Impact of the Debt Ceiling

This week there was an interesting piece by Irwin Kellner on Marketwatch.com. Mr. Kellner seems to be of the opinion that because Congress can pass a budget that calls for more spending than the debt ceiling, it is passing a budget which is technically illegal. As he also notes, the debt ceiling is a legislative issue, separate from the budget, which has to be considered by Congress. Of course, the debt ceiling and the budget impact each other, but neither invalidates the other because both are set by Congress. Nobody, as far as I can recall, and I could be wrong, has ever obtained any court judgment declaring the budget illegal because of the debt ceiling, or vice versa.

The issue which seems to upset Mr. Kellner the most is that the debt ceiling, while it doesn't invalidate the budget, does set a limit on government borrowing and implicitly on government spending. He is concerned that, because the politicians will have to negotiate any increase in the debt ceiling, there will be "a fight over whether to raise the ceiling and how much the party in power will have to give to the one that is on the outside of the White House looking in." He feels that, since the debt ceiling has been "raised nearly 100 times since 1917", everyone just needs to get with the program- essentially, just raise the ceiling, borrow the money, spend it and forget it.

Now, I want you to understand that Mr. Kellner is a professional economist, and I am not. He is no doubt a very fine economist. However, I just cannot agree with him, and I think the majority of Americans don't, either. There are a couple of reasons for that.

First, while there are no doubt some principles of economics which function differently at the government level than at the individual level, there is one which is undoubtedly the same. That is this: no individual, no business, no government, is too big to fail. You cannot find any nation which has the same form of government now that it did, say 2,000 years ago. History shows that all do fail, and it requires responsible governance to maximize the life of a nation.

Second, it is possible to go bankrupt if you consistently overspend your income. As I write this, www.usdebtclock.org shows that I, and each American taxpayer, owes $129,176. That is just toward the federal debt, not including state, county, or municipal. That doesn't include my share of the estimated $176 Trillion Dollars of unfunded liabilities in entitlement programs either. The federal government is already taking tax money to pay for current operations as well as interest on that $129,176, but they are not only not paying down the principle, they are increasing that debt.

I know quite a few American taxpayers who don't have $129,176 lying around to spare. For that matter, I suspect many do not have $129,176 in total assets. When you talk about raising the debt like this, you are talking about mortgaging not only their future, but that of their children's children as well. On an individual level, you know you won't get far at the bank if you apply for a loan and promise that your unborn grandchildren will be happy to pay it back.

Of course, it's easy to toss around big numbers like trillions of dollars, or millions of taxpayers. It is also easy to lose perspective when you do. Yes, millions of taxpayers makes a wide pool from which to pump tax money for the government, but remember: that pool of money may be wide, but it isn't very deep.

For many of us, the solution would look different than your solution. Rather than the cumbersome debt ceiling, I would suggest a balanced budget amendment. Such an amendment would require Congress to pass a budget each year, or operate from the budget of the previous year. It would also prohibit both unfunded mandates and borrowing, except for funding Congressionally recognized war, and would establish a period within which the borrowed funds must be repaid.

Of course, as I said, I'm not a professional economist. I'm sure they can tell you why the government can borrow unlimited funds without consequences, while no individual can. On the other hand, would a measure like this change the nature of the operations of the federal government? No doubt, and as such, it would never pass, or even be seriously proposed. Few people would be able to return to, or even understand, the type of government America was founded with and operated under, with the exception of the FDR era, through the Eisenhower era. Americans are now indoctrinated to the idea of the government trough.

However, if we can't actually fix the problem, we at least need to reduce spending and the deficit to something we can actually afford. So, in that sense, the debt ceiling negotiations may yet serve a useful purpose.