The Debt Ceiling—Posner

Both Democrats and Republicans are concerned with the growth of the federal debt relative to the growth in GDP. Consider an analogy to real estate. If one owns a house worth $100,000, borrowing $50,000 from a mortgage lender is unlikely to jeopardize one’s solvency. And if the value of the house increases to $200,000, borrowing another $50,000 would not be imprudent either. But suppose the value of the house remains unchanged, and still the borrower increases his borrowing from $50,000 to $100,000; his debt burden will have increased greatly. And likewise if a government increases its borrowing at a rate substantially in excess of the increase in government revenues as a consequence of economic growth or higher tax rates. It is burden, not amount, that is, or should be, the concern. And thus if interest rates are falling, the debt burden may not be increasing even if the amount of debt is increasing. But most federal debt is fairly short term nowadays, and thus the currently low interest rates are not locked in for long. If interest rates increase as the amount of debt increases (and those rates may increase for a separate reason—the greater the debt, which includes interest on the debt, relative to the borrower’s ability to repay, the greater the risk of default and so the higher the interest rate demanded by the lender), the overall debt burden will increase by more than the amount of borrowing increases. 

The debt ceiling is not actually a ceiling on borrowing by the federal government. Rather, it is a limit on the amount of money that the Treasury can pay to meet its obligations, and thus to repay, or pay interest on, its borrowings. If the ceiling is low enough to prevent the Treasury from paying what it owes its creditors, the government is in default and interest rates on government debt are likely to soar. 

The difference between our political parties is not that the Democrats want to “grow” the federal deficit faster than the economy is growing and that the Republicans want to shrink it. The Democrats want to reduce the deficit—everyone fears the impact of growing entitlement spending on the nation’s fiscal health—but mainly wants to do it, it seems, by increasing federal tax rates, while the Republicans want (or rather say they want) to reduce the deficit by reducing government spending. As Becker points out, if the method used to reduce the deficit is higher taxes, the debt ceiling has no effect. And as for reducing spending, that probably is politically infeasible, because the Republicans, though they say they want to reduce spending, don’t wish to touch entitlements (or at least social security and Medicare) or military or law enforcement expenditures; and there doesn’t seem to be much room as a practical and political matter for further economizing on other federal expenditures, which have already been reduced. Attractive reforms such as eliminating agricultural subsidies (importantly including the ethanol subsidy) do not seem to be politically feasible.

So a debt ceiling is unlikely to reduce the size of government. But it is pernicious, in inviting political
tactics that could well be thought to violate the Constitution, or at least the spirit of the Constitution. Republicans want to destroy, or in the short run greatly weaken, Obama’s health care law (“Obamacare”), even though it resembles a health care reform proposed by President Nixon and successfully championed by Mitt Romney when he was governor of Massachusetts. The Republican preoccupation with Obamacare is thus rather surprising, but may reflect a fear that when once Obamacare is debugged and up and running it will prove popular, which will boost the Democrats. Yet the Republicans are not in a position to repeal or even amend the law by constitutionally authorized means, because repeal or amendment would require a majority vote in both houses of Congress (actually a two-thirds vote in both houses, for given a lesser majority Obama could veto a repeal or amendment without fear of being overridden). The intention, which is contrary to the structure of the federal legislative process ordained by the Constitution, is to coerce Congress to repeal (or by amendments to defang) Obamacare by threatening to precipitate an economic crisis by refusing to vote for an increase in the debt ceiling. If the tactic succeeded, it would mean that a minority in Congress had succeeded in amending a federal statute.

Comments

[Ulysses]

Judge Posner:

You write that "a minority in Congress has succeeded in amending a federal statute." I have two questions:

1. If the Republicans propose a one year delay in the individual mandate in Obamacare, and get that proposal signed, is that "amending a federal statute"?

2. Is President Obama's decision to delay the employer mandate one year "amending a federal statute."

I know you don't usually respond to Comments, but perhaps you could make the President's liberal use of his "discretion" regarding enforcing the laws he swore to uphold a subject of another column. For a further example, Colorado and Washington have passed statutes that effectively license and legalize certain aspects of marijuana growing, processing, selling and use. Obama and Holder have taken oaths to uphold the Federal marijuana law, which conflicts with these state laws. But the Obama administration's approach is to abandon the rule of law and substitute the rule of political expediency re their policy on the state laws.

[plus.google.com/114617267831141514277]

In response to Ulysses,

1) Yes, following Judge Posner's logic. I don't need to repeat it.

2) No. Why? Because the public has the capacity to prevent a 1-year delay in the employer mandate, whilst the president has the capacity to enact such a delay. But there was no such outrage or protest for delaying the employer mandate, and it's quite easy to understand why: businesses have more regulatory hoops to jump through than individuals. There's no argument for delaying an individual mandate save Republican rhetoric disfavoring the bill.

But if Republicans didn't favor the bill, they can repeal it - which they tried, some 40 odd times, each ending in failure.

In other words, the motivation for the delay matters. For the employer mandate, it was a matter of practicality.

RE: Obama drug enforcement: You're getting it wrong. Anyone with a background in economics should understand that Bureau's have limited budgets and time. Declining to enforce petty cases and focus attention on larger drug related crimes, such as distribution, was a matter of efficiency.

[R_Ephemeral]

Judge Posner wrote: "the Republicans want (or rather say they want) to reduce the deficit by reducing government spending."

It's very important to remember that Republicans don't care about the deficit.

Folks like Speaker Boehner, Sen. McConnell, and Cong. Ryan voted for the Bush-era policies that turned our surpluses into deficits, like Pres. Bush's fiscal policies, the occupation of Iraq, and Medicare Part D. (They also voted for TARP). VP Cheney explained in 2004, "deficits don't matter". Republicans supported Pres. Bush throughout his presidency, because they don't care about policy results. Pres. Bush left office with about 30% approval from independents, and over 80% from "conservative Republicans".

Today, Republicans aren't seeking to use control of one house of Congress to repeal the surplus-destroying policies they implemented, but rather the RomneyCare policy that most Republicans supported up until 2009.

It appears that Congressional Republicans are fighting ObamaCare not out of "a fear that when once Obamacare is debugged and up and running it will prove popular," but rather because, regardless of the merits, Republicans simply like to fight.

In the Bush era, this meant being uncompromising on invading Iraq, avoiding investigating why we invaded Iraq, warrantless wiretapping of US citizens, detention and torture without charge of American citizens charged with terrorism, etc. Today, this attitude in the GOP means opposing whatever they think the president wants, generally by citing a desire for smaller government.

Affinity for the GOP has come unmoored from any particular ideological or policy program; it's simply a tribal allegiance, not unlike being a fan of the Philadelphia Eagles. They're not compromising because they don't like compromising. There are plenty of quotes from Republican Congressmen explaining that they don't know what they want, but they feel like they're winning because they're fighting. Examining the merits misses the point.

Needless to say, this resentment-grounded approach to politics renders impossible the system of governance set forth in the Constitution.

[Thomas Rekdal]

Amending the law is one thing, "coercing" those who have the power to amend it is another. So long as the House of Representatives is acting within the scope of its constitutional powers, the fact that other institutions of government may find the exercise of that leverage "coercive" hardly demonstrates its unconstitutionality.

As for "the spirit of the Constitution," if this phrase means something, it must surely reflect an intention not to enable one faction to fasten an unpopular policy on an unwilling nation. Regardless of its wisdom, the House GOP is certainly attempting to live within that "spirit."

[kevin]

As far as repubs wanting to fight, dems had to fight to get aca passed. The bottom line is if you don't want to fight get of politics. That's Machiavelli 101 straight from Yale poli sci in fact

[Biggy82]

What went unmentioned in Posner's article is that by not raising the debt ceiling, as many Republicans want to do, they will make the interest rates increase, which would make it more difficult for the federal gov't to borrow. So, while the ceiling itself doesn't put a lid on borrowing, the increasing rates will.

It is a political strategy by the small faction of the GOP to hamper federal gov't by making it more difficult to do so.

[kevin]

What posner mentioned is that both repubs and dems want to stop spending. Making it harder may force reps and dems to figure out a solution to our fiscal problems

[kevin]

Posner mentioned that both repubs and dems want to fix the deficit

[Ulysses]

Responding to "Plus", the first Commenter, commenting on my Comment:

I'm sorry, but I find your response to my second question incomprehensible. More importantly, it is not responsive to the issue of the President's constitutional duty to enforce all laws, and not to "give" a one-year delay to the enforcement of a portion of a law because doing so happens to be to his apparent political advantage.

The net effect of the one year delay is that employers will not pay any penalties for that year. And that is precisely what the Republicans are proposing to do with the individual mandate.

BTW, the President is, at best, also a "minority" in the legislative/administrative dance. So his minority decision to delay the employer's mandate is both constitutionally indefensible and politically/democratically wrong.

[Neilehat]

Just one observation; "Beware". With the Budgetary impasse that now exists in the House, the Credit Worthiness of the Nation is at stake. We've already seen it downgraded once so far, if the impasse continues it will surely be downgraded even further. Which then makes it even more expensive for us and the Nation to borrow. Costing more for us to operate the Government and the Nation. Instead of borrowing to finance various Programs and Policies that benefit the Nation, we will be borrowing to finance the debt through increased interest rates.

Clearly a winning combination for the International Financial Community (and its agents sitting in the House), but a tremendous loss to the Nation and each and everyone of us...

[Michael Connors]

Judge Posner wrote, “Republicans want to destroy, or in the short run greatly weaken, Obama’s health care law (“Obamacare”), even though it resembles a health care reform proposed by President Nixon and successfully championed by Mitt Romney when he was governor of Massachusetts. The Republican preoccupation with Obamacare is thus rather surprising.”

First, I don’t think Republicans should or do put much stock in President Nixon’s imprimatur on economic policy. After all, he imposed price controls, not exactly good, conservative economic policy.

Second, there’s a world of difference between federal and state entitlements, so the fact that Governor Romney endorsed a policy in one state, particularly a liberal state like Massachusetts, does not suggest, at least to me, that that is good policy for the country. There are constraints on state governments that make them much safer laboratories than Washington. Most importantly, they are subject to more competition. If they adopt bad policies, it will be obvious as their economy slows, and others flourish. If they let debt or taxes get out of hand, they will suffer in comparison with other, more prudent states. In both cases, people will a) have readily available information from a competitive market (not true with the federal government and its monopoly) and b) can flee if they don’t like a state’s policies. Also, many state constitutions require balanced budgets, and bond markets will limit states’ ability to borrow.

Third, the federal government has a lousy record of controlling entitlement spending. Just look at the CBO’s Long-Term Budget Outlook published last month. It shows our spending and deficits going through the roof, and it’s entirely because of entitlements. Spending in the decade before this crisis averaged 19.2% of GDP. In 20 years, the CBO projects it to be 25.1%. In another 20 years, 29.3%. Another 20 years, 34.3%. In the face of these trends, I don’t think it is at all “surprising” that Rs are pre-occupied with Obamacare. I think it’s obvious.

Fourth, federal control (or heavy influence) over a sector of the economy concerns me a lot more than one state’s control over that sector within its own boundaries. Washington can stifle innovation and competition in a way that one state simply can’t.

I don’t think it’s at all surprising that Rs opposed Obamacare. Perhaps what’s more surprising is that Rs supported Romney, but we choose our candidates for a variety of reasons, and there was much to like about that man and his character. His healthcare policy was not at the top of that list.

Also, Judge Posner wrote that Republicans “don’t wish to touch entitlements (or at least social security and Medicare).” I think he’s simply wrong here. The House Republicans have passed a budget embracing premium support that radically changes Medicare. (Remember those commercials from the Dems showing an R pushing granny and her wheelchair off a cliff?)