A Philosopher's Blog

Debt Ceiling

Posted in Business, Philosophy, Politics by Michael LaBossiere on January 5, 2011
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One sign of just how big the deficit is the fact that we are just about at the debt ceiling of $14.3 trillion.  This has become a matter of considerable controversy.

Certain conservatives contend that the cap should not be raised. The reason given is sensible enough: raising the cap enables us to keep on borrowing rather than actually seriously addressing the matter of debt. While there are some important differences, this situation can be seen as being somewhat like dealing with credit card overspending by raising the credit limit rather than spending less and doing more to pay down the debt.

However, there is a real risk is not raising the ceiling. If the ceiling is left in place and the government cannot borrow more to fund its obligations, then  this could lead to serious problems. For example, the United States might be forced to default on loans. If leaving the cap in place will do serious damage to the country, then it should be lifted.

On the one hand, I can see the need to lift the cap. To use an analogy, when I was going through my divorce (my own personal recession), I had to take out loans and go into debt to pay off the settlement. If I had stuck with a “debt ceiling”, then I would have been worse off in the long run (I would  have, for example, lost my house). Perhaps the situation we are in now as a country is comparable and we need to go into debt now to avoid something even worse.

On the other hand, I do think that the critics of raising the ceiling do have some good points. Going back to my divorce analogy, while going into debt was a cruel necessity, I followed it up with financial austerity by cutting my spending and focusing on debt reduction. This has involved giving up things and doing without certain things, but that is what must be done to deal with debts. It is, of course, tempting to simply keep living as if the ceiling can always be raised as needed. However, that is a path to ruin.

As I see it, it makes sense to lift the debt ceiling provided that doing so is, in fact necessary to buy more time. Of course, this time should be used wisely to reign in spending. There is, however, the risk that comes with raising any credit limit-the great temptation to spend up to and then beyond that limit.

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16 Responses

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  1. T. J. Babson said, on January 5, 2011 at 8:47 am

    More time? This is from 1992.

    • WTP said, on January 5, 2011 at 12:56 pm

      But Ross Perot had big ears and picked a VP candidate who stuttered. What America wants is a President who has big ears and does his own stuttering. Things are much better now.

      • erik said, on January 5, 2011 at 1:39 pm

        Since Ross Perot is the topic, I’ll add this:

        http://guerrillabillionaire.com/?p=49

        “Based on this it’s pretty safe to assume that Ross would have declined as well if the long haired founders of Apple and Microsoft had approached him about investing in their companies in the 1970s.

        The Economist’s writer is obviously being sarcastic, but if you don’t get it the point is that there’s a difference between holding worthwhile principles and being a cranky old fart trapped in a 1950s time warp.”

        • T. J. Babson said, on January 5, 2011 at 1:44 pm

          The fox knows many things, but the hedgehog knows one big thing.

          Perot was right about the deficit. Our inability to live within our means will bring us down.

          • erik said, on January 5, 2011 at 2:58 pm

            He knows a lot, actually. :)* Even though there seems to be some doubt as to whether he’s dead or alive. . .

            He knew these things in ’92.

            http://www.ontheissues.org/celeb/Ross_Perot_Tax_Reform.htm

            He knew Bush’s tax cuts were wrong in ’03.

            What does he know now? He says we can’t raise taxes now. See, he understands.
            He was against the cut in ’03, but, these are different circumstances and he’s for a cut now. He’s not like those who were for the cut in ’03 and are for the cut now. He’s got principles.

            But knowing that “Our inability to live within our means will bring us down.” is not so amazing. I know that at a personal level and have no reason to believe it wouldn’t be true at the national level . What would be amazing would be getting ideologues to agree on how we can live within our means. I don’t think RP can do that.

            At a very practical level, I can cut way back on my spending. But at some point I can’t cut back any further. At that point I need some additional income or I begin falling into the red. I could borrow, if a bank would lend. I can possibly go out and get a higher paying job. Or beg for a raise. As for the US of A–we’ve got the option to raise taxes. There aren’t too many other sources of the money needed to run the government (except borrowing :( )

            * * *
            *From a 2003 Slate article: United We Stand America “. . . all came crashing down as Perot’s paranoia, authoritarianism and sheer mendacity drove his volunteer movement back into the woodwork, a political implosion that disillusioned tens of thousands of public-spirited average citizens and badly damaged efforts to build any kind of independent politics in America. “

            • kernunos said, on January 6, 2011 at 7:12 pm

              “As for the US of A–we’ve got the option to raise taxes. There aren’t too many other sources of the money needed to run the government (except borrowing )” Taxes are not a source of money instead it is just a vehicle to take from sources of money. When actual sources of wealth are dwindling taking more from these piles seems counter productive. By the way, we could always print money….er wait we already have. This is one big reason oil will shoot to over $100.00 a barrel.

            • erik said, on January 6, 2011 at 7:49 pm

              “Taxes are not a source of money instead it is just a vehicle to take from sources of money.”
              Interesting interpretation, that. Those guys wrote the US Constitution because the Articles of Confederation didn’t provide for ‘demanding’ and enforcing the payment of taxes by the states. I hear some states, not being required under the Articles to pay taxes, actually refused to pay taxes! Result: The US Govt. under the Articles of Confederation couldn’t raise enough money from the states to guarantee the country’s safety! Pay its debts! We could declare war, but not wage it. And if war was declared on the country? Fuggedaboutit. That the Founders recognized this and created the Constitution to include the ability to tax the states is a pretty good indication that the government (even those guys, the Founders) thought taxes were not only a source of money, but an important source.

          • Michael LaBossiere said, on January 5, 2011 at 5:11 pm

            That is just one of the things that will bring the empire down. of course, a fall is not a matter of necessity-it can be averted. But probably will not.

  2. FRE said, on January 5, 2011 at 2:32 pm

    According to Keynesian economic theory, which I think is correct, on average the budget should be balanced. During time of prosperity, the national debt should be paid down at a reasonable rate. During times of economic stagnation, a budget deficit can responsibly be used to boost the economy. That seems to be the current situation. The problem is that even during times of prosperity, we often run a budget deficit and increase the national debt; THAT SHOULD NOT BE PERMITTED!!

    Also, there is disguised debt. For example, there has been considerable “deferred maintenance” (probably it would be more accurate to call it neglect) of our infrastructure, including bridges, roads, and public buildings. The well-publicized bridge collapse in Minneapolis is one example of what can be expected when maintenance is not done. At some time, that deferred maintenance will cost plenty. Shouldn’t that also be seen as part of the national debt? If we borrow to repair the infrastructure, presumably that would reduce the need to spend on it in the future.

    • WTP said, on January 5, 2011 at 3:09 pm

      Were Keynesian theory’s use of deficits to stick to using them just to do the things that government should be doing anyway (infrastructure, etc.) and if it knew when to stop, I would not be so opposed to it. Note, I speak only of the use of deficits, not the theory as a whole. Such is a rational approach to economic turndowns. However, Keynesian (especially Keynes himself) goes beyond that. The belief that you can create demand on demand, and especially Keynes’s somewhat (in?)famous, amongst economists anyway, bathroom antic (http://online.wsj.com/article/SB123137373330762769.html), is counter-productive. And worse, no one ever acknowledges when the economy is doing good until it starts going bad again, thus the deficit never gets addressed except via economic growth. The aggregate spending never gets cut, and often just gets augmented.

      But government doing things that government should not be doing (running insurance companies, by proxy or otherwise, investing in actual applications of technology as opposed to REASONABLE scientific research in technology, etc.) in an attempt to pump invented money into the economy is wrong. Lowering interest rates to provide incentive to invest is one thing (and I’m only for it as long as it can be done outside of the political process, a very hard thing to do itself), taking money from the more productive for make-work projects for the least productive, administered by people who are not wealth creators themselves, is quite another.

      • WTP said, on January 5, 2011 at 4:26 pm

        Heh, just noticed moving stuff around to re-edit caused a misstatement. That should read “imagined wealth” instead of “invented money”.

        • erik said, on January 5, 2011 at 7:40 pm

          “Imagined wealth” I read that and recalled something I had read when blogging in ’05 about Pres. Bush’s Social Security privatization push:

          Enough digging and I found a url.
          http://www.sadlyno.com/archives/1222.html

          The essence is this:
          “These accounts, properly constructed and managed,will create. . .a sense of increased wealth on the part of the middle and lower-income classes of this society. . .”

          • kernunos said, on January 6, 2011 at 7:19 pm

            Good plan or not the one we have now isn’t so splendid. Heck just putting our money into a private savings account would be better than a bunch of hacks’ general fund and end up being a negative return.

            • erik said, on January 6, 2011 at 8:09 pm

              Agreed that what we have now is not, as you say, “so splendid”.What we had before the ’80′s was. It just needed a litlle sprucing up. A deal was struck in that decade to keep SS funded for years to come. Well through the “baby boomer” years. It sounded noble, but the benefit was gutted by Democrats and Republlicans who dipped into the SS fund to bolster weakesses in the General Fund: a purpose for which SS was never intended. See this article. It doesn’t contain info. that’s new or secret.

              http://dissidentvoice.org/2009/11/abuse-of-the-social-security-trust-fund-began-in-the-1980s/

              We should look into getting SS back to functioning as it was intended.

              “Good plan or not”? GWB’s sham privatization plsn was a crock of crap. And the crap was in the details. Financially where do you think the guy would be who would have been in W’s “Private Accounts” during this last major market downturn (recession?). If his retirement was scheduled for 2008, the stocks he had in his PA would likely have been at least 30% less valuable than they had been the year before. And he’d have been stuck with distributions from the 30% smaller amount for the rest of his miserable life. . . Of course, he could then postpone retirement, and wait for his stock to return to their pre-collapse value. How old do you think he will he be then?

  3. erik said, on January 5, 2011 at 7:46 pm

    Imagined wealth, invented money. The vast vast gap between “seems” and “is” was where AG’s and GWB’s scheme existed. A fantasy, pure and simple. The “ifs” missing from the “properly constructed and managed” phrase say it all and negate all value in the phrase “will create”.

    Sorry for the brief hi-jack. The phrase just took me back to those wonderful days pre-2007-8 when the economy went straight to hell.

  4. Nick Carraway said, on January 14, 2011 at 5:01 pm

    Raise the ceiling if and only if it is coupled with big spending cuts. If they don’t do that, then they are just doing the same thing they have for decades- raising the ceiling and not cutting spending, which makes the ceiling worthless.


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