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That Debt Ceiling Again

Responding to my post from earlier this week, a reader wrote me this:

This current article has raised questions for me. Why is it assumed that failure to raise the debt ceiling must necessarily result in a default? Is it not feasible that when forced to choose between default and cutting something that the correct choice would be made? It seems to me that until that awful decision is faced, meaningful spending cuts will never occur. Your example of [Senator] DeMint’s inconsistency drives home that point. Even conservatives cower from these painful choices. You must admit that the history of Democrats’ honoring their concessions is not a strong one. I know of nowhere other than government where it would be suggested that the way to cut spending is to borrow more, yet that seems to be what you are suggesting in raising the debt ceiling. As long as it is assumed that the ceiling will be endlessly raised, spending will not decrease.

Here, I think, is the answer to his question. Our debt is not a function of immediate spending decisions but of very-long-term spending trends. That means that in order to pay just the interest on the debt, the government has to roll over some existing debt by borrowing. It is simply not possible to cut spending enough immediately to avert this with some additional borrowing. Spending cuts will reduce the debt in the long term, so that we don’t have to raise the limit again; but they cannot reduce it immediately and could only put off the need to borrow more for a very short time. Raising the debt ceiling is about, as I wrote, existing obligations racked up by Obama and the last Congress.

In his letter to Congress yesterday, Treasury Secretary Timothy Geithner put it this way:

Raising the debt limit is necessary to allow the Treasury to meet obligations of the United States that have been established, authorized, and appropriated by the Congress. It is important to emphasize that changing the debt limit does not alter or increase the obligations we have as a nation; it simply permits the Treasury to fund those obligations Congress has already established. In fact, even if Congress were immediately to adopt the deep cuts in discretionary spending of the magnitude suggested by some Members of Congress, such as reverting to Fiscal Year 2008 spending levels, the need to increase the debt limit would be delayed by no more than two weeks. The limit would still need to be raised to make it possible for the government to avoid default and to meet the other obligations established by Congress.

In this case, Geithner is right. And as I argued in my post, I’m in favor of using an increase in the debt ceiling as a way to win concessions on spending. I only wish Senator DeMint and some of those in the GOP leadership were as inclined to tackle entitlements as I am and as people like Representative Paul Ryan are.

The argument for limiting the size of the federal government and reducing spending is extremely strong; refusing to raise the debt ceiling, however, isn’t the way or the place to do it.