The endless cyclical stupidity of the debt ceiling
Yet again, the United States government is fast approaching the debt ceiling — a potentially catastrophic budget deadline that's also high in the running for "single stupidest semi-annual ritual in all of U.S. politics."
As a refresher: The debt ceiling is a statutory limit in American law, capping the total dollar amount of debt the federal government can take on. The problem is that the federal government also chronically runs a deficit, spending more than it brings in, so every year it adds more to the total amount it has borrowed. As a result, the country bumps up against the debt ceiling every so often.
The plot twist is that policymakers can't always predict exactly when that will happen.
Back in May, the Treasury Department projected that America would reach the borrowing limit sometime in October or November. That gave the Democrats in control of the House and the Republicans in control of the Senate and the presidency plenty of time to hash out some sort of deal. But these projections are based on assumptions about how much tax revenue the Treasury will bring in month to month. And that can be tricky guesswork. A little over a week ago, a new analysis suggested we could hit the debt ceiling as soon as early September.
Since it's already the second half of July, and Congress takes a break in August, policymakers went from having months to sort this problem out to having mere days. That set off a mad scramble — focused on negotiations between House Speaker Nancy Pelosi (D-Calif.) and Treasury Secretary Steven Mnuchin — to hammer out an arrangement. Pelosi suggested to reporters Tuesday that a deal was nigh, but as of now negotiations are still in motion.
There was a time, many years ago, when raising the debt ceiling was uncontroversial, routine, and bipartisan. Sure, there was the requisite scolding about financial responsibility from whichever party was in the minority at the time. But no one ever actually put up a fight or left the final outcome in doubt. The government approached the debt ceiling, Congress voted to raise the limit, and everyone got on with their lives.
That all changed under the Obama administration, when the Republicans who controlled Congress realized they could hold the debt ceiling hostage as a bargaining tool. Because if we ever actually hit the debt ceiling, the consequences could be very bad.
For one thing, the federal government would have to immediately cut its spending until it's even with tax revenue on a cashflow basis. That would mean hundreds of billions of immediate cuts to all sorts of welfare programs and public investments, which could easily pitch the country into recession all by itself. On top of that, the federal government regularly takes on new debt to pay off debt it's already taken on. Thus it's possible, though not inevitable, that breaching the debt ceiling would force the U.S. government to default on its credit obligations. Since financial markets across the entire planet basically operate on the assumption that U.S. Treasuries are the safest and most reliable asset in existence, there's really no telling what would happen in that case.
All of this makes refusing to agree to a debt ceiling raise, unless the other side meets all your demands, a tactic that's both extremely tempting and horribly destabilizing — precisely because it's such an unthinkable result. The original fight between President Obama and congressional Republicans brought the country to the brink, but eventually ended in an agreement that capped defense and non-defense discretionary spending to certain levels. (Caps which Congress has agreed to rescind on a piecemeal basis every year since.)
Since then, debt ceiling fights have become something of a routine ritual in U.S. politics. And while the Democrats are not as gleefully nihilistic as the Republicans, they've been happy to get in on the act after taking back control of the House. This time, their demands are a two-year extension of the debt ceiling cap, plus an equal rise in both defense and non-defense discretionary spending. They also want another $22 billion to fund a new program for veterans' health care.
The story behind that latter bit is a particularly good example of the intrinsic absurdity of many of Congress' spending debates: The Veterans Health Administration suffered a scandal a few years ago, because inadequate funding led to long wait times and several veterans died. In response, the Republican-controlled Congress passed a new program to give veterans easier access to private doctors, as opposed to just bulking up funding for the VA. Later, Republicans and President Trump signed a law bringing the program under the umbrella of discretionary spending, making it part of Congress' regular budget fights. The $22 billion, which some GOPers are now objecting to, is the money meant to fund that new addition.
In fact, debt ceiling fights have become so routine that they've taken on a surreal quality: Everyone's become so used to their roles, to the playacting involved, that it's essentially impossible to tell when Congress is approaching a genuine crisis, and when it's just going through the motions.
The foundational thing to realize here is that the debt ceiling does not actually control Congress' borrowing. What decides how much debt the government takes on is Congress' annual budgets, and the spending and taxing decisions contained therein. The debt ceiling amounts to Congress contradicting itself: passing budgets that contain certain gaps between spending and taxes, and then refusing to authorize the borrowing to finance those decisions. As a form of fiscal discipline, the debt ceiling is an entirely vestigial organ. But it nonetheless has the potential to poison the entire economy.
As always, it's worth mentioning that the U.S. government controls the currency, and can print all the U.S. dollars it wants. It can never "run out of money" and involuntarily default on its debt payments. It can only voluntarily default on them — by failing to raise the debt ceiling.
The best solution would be to abolish the debt ceiling entirely and permanently end this absurdity. But so far, that hasn't happened, either because lawmakers are afraid of how it will look politically, or because neither party wants to give up the momentary leverage the debt ceiling provides when they're out of power.
For the time being, the single stupidest semi-regular ritual in U.S. policymaking will continue.