Wednesday, May 10, 2023

The USA's debt ceiling has outlived its usefulness

Here we go again: the USA, the world's richest country, is about to go bankrupt again. Every year, we go through this nail-biting drama as the United States reaches it debt ceiling. Recently, though, things have become even more fraught as the Republicans use it as a cynical political tool to force through some issues on which they are not making much headway through other, more legitimate, means.

You see, the US spends more than it makes, constantly, every year. So, each year Congress has to vote to increase the country's debt limit, so that it can borrow more to cover its spending plans. President Biden needs to increase the debt ceiling, without which the country would officially run out of money and go into default position by June 1st. If the country can't pay its workers, its bills or the interest on its debts, this would lead to mass panic in the financial markets, a loss of investor confidence, and the possible loss of thousands of jobs.

But congressional Republicans are saying they need to see billions of dollars in spending cuts before they will sign on to the increase (because, you know, Republicans don't like to spend money, even if it's on affordable housing or social security). So, it comes down to a game of chicken - who will blink first?

But it really doesn't have to be like this. In fact, it didn't use to be like this. Prior to 1917, Congress had to approve very little issuance of debt separately, which was admittedly not very convenient, particularly with all the First World War spending. So, a debt ceiling was enacted which only needed to be approved once a year. The system was fine-tuned in 1939, but essentially it has been working fine for the last hundred years or so, with some debate but very little crisis. 

Until it was realized that the debt ceiling renewal could be politicized, a moment that can maybe traced back to the machinations of the right-wing Tea Party in 2011. In recent years, the annual debt increase has become increasingly fraught as opposition parties look to hold the economy hostage for political gain in a very high-stakes game of brinksmanship. It's kind of embarrassing for the country, but what to do?

Some politicians are, understandably, pretty fed up with this, as is the American business community, and there are moves afoot in some quarters (on the both the right and the left, although mainly the left) to just scrap the whole thing. Senator Elizabeth Warren lays it out: "We should get rid of the debt ceiling. There's no other function than to let hostage-takers ply their trade". Senator Sheldon Whitehouse talks of "the need to get rid of this arbitrary mechanism that offers no benefits yet carries with it the power to deliver serious damage". Many agree that it increasingly puts the credibility of the US government at risk, for little or no benefit. Joe Biden is apparently not convinced.

However, it's hard to know what to replace it with. Suggestions have included the use of the Constitution's 14th Amendment, which would allow a president to raise the limit unilaterally on the grounds that it would be unconstitutional for the country not to pay its debt obligations. Another scheme suggests the issuance of a trillion dollar coin by the US Mint, with which the Treasury could then pay its debts (I kid you not).

Most other countries seem to be able to get by without an official debt ceiling; the USA is an outlier in that respect. If they could pass legislation to create it, surely they could pass more legislation to do away with it. But inertia is a powerful force, and there does snot seem to be a critical mass of opposition to it just yet.

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