Why does the U.S. have this %^&*#@ debt ceiling in the first place?

A bit late now, but fascinating: As with celibacy in the preisthood and the Senate filibuster, the debt ceiling ritual is a man-made curse that dubious provenance and even more dubious utility.

Quick, name the other advanced countries with debt ceilings? That must be raised each year, or several times a year, as often occurs in the U.S.? Hell, name any country with a "debt ceiling." (Correct answer: Denmark. That's it.)

Here's a riveting essay by James Surowieki, New Yorker economics writer, on "Why We Don't Need a Debt Ceiling":

In the past few years, the U.S. economy has been beset by the subprime meltdown, skyrocketing oil prices, the Eurozone debt crisis, and even the Tohoku earthquake. Now it’s staring at a new problem—a failure to raise the debt ceiling, which would almost certainly throw the economy back into recession. Unlike those other problems, however, this one would be wholly of our own making. If the economy suffers as a result, it’ll be what a soccer fan might call the biggest own goal in history.

The truth is that the United States doesn’t need, and shouldn’t have, a debt ceiling. Every other democratic country, with the exception of Denmark, does fine without one. There’s no debt limit in the Constitution. And, if Congress really wants to hold down government debt, it already has a way to do so that doesn’t risk economic chaos—namely, the annual budgeting process. The only reason we need to lift the debt ceiling, after all, is to pay for spending that Congress has already authorized. If the debt ceiling isn’t raised, we’ll face an absurd scenario in which Congress will have ordered the President to execute two laws that are flatly at odds with each other. If he obeys the debt ceiling, he cannot spend the money that Congress has told him to spend, which is why most government functions will be shut down. Yet if he spends the money as Congress has authorized him to he’ll end up violating the debt ceiling.

Here's the equally estimable Felix Salmon at Reuters on "How We Got Into This Fine Mess" (i.e. the debt ceiling):

For 37 years [since Congress introduced the debt ceiling], the debt ceiling has provided an easy way for the party which isn’t in the White House to posture politically against the party which is in the White House. Even Barack Obama voted against raising it, once. Every one of the dozens of times the debt ceiling was reached, there was a small but non-zero probability that something disastrous would happen. And each time, disaster was, predictably, averted. It’s a classic sign of how tail risks are treacherous and breed invidious complacency. We’ve reached the debt ceiling dozens of times; nothing’s ever happened; so there’s nothing to worry about; so there’s no point expending precious political capital doing the right thing and abolishing it.

And now we’re paying the price. It’s increasingly looking like the best-case scenario is that America simply loses its triple-A credit rating — something which in and of itself will be pointless, dangerous, unnecessarily expensive and potentially catastrophic. The worst-case scenario, of course, is an outright default.

The lion’s share of the blame here belongs with the Republicans in general, the House Republicans in particular, and the Tea Party caucus within the House Republicans most of all. But it’s not like these people’s existence or intransigence was any great secret. And so the White House tactics over the course of the past few months look dangerously naive.

And William Galston of New Republic on "The Debt Debate is Man-Made Chicanery, Our Stalled Economic Recovery is Real":

This painfully slow recovery is rending the fabric of American society. In turn, these growing socio-economic gaps are contributing to the rising polarization of our politics and declining trust in government—developments that will make it even more difficult to forge agreements on the policies we’ll need to get out of this deep hole. No doubt adverse trends in the global economy are making things even worse. But in the end, our economic crisis is a governance crisis. The stalemate over the debt ceiling is a symptom of this systemic fact.

 

Comments

[brooster]

I agree. After serial incidents of military, financial, economic, and political malfeasance with global repercussions (Iraq, the 2008 financial meltdown, and now this unfolding shootout at the not-OK Corral), it's unfortunate there aren't ways the international community could put a firewall around America to contain the effects of its most egregious behaviour.

It's pretty scary when the most powerful nation on earth habitually goes rogue in its conduct and leaves collateral damage all over the planet.

[brooster]

Correction. My comment above is in response to your preceding post ("Why should we care about America's debt-ceiling crisis?")

Apologies.

[debt collection agency]

The question kind of speaks for itself, doesn't it? Without a debt ceiling, what is going to stop people from borrowing more money than they can ever afford in their lifetimes? Binge buying is a very dangerous habit.