In April 2011, I wrote the following to describe the state of the debt limit debate:
“With the national debt at $14.27 trillion and rising, Congress must soon approve an increase in the legal debt ceiling — now at $14.29 trillion — so that the Treasury can continue conducting the nation’s fiscal operations.”
Fast forward to October 2013 and all you need to do is replace $14 trillion with $16 trillion and that statement is once again current.
The 2011 clash spawned the infamous congressional super-committee and its attempt at a “grand bargain” solution on federal spending and taxes — under threat of sequester cuts. The super-committee failed and sequester cuts unpalatable to both parties were triggered, but both got the political cover they needed.
The situation is changing rapidly. Ratings agency downgrades of U.S. debt in 2011 may have triggered a rethink among Republicans and, at the same time, prompted Speaker John Boehner to separate the debt-limit issue from the fight over Obamacare and short-term federal funding. He could allow the debt limit to be increased through a separate vote in the House. Senate Democrats would probably go along with this strategy.
But increasing the debt limit is only likely to push forward the day of reckoning by a few months.
Naturally, people are wondering what new tricks Congressional leaders will devise to resolve the stalemate on federal funding but avoid political blame. We could be witnessing the solution already with the government shutdown — the indefinite closure of “non-essential” government operations may be acceptable to Republicans.
The late Cato economist, William Niskanen, frequently declared the “starve the beast” strategy of reducing the government’s size by disallowing tax increases to be woefully ineffective. The only remaining option, then, is to close federal non-essential services directly. After all, under the current stalemate, the most highly politically sensitive federal services such as Social Security, Medicare, Medicaid payments, food stamps, unemployment benefits, Obamacare exchanges, the Judiciary, military, air-traffic controllers, and so on, will remain up and running.
The burden of showing that “non-essential” government operations are “essential” is now on Democratic lawmakers.
That leaves the debt limit issue, which remains a concern even if it is pushed ahead by a few months. Resolving it will require a grand bargain between the two political parties on eliminating long-term federal budget imbalances – especially those built into entitlement programs.