March 18, 2015
On Monday, the nation’s debt ceiling came back into effect for the first time in over a year. Did you hear all the sighs of relief across Capitol Hill and Wall Street?
No? Nothing? That may be because over the past two years, the debt limit has been in effect for only about five months. The debt limit, also called the debt ceiling, was suspended during the rest of that time, allowing the government to borrow as much as needed to fulfill the spending and revenue levels set by Congress and the President.
You may ask, how did our economy fare while we were operating without a debt limit? Looking at the chart below, it seems just fine. During the times of debt ceiling suspension, the unemployment rate continued to tick down and the stock market kept rising. Even our federal budget deficits dropped.
All this, even when the debt ceiling wasn’t in place. It could make you wonder, why do we need it? And considering the negative effects of partisan debates about the debt limit, as described below, why not just get rid of it?
Now that the debt ceiling is back in effect, the Treasury Department is employing “extraordinary measures” to keep paying our nation’s bills, bills that include veteran and Social Security payments. They’ll be able to keep going until sometime this fall, at which point Congress may again bring us to the brink of — or even take the unprecedented plunge into — defaulting on our country’s debts.
Back in the summer of 2011, the first time that Congress flirted with a debt ceiling crisis in recent memory, Standard & Poor’s downgraded the credit rating of the United States for the first time ever. Another credit-rating firm, Moody’s, suggested abolishing the debt limit altogether, citing the dangers of playing with the creditworthiness of the United States.
The Government Accountability Office found that the debt ceiling fight of 2011 cost us $1.3 billion in higher borrowing costs for that single year. The Bipartisan Policy Center estimated that it would lead to $18.9 billion more over 10 years.
To prevent this from happening again, a handful of progressive members of Congress, including Jerrold Nadler, Hank Johnson, Jim Moran, Jan Schakowsky, Keith Ellison, and Peter Welch, co-sponsored bills in 2011 and 2013 that would abolish the debt ceiling. It seems like it’s time for such a bill to be introduced again.
The debt ceiling was created less than a century ago, and over the ensuing decades it has evolved into a true anachronism. Rather than control spending, over the past few years it has led to unnecessary and expensive uncertainty about our nation’s ability to pay its bills. That’s probably why we’re one of the only countries that even has a debt limit. (And the other one, Denmark, set their limit so high that it will most likely never need to be raised again.)
We know the harm that’s been caused by debt ceiling gamesmanship. And our economy and budget deficits didn’t suffer ill effects over the past two years, even though the debt ceiling was suspended for 80 percent of that time. So again, why don’t we just abolish the debt limit, once and for all?
