• Explain it to me like I’m an idiot

    As I’ve said before, I’m not a real economist. I’m a health services researcher and a pediatrician. So, when I stray too far from health policy, I’m sometimes a little out of my element.

    Take the debt ceiling, for instance.

    Since Congress passed a budget not too long ago (both sides, by the way) that included a rather large amount of deficit spending, how can they now refuse to fund said budget? I can understand fighting for a budget that reduces the deficit. But passing a budget with a deficit, and then refusing to allow us to borrow the money to pay for it? How does that make sense? This is not a rhetorical question. I wish someone would ask a ranking member of Congress.

    Here’s an idea, though. What if – to avoid default – the Treasury stops paying health benefits for members of Congress? Can you imagine the screaming?

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    • Congress routinely raises the debt ceiling to pay for expenses it has (already) incurred. The difference between recent debt ceiling increases and this one is that the new Republican majority in the House of Representatives was supposedly elected to “cut out of control spending (just not Medicare or Social Security — in other words, cut the spending that doesn’t affect me)”.

      So they are using the debt ceiling vote, which — as you said — simply raises the limit by a sufficient amount to pay for expenses already incurred to force “compromise” from the administration.

      In short: cut spending on our terms (with revenue/tax increases off the table, as well as Medicare/Social Security) or we will play a game of chicken with you that could result in the United States defaulting on its debt. Although the popular phrase in Republican circles these days is that it would only be a “technical” default since Treasury can choose which bills to pay first (an absurd argument that detracts from the point).

    • Yeah, the upshot would be two conflicting laws from Congress – one saying spend, the other saying don’t borrow the money needed to spend – and nobody has a good heuristic for resolving that conflict legally. The debt ceiling is a weird relic.

      But when was the last time Republicans cared about consistency?

    • There is actually a very interesting legal question as to (a) whether the current measures the Treasury Department is taking (such as skirting the limit by not investing new securities into some public employee retirement funds: http://goo.gl/ehfuT) are themselves illegal.

      Then there is also the question of whether Treasury could ignore the limit altogether (it’s an antiquated policy that virtually no other countries use). The real question is, if Treasury does in fact ignore the debt limit (purely hypothetical and unlikely, but interesting to speculate about), who would be in a position to sue (http://goo.gl/J5aRH)? Kind of reminds me of that whole “Congress must declare a war” before the president can invade anyone!

      • If the debt ceiling is not raised, Obama presumably will be forced to break one law or another, because they are inconsistent. Why not ignore the debt ceiling and break that law, rather than breaking some other laws that require spending? The Supreme Court probably won’t touch this baby unless Obama violates the constitution (failing to pay a debt might qualify). So impeachment is the only recourse for a GOP House that does not like Obama’s choice of which laws to break. Ignoring the debt ceiling would not economically harm voters and may be the politically wise choice, no?

    • The Post here

      http://dismalpoliticaleconomist.blogspot.com/2011/05/is-debt-ceiling-law-constitutional.html

      takes up the issue of ignoring the debt ceiling and makes a pretty convincing case that Obama could do it.

      • I think, constitutionally speaking, the debt limit is indeed… well, unconstitutional.

        The options, as that post points out, are (1) accept default; (2) accept wildly unreasonable spending cuts (immediately) — if you think tea party protests are angry, wait until people get delayed Social Security checks (or none at all).

        The “ignore the debt limit law” option is quite risky (economically, that is — politically I think it’s a moot point because I’m not sure it’s possible for politics to get any more poisonous in the House) and the legal dispute/outcome uncertain at best.

        I suppose the most pressing question is: how would investors respond if the administration raised the limit (“illegally” or “legally” if you prefer)? Would they go along with it or would they incorporate the risk (i.e., the possibility of the courts declaring it illegal) — which would surely raise interest rates on Treasury securities.

    • Eric raises interesting questions on the issue of Obama ignoring the debt ceiling and conducting business as usual under the argument that allowing the U. S. to default on its debt would violate the 14th Amendment.

      Given the courts reluctance to interefere in these types of disputes my feeling is that the bond market would go along, similar to the way they are going along now with a debt ceiling limit looming in August. Besides, even if the courts ruled against the administration, what exactly would be the remedy?

      The political issues are more interesting and speculative. U.S. voters rarely punish bold decisive leaders, and since Republican’s position would be to push the U. S. into default, my guess is pretty soon a compromise would be reached and the situation would be politically moot. But who knows?