But Europe worshippers are drawing the wrong lesson
from across the Atlantic. Despite public protests against austerity
cuts, many European countries are instituting constitutional
reforms requiring balanced budgets in the form of "debt brakes"—a
far stronger way to control the national debt than a debt
ceiling.
Conservatives typically argue that the debt ceiling offers a check on Congressional spending by limiting how much the country can borrow when tax receipts run out. Progressives, however, counter that the debt ceiling irresponsibly raises the specter of a credit default, hurting lender confidence in America.
Reuters blogger Felix Salmon has even argued that the debt ceiling is a "political distraction at best" that might trigger an economic crisis at worst. It's hard to argue with that given that Republicans ignore the debt ceiling when they have power but defend it when they do not.
The ceiling has been raised 68 times since 1960-including 18 times under Ronald Reagan, and by nearly $5 trillion under Barack Obama. Not surprisingly, government spending has gone through the roof along with the size of the public debt.
What's the point of having a debt ceiling if every time we approach it Congress just finds a way to circumvent it?
The debt ceiling didn't start as a political distraction. Under the Constitution, any government spending or borrowing has to be authorized by Congress. For the first 150 years of America's existence, that is, most of the republic's life, Congress authorized debt for specific purposes such as funding wars or building the Panama Canal.
In 1939, however, in order to give President Roosevelt flexibility to conduct World War II, Congress gave up its power to approve specific debt issuance but set a maximum aggregate borrowing limit for Treasury. Voila, the debt ceiling was born.
However, what began as wartime "necessity" evolved into peacetime political cover that no longer required Congress to justify increasing specific borrowing. It simply authorized spending and let the Treasury Department sort out the necessary borrowing.
Conservatives typically argue that the debt ceiling offers a check on Congressional spending by limiting how much the country can borrow when tax receipts run out. Progressives, however, counter that the debt ceiling irresponsibly raises the specter of a credit default, hurting lender confidence in America.
Reuters blogger Felix Salmon has even argued that the debt ceiling is a "political distraction at best" that might trigger an economic crisis at worst. It's hard to argue with that given that Republicans ignore the debt ceiling when they have power but defend it when they do not.
The ceiling has been raised 68 times since 1960-including 18 times under Ronald Reagan, and by nearly $5 trillion under Barack Obama. Not surprisingly, government spending has gone through the roof along with the size of the public debt.
What's the point of having a debt ceiling if every time we approach it Congress just finds a way to circumvent it?
The debt ceiling didn't start as a political distraction. Under the Constitution, any government spending or borrowing has to be authorized by Congress. For the first 150 years of America's existence, that is, most of the republic's life, Congress authorized debt for specific purposes such as funding wars or building the Panama Canal.
In 1939, however, in order to give President Roosevelt flexibility to conduct World War II, Congress gave up its power to approve specific debt issuance but set a maximum aggregate borrowing limit for Treasury. Voila, the debt ceiling was born.
However, what began as wartime "necessity" evolved into peacetime political cover that no longer required Congress to justify increasing specific borrowing. It simply authorized spending and let the Treasury Department sort out the necessary borrowing.
But Europe worshippers are drawing the wrong lesson
from across the Atlantic. Despite public protests against austerity
cuts, many European countries are instituting constitutional
reforms requiring balanced budgets in the form of "debt brakes"—a
far stronger way to control the national debt than a debt
ceiling.
Conservatives typically argue that the debt ceiling offers a check on Congressional spending by limiting how much the country can borrow when tax receipts run out. Progressives, however, counter that the debt ceiling irresponsibly raises the specter of a credit default, hurting lender confidence in America.
Reuters blogger Felix Salmon has even argued that the debt ceiling is a "political distraction at best" that might trigger an economic crisis at worst. It's hard to argue with that given that Republicans ignore the debt ceiling when they have power but defend it when they do not.
The ceiling has been raised 68 times since 1960-including 18 times under Ronald Reagan, and by nearly $5 trillion under Barack Obama. Not surprisingly, government spending has gone through the roof along with the size of the public debt.
What's the point of having a debt ceiling if every time we approach it Congress just finds a way to circumvent it?
The debt ceiling didn't start as a political distraction. Under the Constitution, any government spending or borrowing has to be authorized by Congress. For the first 150 years of America's existence, that is, most of the republic's life, Congress authorized debt for specific purposes such as funding wars or building the Panama Canal.
In 1939, however, in order to give President Roosevelt flexibility to conduct World War II, Congress gave up its power to approve specific debt issuance but set a maximum aggregate borrowing limit for Treasury. Voila, the debt ceiling was born.
However, what began as wartime "necessity" evolved into peacetime political cover that no longer required Congress to justify increasing specific borrowing. It simply authorized spending and let the Treasury Department sort out the necessary borrowing.
A Schuldenbremse-styled constitutional cap on the federal deficit in the U.S. would both constrain spending-by forcing Congress to make necessary cuts to the budget to meet the debt brake, including entitlement liabilities-while at the same time slowly bring down the aggregate public debt outstanding over time
Congress could choose to raise taxes instead of cutting spending. But the reality is that Congress already taxes American citizens when it overspends revenues, forcing Treasury to issue more debt. Since this debt will have to be paid off eventually with taxpayer money, running a debt-financed deficit is in effect raising taxes on future generations. The debt brake would just force Washington to be more honest with voters if Congress decided to try and sell a tax hike to the America people.
In an ideal world, Congress should adopt a constitutional limit on the size of the federal budget itself, instead of just focusing on debt and deficits. The average federal budget over the past 60 years has been 17.8 percent of GDP, meaning at the very least we could pare the budget down to around that level without the horrific Social Darwinism so feared by progressives. In lieu of this reform, a constitutional debt brake is the next best option that has shown some real world results.
The real take away from Europe is that weak debt control mechanisms ought to be strengthened—not weak ones such as the debt ceiling eliminated, especially if we want to avoid Europe's current miserable economic fate.
This article originally appeared at RealClearMarkets.
Conservatives typically argue that the debt ceiling offers a check on Congressional spending by limiting how much the country can borrow when tax receipts run out. Progressives, however, counter that the debt ceiling irresponsibly raises the specter of a credit default, hurting lender confidence in America.
Reuters blogger Felix Salmon has even argued that the debt ceiling is a "political distraction at best" that might trigger an economic crisis at worst. It's hard to argue with that given that Republicans ignore the debt ceiling when they have power but defend it when they do not.
The ceiling has been raised 68 times since 1960-including 18 times under Ronald Reagan, and by nearly $5 trillion under Barack Obama. Not surprisingly, government spending has gone through the roof along with the size of the public debt.
What's the point of having a debt ceiling if every time we approach it Congress just finds a way to circumvent it?
The debt ceiling didn't start as a political distraction. Under the Constitution, any government spending or borrowing has to be authorized by Congress. For the first 150 years of America's existence, that is, most of the republic's life, Congress authorized debt for specific purposes such as funding wars or building the Panama Canal.
In 1939, however, in order to give President Roosevelt flexibility to conduct World War II, Congress gave up its power to approve specific debt issuance but set a maximum aggregate borrowing limit for Treasury. Voila, the debt ceiling was born.
However, what began as wartime "necessity" evolved into peacetime political cover that no longer required Congress to justify increasing specific borrowing. It simply authorized spending and let the Treasury Department sort out the necessary borrowing.
A Schuldenbremse-styled constitutional cap on the federal deficit in the U.S. would both constrain spending-by forcing Congress to make necessary cuts to the budget to meet the debt brake, including entitlement liabilities-while at the same time slowly bring down the aggregate public debt outstanding over time
Congress could choose to raise taxes instead of cutting spending. But the reality is that Congress already taxes American citizens when it overspends revenues, forcing Treasury to issue more debt. Since this debt will have to be paid off eventually with taxpayer money, running a debt-financed deficit is in effect raising taxes on future generations. The debt brake would just force Washington to be more honest with voters if Congress decided to try and sell a tax hike to the America people.
In an ideal world, Congress should adopt a constitutional limit on the size of the federal budget itself, instead of just focusing on debt and deficits. The average federal budget over the past 60 years has been 17.8 percent of GDP, meaning at the very least we could pare the budget down to around that level without the horrific Social Darwinism so feared by progressives. In lieu of this reform, a constitutional debt brake is the next best option that has shown some real world results.
The real take away from Europe is that weak debt control mechanisms ought to be strengthened—not weak ones such as the debt ceiling eliminated, especially if we want to avoid Europe's current miserable economic fate.
This article originally appeared at RealClearMarkets.
http://reason.com/archives/2013/02/03/a-debt-ceiling-lesson-from-europe/1
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