Since we didn’t drive off the ‘fiscal cliff’ we are treated to another ridiculous gambit on the part of our elected officials – the ‘debt ceiling’. For those of you not in the know, the debt ceiling is a limit placed on public borrowing, by Congress. We, and by we, I mean they, reached their current limit on December 31, 2012. Since the government currently doesn’t have enough revenue to pay its designated expenditures, it has to borrow.
A Brief Foray into Macroeconomics
Each year the Federal government has a certain amount of revenue, in the form of taxes and fees, and a certain amount of expenditures, in form of salaries, purchases, and transfer payments (things like Medicare and Social Security). If the first number is bigger than the second, the governments is said to have a surplus. If, and this is more common, the second number is bigger, then the government has a deficit. The government borrows the money to make up the deficit. The total amount of deficits minus surpluses over time is called the debt, or the national debt.
Where did the concept of the debt ceiling come from? Before 1917, every time the Congress chose to spend more than it made, it would create a statute that authorized the borrowing. This became somewhat tedious as the numbers got bigger, along with the country, so instead it choose to authorize a certain spending limit (kind of like your credit card, if it was that super awesome American Express made out of Unobtanium or something). They then had to increase the debt limit every time we, and I still meant they, went passed that. It’s also worth noting that most other countries don’t have debt limits.
But see, here is the thing. The debt ceiling is usually reached AFTER a budget is passed. So, Congress says, “I want to spend 2 Trillion dollars”. Everyone agrees, President signs, world keeps turning. Then, at some point, they realize, “Oops, we only made 1.5 Trillion this year!”. So they go to borrow the rest. Unless they have told themselves “No more borrowing! Live within your means!” After, of course, they already allocated their spending. So then people use it as a tool to make some vacuous point about fiscal responsibility that no elected official (with rare exceptions) has ever thought applied to themselves. And then they threaten to, or actually, shut down the government, causing regular Joes and Joettes (but not themselves, as there are provisions that ensure that the Congress is still paid if the government shuts down) to miss paychecks, and have to take on more debt themselves, national parks to close, and generally make a mess of everyone else’s life while causing no trouble for themselves.
That isn’t to say that we shouldn’t have serious and difficult conversations about what the role of government is in society, what tax rates are appropriate, what incentives should people have in a capitalistic society, and what checks on the natural tendency to self-centeredness should be in place. But having it when the clock is ticking on whether the custodian at the Submarine Force Library and Museum gets to eat next week isn’t the right way to make a complicated decision.
stayathomeeconomist 