One thing we didn’t bring up in our previous post about House Republicans’ backpedaling on their deficit-reduction pledge is the ongoing meme that they might refuse to raise the debt ceiling.
We’re not exactly sure how serious a problem this is, as it seems a number of Republicans have come out and said that doing so would be irresponsible (they’re right). Others, like Paul Ryan (in this Reuters article) say that raising the debt ceiling shouldn’t be done without extracting concessions from Democrats on spending.
Politics ain’t this correspondent’s bailiwick, so we’ll just pass along the best commentary we’ve come across on the topic. It’s by economist James Hamilton — reproduced today but originally written four years ago.
There is of course an accounting identity that relates the government budget deficit (the excess of spending over receipts) to the government debt (the total amount that the government has borrowed). A deficit necessarily implies an increase in the debt by the same magnitude.
One of the peculiar embarrassments of the American political process is the fact that Congress votes separately on the deficit and debt, as if they were two different decisions. This bizarre arrangement allows Congress the luxury of instructing the Treasury to spend more than it takes in as revenue while at the same time voting to deny the authority to borrow the funds that would be necessary to implement the plan.
If the government is (a) required by the deficit legislation to spend, and (b) precluded by the debt legislation from borrowing, the Treasury would be forced into default. The greater the likelihood markets attach to such an event, the higher will be the interest rate the government has to pay on Treasury debt. A politician who votes for the spending and tax measures that produced the deficit but against a debt ceiling consistent with these is deliberately wasting taxpayer dollars for no purpose other than to grandstand before voters as a “fiscal conservative”. Anyone playing such a game has complete contempt for the intelligence of their constituents.
Emphasis ours. At the time, Hamilton was chiding Senate Democrats for simultaneously voting not to raise the debt ceiling while voting to increase spending on certain bills. But the concept applies equally to House Republicans.
And on Wednesday, Hamilton added:
If you have a concrete proposal to raise tax revenue or cut spending, then put it on the table. But if you simply want to grandstand on the debt ceiling as if it were a stand-alone issue, it is clear that you have nothing but contempt for the voters. … And if so, then you deserve the same in return.
Bruce Bartlett has a list of further reading on the topic here (HT Ezra Klein).
Related link:
New Congress, old deficit – FT Alphaville