If Republican leaders do not allow Congress to increase the debt ceiling, the Treasury Secretary currently estimates that the country will be unable to meet all of its financial obligations on November 3 or shortly thereafter. The latest rumblings from Capitol Hill suggest that the debt ceiling is likely to be increased on time, but there is still a very real chance that the breathtaking dysfunction among House Republicans will send the country into the financial abyss.
In the meantime, Republicans in the House are still insisting on taking votes on the misnamed “Default Prevention Act” that I discussed in a column here on Verdict last month. And even if the debt ceiling does end up being increased in time to avoid disaster, it appears likely that the increase will only buy a few months (or even mere weeks) of peace before the issue comes up again.
No one knows what will happen next, but what is striking about the situation is that the White House continues to agree with Republicans that it would have no choice but to default on the nation’s obligations if the debt ceiling is not increased in time. Moreover, the Administration tries to make it sound as if anyone who says otherwise is engaged in, at best, wishful thinking.
All the way back in 2011, for example, one of President Obama’s legal advisors wrote in The New York Times that attacks on the constitutionality of the debt ceiling statute were merely attempts to find a nonexistent “silver bullet,” and that people who attempt to do so are trying to “wish away” the problem. In fact, it is the Administration that has been trying to wish this problem away for too long.
The Threshold Error: Thinking That Borrowing Is Always Bad
Before getting back into the discussion of the debt ceiling’s legality, it is important to emphasize the foundational error that has driven the entire debate over the debt ceiling. Once George W. Bush was safely out of the White House, Republicans decided that the national debt was a horrifying problem, and they have used that issue to damage the country ever since.
As I have discussed many times here on Verdict (most recently two weeks ago) and elsewhere, there is nothing inherently wrong with a country going into debt. There is not even anything fundamentally wrong with a country taking on quite a lot of debt, so long as it does so to finance useful spending, and so long as it can handle the interest costs. Analogizing families’ and businesses’ budgeting decisions with a national government’s finances can often lead to logical errors, but there is no doubt that even families and businesses can wisely take on debt—even large amounts of debt. Mortgages, educational loans, leveraged buyouts, and so on are foundational elements of good financial management at the household and business level.
This is even more true of the federal government. Although it is always tempting to imagine a world in which it is not necessary to borrow, the federal government can and should maintain and manage a large amount of debt. The United States finances both long-term investments and short-term measures to fight recessions, as it should. Not to do so, even if one’s reason for refusing to act is to avoid borrowing money, would be a classic case of being penny-wise and pound-foolish.
Unfortunately, the Great Recession necessitated a large amount of borrowing by the federal government, and the Republicans decided that this would be their ticket back to power. Sadly, Democrats apparently concluded that the American people would never understand arguments in favor of deficit spending, and the White House and many Congressional Democrats quickly agreed that the nation’s top priority was deficit reduction.
I emphasize this recent history because so much of the debate over the debt ceiling is based on the mistaken belief that the national debt is per se harmful. It is not, but even if it were, the debt ceiling is precisely the wrong way to deal with it.
The Truly Easy Solution to the Debt Ceiling Problem
Although I have frequently criticized the White House’s handling of the Republicans’ string of debt ceiling gambits over the last four years, there is one thing that President Obama’s spokespeople have said that is surely correct, which is that the problem starts with the Republicans who have abused the debt ceiling statute. If Republicans truly believed their senseless arguments about the apocalyptic harms caused by borrowing, they would be eager to increase taxes and reduce spending in order to run annual surpluses and pay down the debt. That, and that alone, would actually reduce the nation’s indebtedness, which Republicans claim is their goal (misguided though it is).
Instead, the Republicans are playing political “chicken” with the debt ceiling, threatening to create a financial crisis unless the Obama Administration gives them what they want. (What Republicans want, by the way, is never clear, and it seems to be a moving target in any case.) That puts the nation’s creditworthiness at needless risk. As a Treasury official recently wrote: “The only way to protect the full faith and credit of the United States and the American people from serious harm is for Congress to raise the debt limit before [a crisis occurs].”
On that, all reasonable people can agree. The debt ceiling is a completely unnecessary law, because the accumulation of debt is determined not by placing an artificial and unenforceable limit on the debt, but by setting spending and taxing levels in a way that puts the country on a sensible path of borrowing. Once those spending and taxing laws exist, refusing to increase the debt ceiling does nothing more than guarantee that the laws will collide: It will not be possible to spend, tax, and borrow in the amounts that Congress has specified in its various enactments.
So, yes, there is one easy solution: Republicans should stop using the debt ceiling opportunistically, and instead they should either repeal it or at least increase it as necessary to accommodate the laws that Congress has passed. One can readily see why people in the White House and at Treasury are so frustrated, because there is nothing mysterious going on here. The debt ceiling existed for decades prior to 2011, but it is only with the advent of Tea Party-fueled extremism that Congress has become unwilling to fix its own inconsistent laws.
The safest path forward, therefore, is for Republicans to agree to repeal or permanently fix the debt ceiling law, such that these standoffs can never happen again. That is not politically easy, given the views of far too many Republicans, but it would certainly make these crises go away. On that, President Obama is completely correct.
But What If the Republicans Continue to Foment Crisis? What Is the “Easy” Solution Then?
The difficult question is (and always has been) what the president should do if the Republicans were ever to carry through on their repeated threats to hold the economy hostage to the debt ceiling. What if they really did say, “We don’t care that the taxing and spending laws that we passed require additional borrowing, and we refuse to change the debt ceiling”?
The simple fact is that the president would then be forced to make a fateful choice. Should he violate the law and the Constitution by not paying the bills for money that Congress has already spent? Should he collect tax revenues in excess of what Congress has ordered him to do? Or should he borrow more money than the debt ceiling purports to allow?
Frequent readers of Verdict know that Professor Michael C. Dorf and I have described this impossible choice as a “trilemma,” to reflect the three unconstitutional choices that the president would face. We have further argued that the least unconstitutional of those choices would be for the president to honor the spending laws and the tax laws, and thus to borrow only as much additional money as is necessary to cover the difference.
But people in the Administration continue to dismiss such arguments as being “magic bullets” that are somehow too clever. The Treasury official whom I quoted above admonishes: “There are no easy outs and no escape hatches.” Similarly, when a reporter for USA Today recently asked the White House Press Secretary about the Buchanan-Dorf trilemma analysis, he replied: “This is a thought-provoking exercise, and probably makes for a good op-ed that I think I would read,” but he then simply reiterated that the Republicans should increase the debt ceiling.
The Press Secretary thus dismissed as merely “a good op-ed” the question of how the president should choose among unconstitutional choices. Saying, as Professor Dorf and I do, that the president should choose one bad option because it is less bad than the other bad options is somehow dismissed as wishful thinking, rather than being seen as the result of a difficult but essential balancing analysis.
It is, however, actually the Administration that is refusing to do the hard thinking about this issue. Rather than even recognizing that the president would have to make a fateful choice, the White House acts as if the only choice is for the president to fail to pay the nation’s bills.
Yet the Administration’s own words show why this assumption is so dangerously wrong. Two years ago, the Treasury Secretary wrote:
How can the United States choose whether to send Social Security checks to seniors or pay benefits to Veterans? How can the United States choose whether to provide children with food assistance or meet our obligations to Medicare providers?
The United States should not be put in a position of making such perilous choices for our economy and our citizens. There is no way of knowing the irrevocable damage such an approach would have on our economy and financial markets.
Indeed, it would be terrible not to pay seniors who expect to receive the Social Security checks to which they are legally entitled each month. It would also be bad to fail to pay veterans, medical providers, children’s nutrition programs, and so on. Yet the Administration has continued to say that, if the Republicans fail to increase the debt ceiling, that is exactly what the president will do. He will presumably not like doing so, but that is what we have heard time and time again from the White House.
Why does the president think that it is acceptable not to pay the nation’s bills, if he ever were to face a trilemma? It has been surprisingly difficult to get a straight answer, but the White House’s defenders have claimed that the spending laws contain an implicit waiver allowing the president not to pay the country’s bills when they are due. Professor Dorf eviscerated that argument when it first surfaced two years ago, and the argument is no stronger today.
Even so, that mistaken argument apparently has bipartisan appeal. The article in USA Today that I cited above includes an astonishing statement from a former official in the first Bush Administration: “The government makes all sorts of promises. Many of these, particularly entitlement benefits, are not binding unless there’s money to honor them.”
The mind reels. The government “makes all sorts of promises,” but even if Congress turns those promises into legally binding obligations, then those promises are not really binding if the debt ceiling creates a trilemma? The best that one could say about this argument is that, if it were true, then the government’s full faith and credit is already worth nothing. But the argument in fact is clearly false, because even when there is no money in the till, the government is allowed to borrow money to pay its bills. It is only when the arbitrary limit imposed by the debt ceiling comes into the picture that the story supposedly changes.
All of which is simply an elaborate way to restate the trilemma in different words. The bills will come due, and the money will be borrowed and used to pay those bills, unless the president chooses to hold the debt ceiling law above the legal obligation to pay the nation’s bills.
None of this is easy, or a magic bullet, or an escape hatch, or anything else. If the president follows the advice that Professor Dorf and I have offered, there will assuredly be huge political uncertainty and a negative reaction in the financial markets. If he instead defaults on the nation’s obligations, there will just as assuredly be huge political uncertainty and a negative reaction in the financial markets. The question is why the president cannot even imagine doing anything in that situation other than defaulting on our obligations.
As the Treasury Secretary asked: “How can the United States choose whether to provide children with food assistance or meet our obligations to Medicare providers?” Indeed, how could we choose? The answer is that the White House is actually taking what it imagines to be the easier political road, not daring to risk the consequences of declaring that the debt ceiling is non-binding during a trilemma, and instead simply asking everyone to accept on faith the “easy out” of saying, “Sure, we owe people money, but we don’t really owe them money.” That will be a very big surprise to the people who hold those legally binding obligations from the federal government.