Debt Ceilings, Bombs, Cliff and the Trillion Dollar Coin

Needless to say, the US has a long-term debt problem. The problem is long-term both in the sense that it pertains to the next several decades rather than to this year. (Indeed, the deficit/GDP ratio has been falling since 2009, despite the weakness of the economy.) The problem is also long-term in the sense that we have known about it for a long time; it was clear in 1991 and should still have been clear in 2001.

It should be almost as needless-to-say that the approaching debt ceiling bomb is not helpful in solving our fiscal situation, any more so than were previous standoffs: the January 1, 2013, fiscal cliff; before that, the August 2011 debt ceiling standoff, which led Standard and Poor’s to downgrade the credit rating of US debt for the first time in history; and before that, the 1995 shutdown of the government, which largely discredited Republican House Speaker Newt Gingrich.&

The current debt ceiling bomb is, of course, another attempt to hold the country hostage under threat of blowing us all up. The conflict is usually phrased as a question of ideological polarization, a battle between fiscal conservatives and their opponents. This familiar frame does not seem right to me. There is in fact no correlation or consistency between the practice of federal fiscal discipline and the political rhetoric, either across states or across time.

What are the demands of the hostage-takers? Even if there existed an explicit ransom letter detailing specific severe spending cuts, in exchange for which it credibly offered to raise the debt ceiling, President Obama’s refusal to negotiate under such conditions would be fully justified. But the situation is worse than that. There is no specific set of demands, and never has been. I truly believe there does not exist any set of spending cuts that the blackmailers would accept if they came from Obama.