Three Ways of Looking at the Debt Ceiling

Before I dig in, allow me a personal note: If you put me in a philosophy class, I am a pretty radical libertarian, but if you ask me how I want the government of these United States of America to conduct its business in the real-world here-and-now, I’m an Eisenhower Republican. I don’t love the debt-ceiling gamesmanship—I didn’t love it when Democrats, including Joe Biden, were doing it, and I resent that I’m apparently expected to forget that ever happened—and, in general, I prefer orderliness in administration and predictability in policy. I would prefer a politics of consensus to our current politics of apocalyptic imbecility. 

All that being stipulated, the direness of the debt ceiling is in some ways exaggerated and in many ways misunderstood. Three ways of looking at it. 

First, the math: Almost all of our media conversation about the debt ceiling is presented as though it were a foregone conclusion—and an economic necessity—that the federal government would default on its debt if the debt ceiling is not raised. There isn’t any reason for that to happen: We have something like $11 in tax revenue coming in for every $1 in debt service going out of the Treasury doors. Congress declining to raise the debt ceiling would not change that. The federal government does not have to borrow money to have enough to keep current on its obligations to bondholders—in fact, when you are obliged to borrow money to make good on current debt obligations, that’s when you really are in a debt crisis, and we are not there. (Yet.) It is the case that the federal government would not have enough money to pay for all authorized spending (that is why we borrow in the first place) but there is no financial reason that should mean defaulting on the debt rather than suspending or deferring some other spending. 

Owing at least in some part to what looks suspiciously like an intentional campaign of obfuscation to me, much of the media has taken to use the word “default” in such a way as to blur the distinction between a debt default—which would be economically catastrophic—and deferring or forgoing other congressionally authorized spending. The latter would not be a great outcome, for all sorts of reasons, but it is not the same thing as a debt default and nowhere near occupying the same height of seriousness.