My daughter texted me first thing this morning to surmise I must be happy no longer working for the U.S. Government because ‘of the news’. I laughed to ask which news drew her attention today (I could have asked which news in any particular hour). She responded with three words: the debt ceiling.
Uh, yes. I don’t pretend to be an economist (economic historian is different) but I do know that economics is largely about confidence. I have colleagues who have never worried about the federal debt for reasons that all make sense in theory and I have to hope their confidence is better placed than my anxiety. The federal debt is how much aggregate debt we have accumulated. Former Florida Republican Congressman David Jolly noted over the weekend, we accumulated a quarter of the current $31+ trillion Debt Clock during the Trump administraton.David Jolly and the debt
But the debt ceiling is completely different. It’s the authorisation to borrow money to pay back what we have already spent...we have already incurred. It has nothing to do with new spending. It’s giving the Treasury Department the ability to pay for what we already bought. It’s not an option. Repeat, it’s not an option if we have bought it.
Healthy debate—not the usual drawing into one’s corner to ignore the other political side yet screaming about how evil the other side’s views are—is what we need to address the challenges of spending priorities. I utterly believe we need those debates as we clearly are not all focusing on what we spend as a nation. That is how democracies work. But simply announcing you won’t pay what you have bought will undermine credibility in a manner we have never seen.
Sure, it’s seductive saying ‘yes, the U.S. Government will always pay it off’ but the people who want to hold back on raising the ceiling don’t want confidence in how we will behave. That is the point: they want doubt to force us to lower spending. They believe this will alter behaviour yet their own behaviour does not support this position based on decades of evidence. The Tea Party simply wants to emphasise different spending, based on what we have seen, rejecting things they dislike but embracing programs they love. Not all that different from anyone else.
The odd thing is that many of these folks ought to be in tune with how business operates which is not to hold 350 million people directly hostage and the global economy indirectly hostage to this demand to lower spending. That is not something we will see remedied as quickly as we need address this. The spill over into automatic mechanisms for what can and cannot be spent will be draconian. Yet, the conversation is proceeding as if we were talking about raising the price of bread.
I am no more of a financial guru than I am an economist so perhaps I am just not understanding the whole discussion but I think the legal constraints—that is what laws are about, my friends—on what the Treasury Department can do are pretty harsh if we don’t raise the ceiling of what we can legally borrow to pay for what we have bought.
Not a good place for a superpower to be in my book. Stay tuned. I hope I just don’t understand this but I fear I might. FIN
James, I came to believe, hearing tales of ignorance, during the Financial Crisis that one of our bigger threats is financial illiteracy. I would expand it here to civic illiteracy. Self-serving people are playing on it to all of our detriment.
You understand perfectly. The challenge is some elected officials know that many people don’t understand. Don’t understand the debt, the dollar, international trade denominated in dollars that supports the US and our economy, nor the debt limit. and those responsible put up Social Security and Medicare/Medicaid as the sacrificial lamb people want to save so they’ll be ok scrapping other things. We need so much better education in this country!