning people you suspect to be a witch. If we crash through the debt ceiling, a global financial crisis could — and likely will — result.
That’s an exaggeration, because we currently have enough tax receipts coming in to cover all our debt obligations. Hitting the debt ceiling won’t produce a bond default. But Klein’s point still stands: the debt ceiling is certainly perceived as a dangerous tripwire, and approaching it does make markets nervous.
An actual bond default would have noticeable effects on federal financial operations. At a minimum, it would drive up the interest rates the U.S. has to pay global investors, which, in the absence of spending cuts or tax hikes, will drive up deficits.
Some fiscal conservatives may argue that, flawed as it may be, the debt limit is the only lever we have to force needed spending reductions. That’s basically true. But it’s by no means the best tool, nor even a necessary one. In fact, eliminating it would paradoxically force Congress to balance the budget overnight, while creating incentives to shrink government over time. Indeed, I would argue that the existence of the debt ceiling actually facilitates ever-bigger government. That may explain why Klein doesn’t actually want to “get rid of it,” as I am suggesting. Rather, he wants to shift it permanently from Congress to the president.
In other words, Klein and I are actually taking opposite positions, despite both using the same words—”get rid of the debt ceiling”—to describe our proposal. He wants to give the power to the president. I want to give it back to Congress.
The current debt ceiling law was first adopted in 1917 as a kind of halfway house arrangement, wherein Congress partially delegates its borrowing power to the president. This arrangement creates a persistent tension between the branches. Whose power is it, really? What happens when they disagree? (Economic Armageddon, apparently.) Klein wants to resolve that tension by shifting the power permanently to the president:
The basic idea [is] to permit the president to unilaterally raise the debt ceiling unless Congress affirmatively voted to stop him. And even if Congress did vote to stop him, the president could veto, and then Congress would need to overturn his veto.
This idea was first proposed two years ago by Republican Senator Mitch McConnell of Kentucky. More recently, it has been embraced by President Obama. Two problems. One, it’s unconstitutional. Two, it’s dangerous — more dangerous, even, than bloodletting, lobotomies, or witch burnings.
Article I, section 8, clause 2, of the Constitution, says: “Congress shall have power … To borrow money on the credit of the United States.” There’s no wiggle room there. Only Congress has the authority. It can’t delegate it to the president or anyone else.
But wait. Doesn’t the president borrow money on the credit of the United States? The treasury secretary sells government bonds. Isn’t that borrowing? Sure. But as I said, it’s a halfway house: he can only do it to the extent, and under the terms, set by Congress. As an executive-branch financial officer, he is merely executing a power that always resides ultimately with Congress. He’s like the man who’s driving a car, but his wife is telling him when to turn, when to speed up, when to slow down, etc. Who is really driving the car?
Klein may argue that his plan is constitutional because, even under it, Congress retains the ultimate say. But is that really true? Realistically, under McConnell-Obama-Klein, the legislative branch could only stop presidential borrowing by the extraordinary step of a veto override. A supermajority would now be required in each house of Congress to impose limits on borrowing, whereas today it only takes a simple majority. That would enable the president, through the savvy direction of earmarks and grants to certain states and congressional districts, to buy off a sufficient number of votes to thwart an override (incidentally using the very money he borrowed in the first place). It’s a formula for kingly corruption.
No, if you want to put an end to these annoying debt-ceiling fights in a constitutional—and non-monarchical—way, you have to simply repeal the debt ceiling statute.
What would happen? Beautiful things. Whenever Congress needed to spend, it would have to authorize an equal amount of new borrowing authority as part of the bill that authorized the spending — assuming it didn’t use tax hikes or spending cuts to offset the new spending. That discipline would tend to keep the growth of government in check.
Borrow-as-we-go—as well as tax-as-we-go and cut-as-we-go—was basically what Congress did prior to 1917, when the first debt ceiling law was enacted. Prior to the debt ceiling, politicians hewed to fiscal common sense. They had to. As a result, you never saw these big, pent-up budgetary pressures leading to nerve-wracking games of fiscal chicken.
Gladstone’s handy definition of “economy in government” consists of five simple rules: “Limit spending, tax lightly, borrow the minimum, maintain a surplus, pay off debt.” Getting rid of the debt ceiling would drive us back to Gladstonian common sense. Here’s why:
- In the absence of standing borrowing authority, whenever the government is running deficits, the Treasury would be in danger of a bond default. No one wants that.
- To avert a bond default, Congress would constantly be looking for ways to balance the budget, or better yet to run surpluses — lest Members find themselves too often casting politically dangerous votes to raise taxes or debt. The result is likely to be routine surpluses, rather than chronic deficits.
- In a world of routine surpluses, government will shrink, because every move to expand government — be it on the taxing or spending side of the ledger — will have to be paid for more or less in real time. Politicians will find it difficult to shift the costs of current consumption onto future generations.
Yes, they will be tempted to spend surpluses on bigger government. But they will discover that doing so eliminates those same surpluses, necessitating tax hikes or borrowing to keep the binge going.
Because politicians can’t agree on whether to spend a surplus on new spending or tax cuts, they tend to fall back on the idea of using it for debt reduction. (That’s what happened during the surplus of the late 1990s.) When the debt is extinguished, their next preference is usually tax cuts, which are generally always more popular than new spending programs, no matter how wonderful the spending programs may sound.
Once debt, taxes, and spending have been cut to the bone, a culture of general restraint will set in, keeping spending, borrowing, and taxation low (in peacetime, at least), and it will tend to do so in perpetuity. Fiscal nirvana!
The historical evidence confirms this. Before 1917, budgets were routinely balanced, and federal debt, spending, and taxes were low. (Also, zero inflation, but that’s another story.) Since 1939, when the debt ceiling took its current form, federal peacetime outlays have averaged more than 20 percent of GDP, but in the nineteenth century they averaged just three percent. That’s right. Three percent!
I will make a bold claim. By getting rid of the debt ceiling, we can force the Beltway, not just to balance the budget overnight, but eventually to shrink spending to nineteenth-century levels.
Is Ezra Klein on board with that? I didn’t think so.
It turns out what he actually wants is for the ceiling to go up almost to infinity, while I want it to go down almost to zero. He wants to get rid of the ceiling. I want to get rid of the debt.