Living within the debt ceiling: a postcode solution

Allocate the money available according to the House votes.

To a Brit, the whole institution of a debt ceiling is a quaint absurdity. Borrowing is merely a logical consequence of the budget bills the legislature has already approved. Wer A sagt muss auch B sagen (Brecht). But there it is, like Black Rod, except that he is harmless.

An idle thought. Suppose the talking-bomb House Republican majority nevertheless refuses to raise the debt ceiling. The cuts required are huge. According to the Congressional Research Service:

… the federal government would have to eliminate all spending on discretionary programs, cut nearly 70% of outlays for mandatory programs, increase revenue collection by nearly two-thirds, or take some combination of those actions in the second half of FY2011 (April through September 30, 2011) in order to avoid increasing the debt limit.

Am I right in thinking this: from the moment the ceiling is reached, and net new borrowing becomes impossible, the entire appropriation law is moot, any riders the House attaches to explain its abdication of budgetary responsibility are of no effect, the distinction between mandatory and discretionary spending collapses, and the executive acquires untrammelled discretion to spend the funds that come in (still within the appropriation limits). How should the Administration allocate the funds that do come in?

My modest proposal: take the USPS list of zipcodes and map against the House constituencies. Where the representatives vote to raise the debt ceiling, payments are sent out up to the funds available. Where the representatives treasonably vote to destroy the faith and credit of the United States, the cheques don’t get sent out. Full stop. You like small government? Enjoy the Norquist bathtub.

President Obama, your Rockefeller toaster oven, will never do this, or threaten to do so. But ask yourself: what would LBJ or Lincoln have done?

Author: James Wimberley

James Wimberley (b. 1946, an Englishman raised in the Channel Islands. three adult children) is a former career international bureaucrat with the Council of Europe in Strasbourg. His main achievements there were the Lisbon Convention on recognition of qualifications and the Kosovo law on school education. He retired in 2006 to a little white house in Andalucia, His first wife Patricia Morris died in 2009 after a long illness. He remarried in 2011. to the former Brazilian TV actress Lu Mendonça. The cat overlords are now three. I suppose I've been invited to join real scholars on the list because my skills, acquired in a decade of technical assistance work in eastern Europe, include being able to ask faux-naïf questions like the exotic Persians and Chinese of eighteenth-century philosophical fiction. So I'm quite comfortable in the role of country-cousin blogger with a European perspective. The other specialised skill I learnt was making toasts with a moral in the course of drunken Caucasian banquets. I'm open to expenses-paid offers to retell Noah the great Armenian and Columbus, the orange, and university reform in Georgia. James Wimberley's occasional publications on the web

25 thoughts on “Living within the debt ceiling: a postcode solution”

  1. Refusing to raise the debt ceiling represents nothing more than a decision to not incur MORE debt. It has no implications, in itself, for the full faith and credit of the US, any more than deciding that you’re not going to run up your credit card any more implies becoming a deadbeat.

    It simply presents the government with an imediate set of alternatives:

    1. Instantly balance the budget, including interest payments.

    or

    2. Illegally incur more debt anyway.

    or

    3. Default on existing debt in order to sustain higher spending.

    But not raising the debt ceiling doesn’t determine which of these choices get made.

    On another point, again we see the ‘liberal’ response to being thwarted: Not, “How can I persuade this person?”, but, “How can I punish this person?”

  2. Brett, If Republicans want to not incur more debt, they have several reasonable alternatives:

    1) Propose a budget that reduces spending to levels covered by tax receipts.
    2) Propose new taxes to cover spending.
    3) Some combination of 1 and 2.

    They choose to do none of these. They are deliberately choosing an option that will cause the greatest harm to the American economy (and the global economy). So, yes, I agree with James. Anybody who votes to drastically reduce the scope of the government should get their wish. Anybody who votes to maintain the current scope of government should get *their* wish. When the next election rolls around, we’ll see which level of government the people prefer by who shows up to vote and whom they vote for.

  3. Brett: the decision to raise more debt x is taken when the bills authorising revenue y and spending z are approved: for x = y – z. Failing to rubber-stamp x subsequently, as US laws mistakenly require, is pure political hostage-taking and deserves ruthless reprisals.

    You doubt the negative impact on the credit rating and future borrowing costs of the US government? See David Min:
    “a freeze on the debt ceiling would cause our interest payments to spike, making our budget situation even more problematic, while potentially triggering greater global instability — perhaps even a global economic depression.”

    The same conservatives pushing for this reckless action also think that the USA is at war with terrorists, who would be delighted by this self-destructive move. Giving aid and comfort to the enemies of the country at a time of war is one of the original 1351 definitions of treason. It’s only a slight hyperbole of mine.

  4. Anybody who votes to drastically reduce the scope of the government should get their wish. Anybody who votes to maintain the current scope of government should get *their* wish.

    Suits me.

    Of course, scope of the government means what the government requires, and what it charges–not just what it pays for. So if you’re fine with Davis-Bacon, Taft-Hartley, anti-discrimination law, and the Clean Air Act not applying, I think doing without the associated funding is a fair trade.

  5. Jams Wimberley: “the decision to raise more debt x is taken when the bills authorising revenue y and spending z are approved: for x = y – z. Failing to rubber-stamp x subsequently, as US laws mistakenly require, is pure political hostage-taking and deserves ruthless reprisals.”

    I would be careful here. Consider, for example, the Swiss Debt Brake (which has inspired similar provisions in other countries), which also limits the amount of revenue the Swiss government can raise via debts. This is a constitutional amendment and thus limits what the legislative can do. This is specifically so that members of the Swiss parliament have a strong extrinsic motivation to not hand out gifts to voters.

    What makes the Swiss Debt Brake different from the US Debt Ceiling is that the former was designed and refined by economists with an interest in creating a workable economic instrument, while the US Debt Ceiling is an anachronistic relic from 1917.

    Notably:

    (1) The Swiss system ties the amount of revenue from debt to a percentage of the GDP (adjusted for the economic cycle). Thus, the allowed debt automatically grows with the GDP.
    (2) It also explicitly adjusts that based on the economic cycle. During a recession, more debt can be raised, but has to be paid back during economic growth.

    The Swiss approach has inspired a similar constitutional amendment in Germany: http://bundesrecht.juris.de/englisch_gg/englisch_gg.html#GGengl_000P115

    Obviously, this is a concept alien to the UK with its supremacy of Parliament, but that doesn’t necessarily mean it’s a “hostage taking” exercise elsewhere.

    That said, in this particular case I consider it one. But that’s because the underlying law is essentially dysfunctional, originating in a time when the gold standard was still in place, and now being used for a game of “Chicken” by the Republicans (“how close can we come to crashing the economy before the Democrats blink?”). Not because budgets cannot sensibly be constrained by debt caps, but because this particular debt cap has no foundation in economic reality.

  6. Thanks for the information, Katya. However, the German Article 115 looks more like a bow to above-the-fray philosopher-kings rather than a genuine political constraint. After all, the economy is always in an upswing or a downswing, and quite possibly in a crisis of some sort, so what’s to stop the majority in the Bundestag from doing what it thinks fit by passing the required law? It’s a parliamentary system, so the government can’t be in opposition to the majority in the Bundestag on a big policy issue for more than a week. I don’t see how hostage-taking, presupposing inconsistent budgetary and debt decisions, can arise.

    Any data from commenters on France, where cohabitation between a president of one party and a prime minister + parliamentary majority of another is a real possibility and has arisen three times in the Fifth Republic? The standoffs I can vaguely recall were in foreign policy, whee authority is divided, not economic, where the prime minister’s government is boss; but I may be wrong.

  7. James: “After all, the economy is always in an upswing or a downswing, and quite possibly in a crisis of some sort, so what’s to stop the majority in the Bundestag from doing what it thinks fit by passing the required law? It’s a parliamentary system, so the government can’t be in opposition to the majority in the Bundestag on a big policy issue for more than a week.”

    You forget the German Federal Constitutional Court. Because article 115 is part of the German constution, this gives the FCC jurisdiction in this area; unlike the UK Supreme Court, the German FCC has the power to strike down laws that it finds unconstitutional, including budget laws. Nor is this a hypothetical situation; recently, the constitutional court of the state of Northrhine-Westphalia struck down the state’s budget law, which caused a minor government crisis. (This almost happened on the federal level a few years ago as well, but the prior version of article 115 was vague enough so that the FCC upheld the budget law narrowly with a 5:3 majority.)

    You’re correct that the law is unsuitable for hostage taking, of course. The parliamentary system combined with the notorious independence of the FCC doesn’t provide much room for such shenanigans. But then it was designed as an instrument of fiscal self-discipline, approved by a 2/3 majority in both the Bundestag and Bundesrat, not a political tool. I don’t know whether it does that job well — I’m not enough of an economist — but that’s how it was designed.

  8. What about printing money as option 4?
    Obama just order the printing of bills, and sends them out to cover the gap.

  9. (Wimberley): “Where the representatives treasonably vote to destroy the faith and credit of the United States, the cheques don’t get sent out.
    Most people enjoy revenge fantasies. Consider consider action movies. Consider socialist social policy (“comfort the afflicted and afflict the comfortable”). We differ where we would direct the retaliation. I’d say the people who “treasonably” (are you questioning their patriotism?) voted to destroy the credit of the US voted for unsustainable entitlements.

  10. Malcolm: it would be revenge all right, but why is it a fantasy? The choices that a refusal by House Republicans to raise the debt ceiling would force on the Administration would be brutal: entire branches of government would grind to a halt. So why not target the pain on those responsible for it, viz. Republican voters?
    And what unsustainable entitlements are you talking about? The only unsustainable element in US budget projections is health care; and its only unsustainable because of the inefficiencies and high prices of US doctors, hospitals, and drug companies. Unlike every other advanced country facing rising health costs, the USA has a readily available solution – simply to copy any of the others’ systems, and squeeze medical wages and rents.

  11. (Wimberley): “why not target the pain on those responsible for it, viz. Republican voters?
    We disagree. I say “Democratic voters”. Combined local, State, and Federal pension obligations (Social Security, Federally-guaranteed private sector pensions (e.g., United Airlines), and public sector pension commitments plus Medicare and Medicaid obligations cannot survive on a diminishing private sector tax base. We disagree about the ability of a State-monopoly health care system to deliver treatment efficiently. There’s an empirical argument, here. The taxpayers of one medium sized US State could probably afford to supply one band aid and one aspirin per person per year to the entire Earth’s current population. The entire Earth’s GDP is not enough to keep even one person alive forever. Inevitably, somebody or some body pulls the plug on grandma. Inevitably somebody or some body has to decide between Junior’s knee surgery of Sis’s Ivy League tuition. Aggregation of resources and decision-making authority into the hands of government-appointed bureaucrats adds nothing to the health care industry.

    This is my basic text…
    Eduardo Zambrano
    Formal Models of Authority: Introduction and Political Economy
    Applications
    __Rationality and Society__, May 1999; 11: 115 – 138.

    Aside from the important issue of how it is that a ruler may economize on communication, contracting and coercion costs, this leads to an interpretation of the state that cannot be contractarian in nature: citizens would not empower a ruler to solve collective action problems in any of the models discussed, for the ruler would always be redundant and costly. The results support a view of the state that is eminently predatory, (the ? MK.) case in which whether the collective actions problems are solved by the state or not depends on upon whether this is consistent with the objectives and opportunities of those with the (natural) monopoly of violence in society. This conclusion is also reached in a model of a predatory state by Moselle and Polak (1997). How the theory of economic policy changes in light of this interpretation is an important question left for further work.

    Also…
    Randall G. Holcombe
    Government: Unnecessary but Inevitable
    __The Independent Review__, Volume 8 Number 3 Winter 2004

  12. Small government? Give me a break!

    Go ahead, look up a graph of the last few decades’ spending and revenue. Draw a line through spending. Draw a line through revenue. Notice anything? Yeah, that’s right, on average, and yes, taking into account inflation, this year’s revenue is generally enough to cover the spending of only about 4 years ago.

    So, what are you telling us? That America was Hell on Earth four years ago? People were boiling their shoes to fill their swollen bellies? Spare me the histrionics. Spending only what we spent, adjusted for inflation, four years ago, is not a thing of terror. Except for people who make their living buying one person’s vote with another’s money.

  13. Brett,

    Signalling that the credit of the US is hostage to political disputes is a terrible idea. Worse than terrible, actually. More like downright destructive. It will certainly raise borrowing costs – worried about the deficit, are you – and may well have all sorts of negative consequences in financial markets and elsewhere.

    Frankly, anyone, including you, John Boehner, or anyone else, who thinks that even threatening not to raise the debt limit is a sensible idea is a moron, willing do unimaginable harm to the US for the sake of posturing.

  14. I had no idea our population, economy and activities had fallen so far that we could cut spending to levels of several years ago! In light of these new facts, cut cut! cutcutcutcut!

  15. Congress has said “The government must spend X, Y, and Z dollars on programs A, B, and C.”

    If the available revenue doesn’t add up to X+Y+Z, Congress has several choices. It could raise the debt limit, allowing the Executive branch to borrow enough to make up the difference. Or it could pass a revised budget with its preferred allocation of the funds that actually are available (obviously, this would have to pass both Houses and be signed by the President).

    If Congress can’t or won’t do either of these, it’s effectively passing the buck to the Executive branch. The Executive then has to decide what not to spend money on. That decision is a deeply political one. Someone’s going to end up with IOUs instead of cash. Will it be creditors? Defense contractors? Hospitals? The elderly? State governments?

    There is a certain logic to sending the IOUs to the supporters of those Representatives who voted to spend (X+Y+Z) but refused to either raise (X+Y+Z) in revenue or permit the Executive to borrow enough to cover [(X+Y+Z)- revenue].

  16. Again, refusing to go deeper into debt scarcely represents an attack on our credit.

    Wow. Let’s see. I hire a contractor to do some remodeling, planning to use my home equity credit line to pay for it. When the bill comes I refuse to pay, on the grounds that I don’t want to go deeper into debt. According to the Bellmore theory this will not damage my credit.

    Are there really people seriously peddling this? That’s frightening.

  17. Yup, Bernard, that’s right: Everybody who decides they’re not going to continue running up the credit card instead maintains the same spending level and lifestyle, and just stiffs people instead of paying for the part beyond their means. Not spending money you haven’t got? That’s not even on the table.

    As I said, not raising the debt ceiling presents the federal government with choices. You’re simply taking the worst choice as a given.

  18. No Brett. I’m taking meeting my obligations seriously. Just because I don’t have the cash to pay the contractor today doesn’t mean I don’t have an obligation to pay, nor does undertaking the project to begin with mean I’m being irresponsible or living beyond my means.

    If that were so then anyone who ever took out a mortgage or borrowed to buy a car would be irresponsibly living beyond their means, as indeed would any business that ever borrowed money for working capital or other purposes.

  19. The government is large enough that it’s constantly initiating new expenditures all the time. This is not at all like somebody suddenly deciding that they’re not going to add to the credit card balance the day after the contractor finishes their new kitchen.

    The latest news I hear on the deficit reduction front is that almost all of the ‘$38 billion in cuts’ consisted of cutting funds which weren’t going to be spent anyway, and that the actual cuts amount to well under a billion dollars. About 0.025% of this year’s deficit. Roughly equivalent to somebody going a quarter of a million dollars deeper into debt each year deciding not to tip the waiter at Outback.

  20. Brett,

    It’s exactly like deciding you’re not going to pay your bills. The obligations have been incurred. It’s not “fiscal responsibility” to refuse to pay what you owe. You are confusing meeting obligations with incurring them.

    And the consequences of not meeting them would be very bad indeed.

  21. If that were so then anyone who ever took out a mortgage or borrowed to buy a car would be irresponsibly living beyond their means, as indeed would any business that ever borrowed money for working capital or other purposes.

    Too bad that Brett’s intransigence can’t actually translate to reality. Why is this so? This would eliminate the bankers and their funny bubbles and paper shuffling and billion dollar bonuses.

  22. So, what are you telling us? That America was Hell on Earth four years ago? People were boiling their shoes to fill their swollen bellies? Spare me the histrionics. Spending only what we spent, adjusted for inflation, four years ago, is not a thing of terror. Except for people who make their living buying one person’s vote with another’s money.

    Well, conservatives should have viewed America as Hell on Earth four years ago. Government spending had been steadily increasing for years by that point and it was all paid for with borrowed money. Naturally, today’s deficit hawks were totally cool with this because a Republican was president. They only feel compelled to pretend to be gravely concerned with spending and deficits when a Democrat is in the White House

  23. Yes, and after finding out that most of the trivial sum of “spending cuts” were fake, I’d agree that they’re only pretending to be concerned at this point. (Whereas Democrats don’t, of course, do exactly the same.)

    The Republican base, or at least an important part of it, is about *this* close to giving up on the GOP for good, because of crap like this. Wouldn’t surprise me one bit to see the Tea party becoming a genuine third party in a few years, if this is the shape of things to come.

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