Tweet from Megan McArdle <@asymmetricinfo>:
Hey, quick reminder: you know what’s bad for the economy, and your country’s reputation? Defaulting on the debt.
Megan and I disagree on a wide range of topics, and I think she’s fooling herself about the extent to which the libertarian project boils down to a commitment to worsen the income distribution, but when push comes to shove she’s reality-based.
That matters even more when others on her side of the Red/Blue Divide clearly aren’t. The current Republican line (cf. responses to Megan’s Tweet, or the latest nonsense from the Capitol Hill Republicans and the Feldstein/Mankiw Axis of Weevils) is that the Treasury will always have enough money to pay interest on bonds and bills, simply by stiffing its other creditors (employees, pensioners, contractors, and suppliers) thus avoiding “default” as defined by the Credit Default Swap markets.
This reminds me of a joke that went around during the first New York City financial crisis: that the City would avoid default by refusing to pay its obligations. But it’s not a joke (or, rather, it’s a joke in very bad taste) when it involves the credit of the United States of America.
You can choose to believe that defaulting on the nation’s legal obligations that don’t happen to be called “bonds” or “bills” won’t influence the confidence of world financial markets in Treasury debt, but that is what Mark Twain called “a vagrant opinion, without visible means of support.” But whatever its practical implications, not paying your bills when they come due – given that you have the capacity to pay them – is deeply, unforgivably dishonorable.
I only wish Megan had more company on her side of the aisle. And I hope that her lack of company makes her reconsider whether the Red jersey is one she’s really willing to wear.