Recent times have seen the debt ceiling invoked ominously far too much. In an press conference on Oct. 8, President Barack Obama noted some of the “more polite words” economists are using to talk about not raising the debt ceiling: “insane,” “catastrophic,” “chaos.”
Famed investor Warren Buffett made more inflammatory remarks: “It should be banned as a weapon. It should be like nuclear bombs, basically too horrible to use.” Countless others have echoed these sentiments, but they shouldn’t have to. It just should not be this way.
Indeed, originally it wasn’t. The Congressional Research Service reports that for the first century of our history, we had no debt ceiling. Rather, Congress authorized specific loans. But when World War I required larger financing, the debt ceiling was born. The Second Liberty Bond Act of 1917 authorized the Treasury to issue bonds – debt – until it reached a certain threshold – the debt ceiling. Today, that threshold stands at $16.699 trillion.
Ironically, it was intended to give the Treasury more flexibility in managing our debt, not less.
But it was also used to play an important role by forcing discussions about the budget. However, the Budget Control Act of 1974 made it obsolete on that account by reforming the annual budget process and creating a new forum for these discussions.
Noting the new uselessness of the debt ceiling in 1979, Dick Gephardt instilled in the budget process his entirely pragmatic namesake rule, which increased the debt ceiling enough to fund the most recent budget, making it a pure formality. This rule stood until 1995, when Newt Gingrich’s overzealous Republicans saw political advantage in turning it into a massive bargaining chip. That reversion returned us to brinkmanship politics, lurching from crisis to crisis.
In our most recent battle, in 2011, intense debate over spending resulted in a last minute compromise: the creation of a super committee on deficit reduction and mandated spending cuts, though no revenue increases.
Yet that too was pointless; giving no recommendation, the super committee concluded: “it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline.”
With no comprehensive, bipartisan deficit reduction plan, ad hoc proposals prevailed– including the sequester– and we arrived at our present situation. Technically, the limit was hit on May 19, 2013. However, the Treasury has a set of accounting gymnastics– called extraordinary measures– it can perform to produce the needed cash.
As of Oct. 17, Treasury Secretary Jack Lew laments those measures will no longer be enough. The government will fall off the proverbial balance beam.
Time and time again, we’ve unnecessarily manufactured these crises. And while the debt ceiling is a completely artificial limit, the consequences are anything but.
2011’s merely near-default was so frightening to investors that the rating agency Standard and Poor’s downgraded our perfect credit rating from AAA to AA+. Despite current Republican claims that a default would not be so bad, the Bipartisan Policy Center estimates that the 2011 downgrade will cost taxpayers an additional $18.9 billion over 10 years. Third Way, a think tank, calculated that 200,000 lost jobs can be attributed to the 2011 crisis.
This current round could be even more detrimental. That’s why our first step must be to raise the debt ceiling. Any discussions about the shutdown or other policy matters should not be held at gunpoint, as I argued last week. Neither President Obama nor Speaker John Boehner want America’s first default in their respective legacies, so let’s stop playing politics.
However, we can’t just raise the debt ceiling; our current path of crisis negotiations is unsustainable. The current Republican proposal only raises the debt ceiling until Nov. 22. In six weeks, we could again be having this same discussion– again, unnecessarily.
The absurdity of the debt ceiling is astounding. Imagine going to a restaurant and deciding what to order. That’s the budget process in the United States. Now imagine getting the check and haggling with the waiter over if you’re going to pay the bill. That’s the debt ceiling debate.
Perhaps there is a reason that no other country in the world has a (non)functional debt ceiling. Perhaps our second step is to abolish it.
Contact Nick Ahamed at firstname.lastname@example.org.