The sky will fall if the ceiling won't rise?

By Paul Jacob
Sunday, January 09, 2011

MSNBC’s Lawrence O’Donnell calls it “the end of the world as we know it.” The hypothetical “it” he refers to is the alleged result of Congress not raising the nation’s debt ceiling.

Presently, the federal government has authorization to borrow a mere $14,285,000,000,000. Not a penny more. So far, our federal governors have put $13.95 trillion of debt on our backs — $4 trillion of that in just the last two years.

Of course, when a government is borrowing roughly $100 billion a month to keep itself that much larger than taxpayers can afford, it’s not hard to see the coming dilemma. We’re piling up debt so fast that we’ll be out of ceiling by the end of March.

O’Donnell’s hysterics now echo in the Obama Administration, seeing a new issue to really pelt at the heads of the Tea Party. This past week, Treasury Secretary Timothy Geithner sent a letter to Capitol Hill urging quick action by lawmakers and cautioning that failure to approve more debt would mean a government default and “catastrophic economic consequences that would last for decades.”

Geithner’s warning was preceded by Austan Goolsbee, chairman of Obama’s Council of Economic Advisers, telling the Sunday talk show circuit last week that if Congress fails to act it could cause “the first default in history caused purely by insanity.”

If such quick action were required, and the new Republican House with its anti-spending Tea Party influence deemed so unstable, one has to wonder why the lame duck Congress, which seemingly passed every other imaginable piece of legislation, didn’t tackle the debt ceiling as well. Instead, Obama’s economic brain-trust saved their Chicken Little act for the incoming Congress.

Even conservative supply-siders like Bruce Bartlett worry. About what, specifically? Those “nutty right-wingers” now “elected to Congress under the Tea Party banner” who are about to touch off the conflagration, “like children playing with matches.” He fears that Congress won’t raise the debt limit and will thus trigger a default.

Mr. Bartlett argues that it is the normal budgeting process that marks the right place for the battle to cut spending. Moving the debate to the debt management arena could threaten the country’s fiscal solvency. Moreover, he points out that there will be congressmen who vote for increased spending only to then grandstand as anti-big-spenders by voting against upping the debt ceiling.

Bartlett certainly has a point about congressional duplicity. And, of course, a default by the U.S. government would, indeed, have serious consequences for the U.S. and world economies.

But so, too, does spiraling debt have consequences. What better time to discuss the level of debt being taken on than when raising the issue of raising the debt limit? The failure to do this in the past is likely the reason we are in the pickle we’re now in, debtwise, defaultwise, general folly-wise.

The Washington Post reported last week that “President Obama also is committed to deficit reduction, but Treasury officials said work on the deficit should occur separately from talks over extending the debt limit.”

That’s sort of like an alcoholic saying he agrees he needs to sober up, but not wanting to talk about that issue when deciding whether to order another round of drinks.

Who’s crazier, the drunkard downing the final, fatal pint, or the bartender cutting him off?

It’s worth noting that Bartlett is honest enough to acknowledge that included among the “crazies” who have contemplated debt default is Nobel Laureate and Public Choice economist James Buchanan, who “defended the morality of default on the grounds that deficits weren’t financing public capital but current consumption, with the bills being passed on to future generations.”

To economist John Lott, the current push for a quick increase in the debt level is yet another example of the Obama administration’s “overused tactic of claiming crises to push legislation.” Lott explains that Congress has voted not to raise the debt ceiling before, numerous times, and that a default is not an immediate outcome of the federal government’s credit card being removed from its wallet.

Lott also contends that the three-week shutdown of the federal government in 1995-1996 led the Clinton Administration to make budget concessions. “It’s quite obvious,” Lott told Fox News, “that we wouldn’t have had four years of balanced budgets, if we hadn’t had the shutdown.”

Will the coming debate and vote on the debt ceiling lead to “the end of the world as we know it”? Unlikely, but the REM fan comes out in me. “And I feel fine.”