Friday, May 31, 2013

While the Debt Ceiling Slept (exclusive to Dorf on Law)

-- Posted by Neil H. Buchanan

Because of the kind of writing that we do on Dorf on Law, we occasionally imagine that we can place an op-ed piece in one of the big-time newspapers (the ones that still exist).  This is almost always a fool's errand, because the odds are ridiculously stacked against any over-the-transom submission to such places.  At least, that's what I tell myself.  In any event, DoL readers (and writers) are not the slaves of those dastardly editors.  Enjoy!

While the Debt Ceiling Slept
When Americans woke up on Sunday, May 19, the debt ceiling woke up, too.  Remember the debt ceiling?  Earlier this year, Republicans in Congress were again threatening to allow the federal government to default on its obligations, by refusing to increase the debt ceiling.  When the politics of that latest hostage-taking episode turned against them, they temporarily suspended the ceiling.

On February 4, therefore, the debt ceiling went into hibernation.  On May 19, it came back.  What happened in the meantime?  Nothing.  The country survived without a debt limit, and we could do so forevermore.

The deal that allowed the debt ceiling to go to sleep specified that, upon regaining consciousness, the debt ceiling would discover that it had grown to the exact level that federal debt had reached while it slept.  Supposedly, this maneuver allowed self-professed deficit hawks in Congress to say that they had never voted to increase the debt ceiling.  Even though that is not even technically true – the “ayes” voted for a bill that would reset the debt ceiling to a higher level fifteen weeks later – it was enough of a fig leaf to delay the crisis for a few months.

When the debt ceiling went to sleep, “total public debt outstanding” was just above $16.4 trillion.  We had technically hit the limit in December of 2012, but Treasury was in the midst of what have sadly become rather ordinary “extraordinary operations” (asset sales, rearranging payment dates on certain flexible obligations, and so on) to prevent a catastrophic default.  Although the numbers have not yet been finalized, the debt ceiling is now likely to be reset at roughly $16.7 trillion.

Immediately, however, this new hard limit puts the Treasury back into emergency mode, forced to waste time and effort moving things around while Republicans renew their threats.  We are, in other words, back to our very dysfunctional new normal.

But we can learn a few things from our fifteen-week hiatus.  We now know that the debt does not explode when there is no debt ceiling.  This might be a surprise, because when the White House suggested back in December that Congress effectively eliminate the debt ceiling, Senate Minority Leader Mitch McConnell mocked the idea, saying that the President wanted to spend money “without any limit.”  Well, there was no debt ceiling for more than three months.  What happened?

From February 1 (the last day before the debt ceiling dozed off) through last Friday (the last date before the debt ceiling woke up), gross federal debt rose from $16.434 to $16.737 trillion, an increase of 1.8%.  Here are some other time periods, for comparison:

-- During the fifteen weeks before we reached the debt ceiling on December 31, 2012, gross federal debt rose from $16.008 to $16.432 trillion, for an increase of 2.6%.

-- During the same period from early February to mid-May last year, the debt rose by 2.5%.

-- During the last fifteen weeks of George W. Bush’s presidency, the debt rose by 4.3%.

-- During the fifteen weeks after the 2003 U.S. invasion of Iraq, the debt rose by 3.3%.

There is not much of a pattern there, is there?  One thing we can say for sure, however, is that debt (and spending) did not go up without limit during the last fifteen weeks, even though there was no legal debt limit.  In fact, debt during the no-debt-limit era rose more slowly than at any of those other times.

The explanation is quite simple: The President never has the authority to spend without limit, because it is Congress that passes appropriations laws that the President is then required to execute.  Congress limits the debt at all times, when it passes spending and taxing bills that determine how much money must be borrowed.

Even without being bound by a debt ceiling law, therefore, President Obama could do no more than to spend exactly as much as Congress ordered him to spend, to collect exactly as much in taxes as Congress ordered him to collect, and to borrow the exact difference between the two, as Congress ordered him to do.

The new round of extraordinary measures is likely to take us into October, before a default might occur.  We thus face months of posturing over the reawakened debt ceiling, with Republicans set to warn that they will refuse to increase it, because that would supposedly open the floodgates of spending and debt.  That is simply wrong.  Without a debt ceiling, Congress and the President must still negotiate laws with specific (and obviously finite) spending and taxing authorizations, and thus that require finite borrowing.

Not having a debt ceiling, however, would at least eliminate the threat that the United States might default on obligations to which Congress has already committed us.  There is no downside to eliminating the debt ceiling, and as a bonus, it would give Republicans one less dangerous tool with which to threaten the President (and, by the way, the global economy).  But, of course, that seems to have been their whole point all along.


Shag from Brookline said...

Imagine cries of:


If from a conservative ("chicken little"), the economy would be in dire straits.

If from a liberal, the economy would no longer be governed by conservative blackmail.

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