"The Debt Ceiling Vote - Critical, a Distraction, or Both?"

Sydney M. Williams

Thought of the Day

“The Debt Ceiling Vote – Critical, a Distraction, or Both?”

July 25, 2011

Does today’s focus on the debt ceiling detract from the far more urgent need to simply rein in spending? Yale economics professor Robert Shiller, in Sunday’s New York Times, wrote: “The fight over the debt ceiling has deflected attention from the serious problem of fixing the economy and finding jobs for 14 million unemployed.” Because we have a debt ceiling, violating it will have serious consequences. However, once we get beyond the current crisis questions, should be asked: Is that ceiling necessary? Does it serve as a distraction?

As to why we have a debt limit, the Congressional Research Service offers three explanations: The debt limit provides Congress with the strings to control federal spending; the debt limit imposes a form of fiscal accountability, and it expresses a national devotion to the idea of thrift. I would argue that if those are the restraints a debt ceiling is supposed to deploy, it hasn’t worked very well. Since 1996, federal debt has compounded annually at 7.1%. The trend has been ominous. During the Clinton years, federal debt grew at 4.3%; under Bush debt expanded at 6.7%,and, during the first two and a half years of Obama, federal debt has exploded at an 11.9% compounded rate. In all three cases, federal debt grew at rates exceeding GDP.

The country was not born with a debt ceiling. Section four of the 14th Amendment states that public debts, once duly authorized by law, shall not be questioned. In 1917, on the eve of the United States’ entry into World War I, the Wilson Administration chose to issue “Liberty Bonds.” A debt ceiling was passed, essentially to reassure doubters that Congress would be “responsible.” I leave it to the reader as to whether Congress has been responsible.

In the ninety-four years since the debt ceiling was imposed, it has been changed seventy-four times, most recently in February 2010. In thirty-eight of those times, the ceiling was lifted for less than six months. It has become standard practice for the opposition party to grandstand against raising the ceiling. In the abstract, it is amusing to listen to spendthrift Congressmen and women choose to be seen as thrifty. Mr. Obama, for example, voted against an increase in 2006 when George Bush was in the White House. If these times weren’t so serious, one would get a chuckle from watching and listening to the man who has been responsible for the largest increase in spending in the nation’s history speak in almost religious terms of his new-found fiscal devotion, of the evil of “living beyond our means,” as he races the clock to find agreement on raising the debt ceiling one more time. He might be more successful if, as Peggy Noonan wrote in Saturday’s Wall Street Journal, he stayed in his office, worked the phones, adapted some humility, and became less patronizing. He should choose, as she writes, “Strategic Silence.”

In normal times, today’s vote would be considered largely symbolic. The fact that it is not is largely due to growing concerns people have over debt and the role it has played in our economy’s recent growth rates. That debt, and the fear of its stifling consequences, explains the Tea Party’s grass-roots’ origin. Better than most highly educated economists and certainly better than those in Congress and the Administration, average people understand the limits debt imposes. They experience its effects in their households and in their small businesses, and they instinctively understand that it is a game that will end, whether gently or disastrously – and most likely the latter. Understandably, they have perhaps overreacted, but in part that is because they don’t sense in Washington the fear they intuitively understand. Keep in mind, all federal deficit reduction proposals, whether they are for $2 trillion or $4 trillion, involve no cuts, only a slowing in the growth rate.

We have had debt ceiling crises in the past, but never have we had one that threatened so seriously the credit worthiness of the United States. Administrations can propose legislation, but the power of the purse belongs solely to the Congress. We are in this situation because the 111th Congress authorized spending without limits. To pass blame or to demagogue against the damage they created is the height of sanctimonious, dishonest arrogance. When a statutory limit was placed on federal debt in 1917, the purpose was to impose some form of fiscal accountability, compelling Congress to take action when spending exceeded revenues. It has not worked. Conservatives in the House are now lobbying for a balanced budget amendment, a terrible idea that would be too restrictive in times of crises – such as what we experienced in the fall of 2008. But I understand their frustration. Congress is like a school with an honor system that is not working. Too many Washington politicians have become too ingrained in the processes and too distant from their constituents. The excessive spending of the last few years and the path toward statism are reminders of the growing need for term limits for those who serve in Congress.

The debt ceiling, in my opinion, serves as a distraction to the larger issue, which is one of a gradual, but inexorable, trend toward a welfare state. Arthur Brooks, President of the American Enterprise Institute, has an op-ed on this subject in today’s Wall Street Journal. It should be required reading for all who love and respect this country. “Total government spending,” Mr. Brooks writes, “has risen to 37% of GDP today from 27% in 1960 – and is set to reach 50% by 2038.” In my opinion, growth in government should more closely align with growth in GDP. In doing so, growth in federal debt would revert to more reasonable levels.

In the meantime, since we have a debt ceiling it must be raised. The alternative presents too much of an unknown and therefore too big a risk. But once done, Congress should consider the necessity of such a ceiling. It has not made Congress or Administrations more fiscally responsible. In fact, I would argue the ceiling has acted as a Trojan horse, deflecting attention from the more important question: what role do we as a society want government to play? But whatever the people want from their government, fiscal prudence must be an integral part. Like Maurice Sendak said about holes – they are to dig – today’s debt ceiling has come to exist for the sole purpose of being exceeded.