Megan McArdle says The Thing That Is

Mere words can hardly convey the preposterousness of the debt ceiling.


Mere words can hardly convey the preposterousness of the debt ceiling. It is a stupid artifact of legislation that was hastily passed in the World War I era, and it creates a paradox at the heart of our budget politics: the law of the land commands the government to spend more than it takes in in tax revenue, and also, forbids the Treasury to borrow the necessary money.


When I was reporting on Wall Street, I used to be told with some regularity that government was needed to counteract the short-term thinking of the business sector, who never thought much beyond the next quarterly earnings report. This now seems as quaintly adorable as picture hats and daily milk deliveries. An ADHD day trader with a cocaine habit and six months to live has considerably more long-term planning skills than our current congress.

Like other anti-Coiners, Megan doesn’t address the question of what the President is supposed to do if the Congress orders him to spend money it forbids him to raise, but she’s right to say that the Coin idea is a vicious satire on our current political situation, as created by the clownshow calling itself the House Republican Conference, with assistance from Grover Norquist, the Brothers Koch, and most of Red Blogistan. Which, for some of us, is the main point.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact:

42 thoughts on “Megan McArdle says The Thing That Is”

  1. McArdle also writes,

    “We don’t have a spending problem,” President Obama apparently blithely told the Speaker of the House. Which is technically true . . . if we’re willing to raise the government’s tax take to north of 50% of Gross Domestic Product.

    Can we put a pencil to that? As I pointed out elsewhere, spending is about 24%, and that number is somewhat elevated by current conditions. So maybe that “north of 50%” business is an overstatement.

      1. The other thing to remember, as Bruce Bartlett points out, is that in US politics government gives many tax breaks that would be expenditures in other countries (e.g., for health insurance). If you thought of government spending as spending plus foregone revenue, the US govt looks is similar in scope to Western Europe. As was pointed out in the “submerged state” work of Mettler, these tax breaks tend to be for middle class goodies, so middle class people do not see themselves as govt beneficiaries in the way they see poor people who get checks from the govt (even though practically speaking, they too are drawing on the govt, just through tax breaks)

        1. That’s true, but it’s not as though other countries don’t do similar things.

          For example, the majority of the German banking sector is non-profit (around 24% co-op banks, 40% public law banks, last I checked) and that is openly encouraged by the government. That means that the German government leaves quite a bit of tax money on the table in order to facilitate private and small business loans. Similarly, public health insurance in Germany is run by non-profit sickness funds, so it isn’t part of the federal or the state budgets [1], even though it is financed by payroll-tax like contributions (unlike what the UK and France have).

          I suspect that it’s still a higher percentage of GDP in the United States, but I wouldn’t know how much without a more thorough analysis.

          Your bigger point that it’s difficult to accurately define public expenditures just based on government budgets is well taken, though.

          [1] Except where the government makes contributions for those who are unemployed or unable to work, but then we have Medicaid, too. On the other hand, there’s nothing like Medicare in the German federal budget.

  2. Yet again, I point out: The debt ceiling does not forbid the President to borrow, the President has no power to borrow. It is a limited delegation to the President of Congress’ power to borrow. Before the debt ceiling, the President had to come to Congress for individual authorization of each and every instance of borrowing.

    So, yes, I’d be delighted if the debt ceiling were abolished, it would leave Congress too busy authorizing bond issues to get into much mischief.

    1. “So, yes, I’d be delighted if the debt ceiling were abolished, it would leave Congress too busy authorizing bond issues to get into much mischief.”

      Well, no, for obvious reasons.

    2. Neither Congress or the President has the Power to override math.
      Perhaps instead the Fed could create the Negative Trillion dollar bill, rather than the Treasury minting a +Trillion coin.

      1. Brett, you (and your buddies) are still ducking the question: if the Congress orders money spent, doesn’t tax enough to pay the bills, and will not allow the President to borrow the difference, precisely what the f**k is the President supposed to do? He has no legal power either to pay the bills or not to pay them. Do you believe that the President has the implicit power to pick and choose which bills to pay? Or would you join the Tea Party mob howling for his impeachment the day after he ordered selective payment of the nation’s obligations?

        Please, pretty please, for once skip the blather and just answer the question.

        As to how to fix the problem, there’s no reason each appropriations bill couldn’t simply authorize such borrowing as necessary to pay the bills.

        1. To be fair to Brett, he has answered the question. IIRC, he believes that not spending is the least unconstitutional course of action.

          To be fair to Brett, he keep saying the same thing, over and over again, comment after comment, post after post, oblivious to the discourse swirling around him.

          1. To be fair to Brett, he keeps pointing out the same fundamental mistake, because the same fundamental mistake keeps getting made.

          2. “Which is saying little more than he invites the President to commence his own impeachment.”

            No, that’s incorrect. Brett has consistently stated, and I’m pretty sure he’s correct, that the President raising taxes or making unauthorized borrowing is a Constitutional violation, which is clearly impeachable, but failing to follow a law passed by Congress may or may not be impeachable, depending on whether the law is followable. If, for example, Congress makes a law that the President is required to “fly to the moon on gossamer wings,” (hat tip to Cole Porter) he can’t be impeached for failing to follow the law.

            So when the idiocy of Congress is manifest in passing unfollowable laws, they can’t touch the Prez for failing to follow those laws.

        2. He’s also ducking the problem that everything he says about borrowing is also true about spending. That is no more and no less a grant of Congressional power than is borrowing. His dodge that one is a Constitutional violation and the other is a mere violation of statute is bogus. I can see either claim being true or false, but only in both cases.

          1. That’s true, it’s just as much a Constitutional violation for the President to spend money not appropriated, as it is for him to wage a war not declared, or to levy a tax not enacted, as it would be for him to engage in unauthorized borrowing. While the relevant inactions would just be statutory violations.

            The Court has ruled the President has to spend money appropriated, but did so in the context of him having the money available to spend. I’m betting if the case comes up in the context of the debt ceiling, the Court will rule that the President has no obligation to spend money he doesn’t have.

          2. I find your distinction between spending money not appropriated and not spending money that is appropriated to be specious. When Congress passes an appropriations bill it is creating a Constitutional duty in the executive to spend that money. The resident has no more power to ignore a mandate to spend than it does to ignore a mandate not to spend.

        3. Mark,

          I believe Brett has answered your question, albeit only through his non-responsiveness. He evidently believes that a government default would force Americans to “live within their means” because the threat of a default will force a new budget more to his taste. There is no real need to pay for what has already been received because the people who did work for the government such as doctors taking care of sick old people under Medicare are just parasites sucking on the government teat and they should have known better than to trust the government’s promises. Soldiers are fools and only fools die or expect to be paid on time. So, yes, overall Brett seems to be blithely indifferent to the consequences as only a Glibbertarian can be and he no doubt quite sincerely believes in the simplistic nostrums he offers.

          I have very little doubt but that Brett knows full well that we are talking about paying for things previously authorized by Congress (and in many cases for goods received and services already rendered) or the regular social welfare payments made to the elderly or disabled. Maybe old age pensions for government workers, school payments for veterans on the GI Bill and financial aid recipients. Not a problem because the government need to live within its means and because…freedom!

          Now, I’m sure Brett also will acknowledge that maybe a few old people or invalids living on fixed incomes will suffer if they don’t get their social security checks but, really, the country can’t afford to take care of them anyway. They should have planned better, saved more, been healthier or had better paying jobs. Besides, this will be a valuable lesson for them about responsibility and self-reliance. Also, freedom!

          Government workers who aren’t doing anything for Brett at the moment are parasites, anyway. Government OAP’s are just retired parasites. Also, government is generally too big, too expensive and too focused on doing stuff for people who aren’t Brett. Not worth the money to him. Consequently, not a problem if it just shuts down, at least until the next time Brett needs something done.

          I could go on and run through the litany of the many who would be harmed by a government default but what would be the point? You keep demanding that Brett tell you his preferred way out of this impasse. He has told you. You just aren’t listening very well. Brett’s way is called “52 card pickup”.

          1. Mitch, I think you are mis-casting both Brett’s position and the current quandry. The debts of the Government must be paid, but “debts” are “expenses incurred but not yet paid.” They are NOT “expenses budgeted but not yet incurred.”

            Example: A government contractor has a multi-year contract to deliver and support computer systems to Government agencies. Evey month they deliver some more systems, training, and support, and every month they submit an invoice for work done. The invoices have to be paid. But at any time, GSA can issue a Stop-Work order. The next four years of invoices that contractor was counting on submitting are not “debts” at this point.

          2. @ Ken Rhodes – You raise an interesting distinction between expenses that are budgeted but not yet incurred and therefore are not debt and those that incurred but not yet paid. Once Congress passes a budget containing the applicable expense, hasn’t it been incurred? What further action must be taken for it to be incurred?

  3. I’ve been taking a pro-coin position, but not the fantasy platinum coin. If Congress directs that $100 be spent, limits tax collections to $75 and borrowing to $20, and directs the Treasury Department to mint such coins as are needed by the United States (this is made explicit in 31 USC 5111(a)(1)), that sounds to me like an explicit direction to coin $5* worth of nickels, dimes, and quarters. And dollars. Does the United States need that $5? I don’t see how one could say it doesn’t. What are we going to do with all those nickels (besides paying salaries for members of Congress)? Deposit at the Fed.

    *Net, obviously.

    1. Roughly how many years do you think the mints nationwide will take to produce sufficient coins? Also, how sure are you that this can be done before the government runs out of money and borrowing authority (which is apparently sometime in February)? Not to mention the cost—for which there isn’t an existing appropriation and which would probably greatly exceed the entire annual budget for the US Mint in any case.

      I understand that this idea has the same emotional resonance as would paying the cable bill with pennies but it’s actually much less practical and arguably no more legal than the platinum coin, which is unquestionably legal.

      1. You have to admit that the image of 535 members of Congress lining up at the Treasury every two weeks to get their 500 pounds of nickels is pretty satisfying.

        More seriously, obviously there are the logistical issues. But once the non-clownshoe coinage option is recognized and begun — and it is unquestionably legal and constitutional for Treasury to substantially increase the number of nickels etc in circulation — then it’s all the more easy (and defensible) to take the next step and mint some $1 billion platinum proof coins, for deposit until sold, and for sale if some billionaire wants one.

        I’m not sure that the $1 trillion coin is “unquestionably legal” — but a platinum proof coin that does no more than fill in the gaps between what is ordered by Congress (as a combination between appropriations, debt limit, and an instruction to coin such money as is needed) and what can logistically be produced is going to pass muster even if someone can get standing to challenge it. The trillion dollar coin is a gimmick. Coins that pay the amounts ordered by Congress is not only not a gimmick, but has been affirmatively directed by Congress. (Note use of “shall” in 31 USC 5111(a)(1)).

  4. Mark Kleiman: As to how to fix the problem, there’s no reason each appropriations bill couldn’t simply authorize such borrowing as necessary to pay the bills.

    This. Painfully obvious even to this non-wonk. The President should also be clear up front that he will sign no appropriations bills without it.

    1. Depending on whether you could work out the mechanics of doing it, this might not be a bad idea for the future. But what about this pickle we’re in right now?

      1. Well, there is this. The thing is it’s not so far out and unprecedented that it’s plausible Obama would use this if completely cornered. Unfortunately, experience shows that he’s (such a horrible negotiator / so committed to “playing nice” / so desperate for approval in the Village)(take your pick) that he’d happily sell-out Medicare first. The messages from my tinfoil hat are telling me that this is why we’re facing the “sequester” to begin with.

        1. I believe that issuing script would run afoul of 31 U.S.C. § 5115 (“The amount of United States currency notes outstanding and in circulation … may not be more than [$300 million]”)

          1. Scrip (not script) is not currency because it’s not legal tender. However, it would have a market value and would trade at a small discount to the real thing. People are adaptable traders; during the Irish bank strikes in the 70s, cheques issued by pubs circulated as means of payment.
            I raised the idea myself in 2011, complete with a pretty design. Nice to see it being taken up by somebody with credentials.

        2. So instead of actually “cutting” SS and Medicare, we just issue scrip with a face value of what the benefits should be, so that the recipients must then turn around and sell it at a discount. Because that is exactly what would happen. Those who are not dependent on these payments would be able to hold on to the scrip until such time as the impasse is resolved and it can be redeemed for face value. Those who are dependent, on the other hand, would have no choice but to sell it off for anything they could get. Since the potential buyers would know that anyone selling was desperate for cash, it would be a strong buyers market, so the contention that it would sell for a “small discount” is pure fantasy. I would be willing to bet a significant amount that the trading value would never crack 10% of face value.

          1. Well, KenT, that’s your guess, and you’re entitled to it. OTOH, the “discount to face value” is exactly what constitutes the interest rate on regular government debt right now. It has nothing to do with buyers having leverage because the sellers are really anxious to sell.

            What’s the discount on government debt these days? Mighty small, isn’t it? Any discount worse than that would be a reflection of an opinion that the warrants might never be paid. Maybe that would be non-zero, but it has nothing to do with a “buyers’ market.” Rather, it has to do with the buyers estimate of the likelihood of default, which I think would be very small.

  5. I suppose it’s news when Megan McArdle sees the light. Where was she in July-August 2011 and December 2012? With Mark and Jonathan and Harold and Michael and your humble self, all saying the same thing about the absurdity of the separate debt ceiling, though we cast about for different solutions? I don’t recall it. (Search this blog for “debt ceiling” and scroll back.)

    1. I criticized the Republicans pretty heavily for the debt ceiling nonsense, though I’m not sure I specifically criticized the debt ceiling itself. Does that answer your question?

      1. Yes, you did indeed. Congratulations and muted apologies for my mistake. They are muted for two reasons.

        By your own account, you were silent in the heat of the dispute, when it could have mattered.

        And you did write this, which took half of the criticism back:

        I don’t have a problem with Republicans using the opportunity of raising the debt ceiling to demagogue the deficit problem–this is one issue that needs all the passion it can get.

        You don’t demagogue an issue by making speeches on a routine wave-through vote; you demagogue it by making a credible threat. Which the GOP did and is doing again.

        Each such episode raises the long-term cost of borrowing by the US; the ten-year cost of the 2011 episode has been credibly estimated at $19 billion. A 2013 repeat would I suppose be more expensive, as it would indicate a systematic rather than a one-off breakdown in the trustworthiness, common sense and patriotism of one of the two major parties of the American polity.

        1. 1) We may disagree about the meaning of the word demagogue, or how to apply it, so let’s leave that aside. I was writing in January, when it was not yet clear that the GOP was actually going to try to take hostages, not merely grumble loudly; this was not a case of double standards.

          2) I was quite critical of the GOP’s conduct in the middle of the dispute; I simply didn’t specifically write a post saying that the debt ceiling itself was silly. (In part because I gained understanding of the legal reasons it exists; the paradox is still stupid, but I understand why it is necessary for Congress to delegate that authority, and why the authority is not made unlimited when delegated). I did write multiple posts arguing that threatening not to raise it was stupid, and trying to persuade the GOP that this conduct was utterly counterproductive even for them. I doubt I made much difference, but I did try.

          I quit agree with you that the GOP should not use the debt ceiling the way it did in 2011. I think it is fine to make symbolic votes and fiery speeches, not fine to use it as a hostage for other ends. Which I have said repeatedly, and consistently.

          1. Your points 2,3: fine. I misunderstood your first incomplete defence.

            On delegated authority in 1: I don’t know anybody who thinks a democratic legislature should issue an unlimited borrowing authority to the executive outside of wartime. If appropriations and taxation are defined by legislation, the borrowing authority is automatically limited; I think this is how it works in the UK, where Supply Acts don’t mention borrowing.

            For an example of how another grown-up polity deals with borrowing explicitly, see sections 2 and 6 of the German Article 115 Act, pdf here in English, pages 21 and 22. Section 2 makes the ordinary borrowing authorisation part of the annual budget law. Section 6 creates a mechanism for responding to unexpected circumstances. I hold no brief for for the austerity straitjacket imposed by other provisions. (H/t to commenter Katja earlier).

  6. BTW, let me repeat for the nth time that the “government spending as a % of GDP” is an amateur, silly number. In the production table of the national income accounts – GDP – there’s a chunk of government services: defence, education, police, and so on: people being paid for doing stuff. There’s a different table of the income of all the households that make up the nation: this includes transfers from government like Social Security, which is not a payment for doing stuff. The two tables should add to the same total (in practice they don’t quite and you have fudges to make them fit). The pop total “government spending” includes transfers as well as services. If you are going to compare it to anything, it should be to combined GNI and GDP, so 200%. It would be entirely conceivable, though probably disastrous in practice, to have a government-to-GDP ratio over 100%, with say 60% of GDP as government services and 60% of GNI as transfers.

  7. Brett Bellmore:

    “The Court has ruled the President has to spend money appropriated, but did so in the context of him having the money available to spend.”

    IIRC, the Court ruled the President has to spend money appropriated; I’ve never heard anything about ‘context’.

    I would ask for proof, but that’s not your strong suite.

    ” I’m betting if the case comes up in the context of the debt ceiling, the Court will rule that the President has no obligation to spend money he doesn’t have.”

    I’m sure that your extensive knowledge of the Court informs your opinion.

    1. IIRC, the Court ruled the President has to spend money appropriated

      There’s a Nixon-era statute to that effect. Brett’s point stands though–if the President has to ignore either the statute OR the Constitution, the statute is the less-bad choice.

      1. Actually, Brett’s point bespeaks a surprisingly limited understanding of both history and the Constitution. The Impoundment Act was intended to help effectuate Congress’s spending power in much the same way the War Powers Act was intended to effectuate Congressional control over decisions of war and peace. So, to ignore the Impoundment Act is to cripple Congressional spending power so it would seem to have the same Constitutional implications as the options you and Brett don’t like.

        On the other hand, the platinum coin and the 14th amendment options simply invalidate the statutory “debt ceiling” or at least render it moot, while leaving unchanged the balance of power between the Executive and Congress.

    2. It’s easy to mock Brett, but to what purpose?

      What court is involved here? I’m trying to envision a scenario in which the House impeaches the Prez for failing to spend the money they wouldn’t let him have. And then, assuming the Republicans are so stupid to do that, then the Senate (majority Dems) convicts him.

      Yeah, that’s it, that’s just what would probably happen, and Brett probably has no “proof” to support his position.

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