What Republicans Should Do About the Debt Ceiling

Unless we think we can borrow forever and ever, at least take a stand.

The country is now in the throes of another debate about whether Congress should lift the debt ceiling for the eight zillionth time. Before we get to the answer, let’s take a look at the scope of the problem. Here it is:

This is not a picture of borrowing. It’s a picture of addiction, an addiction that, as addictions inevitably do, gets worse until you overdose and wind up in the morgue.

An article in National Review describes how bad the addiction has become.

When Ronald Reagan took office, government debt held by the public was about $650 billion. The few liberals who still bother to criticize his presidency will concede that he won the Cold War, defeated inflation, and started a long-lasting economic boom, but his profligate defense spending — they will be quick to add — increased the national debt by a then-unprecedented amount. By the time Reagan left office, debt held by the public had indeed jumped, to about $2 trillion….

We have [in the decades since Reagan] spent our way into a colossal mess. After all the stimulus and other spending, debt held by the public is more than ten times the level with which Reagan left us, at about $24 trillion (though adjusting for inflation would somewhat lower this increase). If that number sounds familiar, it’s because it is similar to our recent levels of GDP, meaning that we owe almost an entire year’s national income because of our runaway spending.

Actually, as the graph shows, the debt is $28.5 trillion. Neither I nor anyone reading this has an authentic feel for how much that is. It’s literally the kind of figure you see in astronomy, not anything resembling normal finance. We’re in deeper than we can even imagine.

How did we get here? The same way addicts usually get to their (eventually lethal) path — by starting off relatively small, then manufacturing one excuse after the next about how we need to borrow more to handle Emergency A (then B, C, D, and on and on). There is no stopping point because it’s no longer about an emergency, real or imagined. It’s about feeding the addiction.

Time to face up to what we’re dealing with.

How do we get out? In my sourpuss view, we’re not getting out, because any real solution would require the kind of maturity, guts and restraint the country hasn’t had for a very long time. And neither party is going to show any leadership, either. The Republicans, especially but not limited to Trump, have been awful, while the Democrats have been even worse — more committed to debt (because it pleases their deadbeat constituency and weakens the country to boot) and more dishonest in talking about it. The ultimate reason I doubt we’re getting out, though, is that our culture and our politics across the spectrum accepts debt the same way our parents accepted thrift. Having the goodies today feels good, while paying for them doesn’t, so paying gets put off…………………and put off and put off because, hey, as Keynes memorably said, in the long run, we’re all dead.

And perhaps more to the point, in the long run, today’s politicians will be out of office and won’t have any accountability.

Is any solution even remotely plausible? I did see one suggestion, here:

Switzerland stands out as a country that has successfully enacted fiscal rules to restrain and reduce its debt load. The Swiss debt brake was introduced as a constitutional amendment following a referendum in 2001, in which the measure earned the support of a whopping 85 percent of the Swiss vote. The brake imposes an expenditure ceiling, which caps the growth rate of federal expenditures at the long-run potential-growth rate of the economy. Furthermore, it requires that the federal government balance its budget over time. The brake does allow expenditures to exceed revenues but requires that surplus revenues be set aside in a separate account to offset any deficits that might have been incurred over the business cycle. The debt brake also contains an exemption clause that provides for emergencies, such as natural disasters, severe recessions, and other uncontrollable events. But, if these extraordinary expenditures do occur, they must be compensated for via surpluses in subsequent years.

The debt brake has worked very well. It has brought about a substantial reduction in Swiss debt. The World Bank reports that Swiss central-government debt as a share of GDP fell from 29.7 percent in 2002, when the debt brake was implemented, to 18.7 percent in 2018. As it turns out, the Swiss have accrued surplus revenue in most years since the debt brake was introduced, because of forecasting errors; they have since corrected these. Since the onset of Covid-19, the ratio of debt to GDP has increased to 20.9 percent but is projected to fall over the next decade.

Can something like this work in the United States? Almost certainly not. The problem is, first, that such a constitutional amendment can’t pass (can you imagine how the Democrats will portray the “heartlessness” of it? If you thought the ad with Paul Ryan pushing grandma off the cliff was bad……….), and second, even if it did pass, the statutory scheme it prescribes would be gamed into oblivion. The number and nature of the “emergencies” warranting deficit spending would be endless. If you think COVID was the all-purpose excuse for lowered standards of every kind and description, including prominently gross fiscal recklessness, you’re right, but you’re going to need to expand your imagination. (All the scare talk about climate change, for example, has more of a specific purpose than you might think. And then there’s the need to prepare for the coming collision with a comet…….).

What does all this mean for the present debate about the debt limit? Not a great deal in my view, but possibly something. If this problem is ever to be solved, we need at least to start making the public aware of the scope and desperate descent of our debt crisis. Whatever ostensible spending restraint McCarthy might be able to negotiate with Biden won’t mean zilch, because it will be ignored, as all such restraints have been ignored through one device or another. The best we’re going to be able to do is plant the seed from which maturity and restraint might grow. My own view is that any sprout the seed manages to produce will be exterminated by the profligacy our culture has welcomed for so many decades. But it’s more adult, and more worthy, at least to try something than sit here and let our grandchildren deal with the catastrophe we nonchalantly passed on to them.