The commentary I delivered over the radio on January 27, 2023 began with these words: “You have no doubt heard about the debt ceiling issue, right? Well, The Debt Ceiling law itself is UNCONSTITUTIONAL.” Given that I have much more space here to develop the arguments than in a four-minute radio address, I am going to delay explaining why it’s unconstitutional and making my recommendation to President Biden in order to give some background. Let’s start with definitions and the law.
The reason I am starting with definitions is that plenty of people (I’ve even seen United States Senators on TV do it) sometimes seem to have no idea what the difference is between a budget deficit and the National Debt. So let’s do that first. Every year, the federal government collects taxes and spends money. Some of that spending is voted on every year (like how much to spend on National Defense or NASA or IRS enforcement or Amtrak) and some of it is automatically spent based on rules established by law – like how much to spend on Social Security pensions, unemployment compensation, etc. The amount spent depends on who is eligible. The rates at which taxes are collected are set by law but the actual amount collected depends on incomes of various individuals and businesses. When all the spending and revenue are added up, the difference is a deficit if more is spent than comes in or a surplus if more comes in than is spent. (And don’t think we never run surpluses. In 1999, 2000 and 2001 the federal government did run surpluses. It hasn’t done that since.)
So, a deficit is a what economists call a flow concept – an amount calculated over a time period. (You can think of it as measuring how much water per minute is coming out of the faucet when you’re filling a bathtub.).
The National Debt on the other hand, is the sum total of all deficits that the government has ever experienced MINUS the times it has actually taken in more revenue than it spent. So, the National Debt is a stock concept. (You can think of it as measuring how much water has accumulated in the bathtub.). Every year that the government runs a deficit the National Debt increases by that amount.
Another way of thinking of the difference between a deficit and the National Debt is to consider an individual who saves $10,000 a year. That’s the flow concept. After ten years, if you just salted that money away under your mattress you would have accumulated $100,000. That’s the stock concept.
Now that some of the economists’ jargon has been translated into English, we can turn to the debt ceiling law. On December 16 last year, I referred to it as a ridiculous law. Here’s why. The debt ceiling law says that the National Debt cannot be higher than a certain number. (Right now, that number is $31.4 trillion.). Because that law exists, even if Congress passes and the President signs a budget --- IF that budget calls for a deficit that would raise the National Debt over the debt ceiling limit, the government cannot borrow the money and therefore they cannot spend money that HAS ALREADY BEEN APPROPRIATED. According to Secretary of Treasury, Janet Yellen, on January 19, the United States National Debt hit that number.
[For details see https://www.npr.org/2023/01/19/1150006177/debt-limit-ceiling-political-fight-janet-yellen.
See also, Jim Tankersley and Alan Rappeport, “U.S. Hits Debt Cap, Heightening Risk of Economic Pain,” The New York Times (January 30, 2023): 1,15.]
So even though every dollar in the budget has already been appropriated by Congress, the government will not be able to borrow from now on to meet already promised responsibilities. Why does this crazy law exist?
Supposedly the EXISTENCE of this National Debt ceiling deters Congress from running deficits high enough to breach the debt limit. But that’s total nonsense. Since the ceiling was passed into law in 1917, it has been raised at least 90 times. Since 1960 it has been raised 74 times. And usually, it has done with almost no publicity and certainly no controversy.
But in 2011, the US government came very close not just to blowing past the debt ceiling but exhausting all the “extraordinary measures” that the Treasury can take to delay an actual default. These “measures” allow the Treasury to keep spending money without technically getting past the debt ceiling.
[Now in the oral presentation, I said: “PLEASE DON’T ASK, [about these “extraordinary measures,”] It isn’t worth it!! So readers should feel free to skip to the end of this bracketed paragraph. Here are the kinds of things the Treasury can do as described by CNN.com: “Less than a week after announcing that the nation hit its $31.4 trillion debt ceiling, set by Congress, Yellen wrote to House Speaker Kevin McCarthy on Tuesday to say that she is adding to the extraordinary measures the that will allow the government to keep paying its bills on time and stall the catastrophic economic and fiscal consequences of a default. She will stop fully investing the Government Securities Investment Fund of the Thrift Savings Fund, part of the Federal Employees’ Retirement System, in interest-bearing securities of the US. This is in addition to the measures announced last week, when Yellen said Treasury will begin to sell existing investments and suspend reinvestments of the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund. These funds are invested in special-issue Treasury securities, which count against the debt limit. Treasury’s actions would reduce the amount of outstanding debt subject to the limit and temporarily allow it to continue paying the government’s bills on time and in full. Yellen’s actions are mainly behind-the-scenes accounting maneuvers. No federal retirees or employees will be affected, and the funds will be made whole once the impasse ends, she wrote. The extraordinary measures should last at least until early June, Yellen has said, though she stressed that her forecast is subject to “considerable uncertainty.”
(Tami Luhby, “Treasury takes more extraordinary measures to avoid debt default,” CNN.com, January 24, 2023 available here. ]
The ability to take “extraordinary measures,” means that the real “crunch time” will occur sometimes before June of this year. At that point, Congress will have to raise the debt limit or the United States for the first time in history will default on its obligations. Back in 2011, with Republicans in control of the House of Representatives, they refused to raise the debt ceiling unless President Obama agreed to some spending cuts. This brinkmanship worked.
[For a deep dive into the crisis in 2011 see The Investopedia Team, “2011 U.S. Debt Ceiling Crisis,”
Fact Checked by Michael Logan, Updated December 04, 2020, available here.
Here is a direct quote from that report: “… the specter of a technical default on existing Treasury debt roiled financial markets. Fiscal conservatives argued that any debt limit increase should come with constraints on the growth of federal spending and debt accumulation.” This led to a compromise. In exchange for a debt ceiling increase, the Obama Administration was forced to spend less money than they wanted to.]
The ability of the Republicans back in 2011 to force some spending cuts from the Obama Administration by playing chicken with the debt ceiling increase has emboldened the Republican majority in the House of Representatives to demand similar concessions from the Biden Administration. So far, the Administration has said NO --- they want a “clean” debt ceiling increase (or better still its abolition) without any successful hostage taking.
By the way, calling the Republican game of chicken a hostage taking is not hyperbole. If the United States actually failed to borrow money and therefore had to stop paying its bills --- defaulting just as you would if you missed enough mortgage payments --- the entire world economy would experience terrible dislocations. Up till now, US government bonds have been considered the safest investments in the world. Financial institutions all over the world balance their risk by have significant parts of their portfolios in US government bonds.
According to forecaster Mark Zandi, if the US defaulted because the extraordinary measures had been exhausted and they actually stopped paying what they had promised to pay, the first thing that would happen is bondholders would rush to sell off bonds leading to a steep dive in their values. (The sell-off would begin well before the default actually occurs!). When bond values fall, the interest rate on bonds goes up. (If I hold a $1000 bond that pays 5 percent a year, that’s a fixed coupon of $50 a year. If that bond value tanks down to $500, the interest rate represented by that $50 coupon is now 10%. To issue NEW bonds, suddenly the US government would have to promise a 10% rate of return.). The loss in value of assets that are extremely important to the portfolios of financial institutions and governments all over the world and the spike in interest rates that would follow would lead to a world-wide financial crisis.
Meanwhile, here at home, according to an article in The Hill, “… Zandi … estimated that the U.S. would lose 6 million jobs, $12 trillion in household wealth and 4 percent of gross domestic product (GDP) if Congress and the White House fail to raise the federal debt limit before the U.S. runs out of cash. The unemployment rate would also rise to at least 7 percent, up from the December 2022 rate of 3.5 percent.”
Unfortunately, some Republican members of Congress aren’t even interested in a deal with the Biden Administration --- they want to blow up the economy so Biden will be blamed for it and Trump (or a Trumpist Republican) can coast into the Presidency in 2024. (After which the Republicans will gladly raise the debt ceiling as they did THREE TIMES while Trump was President).
So this is my strong recommendation as to what Biden should do. He should say that the debt ceiling law is unconstitutional because it conflicts both with section four of the 14th Amendment and with the original rules prescribed for Congress in Article One, Section 8, Clause 1 of the Constitutiion. The latter reads in part “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts …”. Now I don’t know about you but there is nothing there that gives Congress the right to REFUSE to pay the debts. The 14th Amendment emphasizes that point when it says, “The Public Debt of the United States … is not to be questioned.”
In short – when you combine both of these sections of the Constitution, we find the debt ceiling law is in direct conflict. If the Republicans refuse to raise the debt ceiling, Biden should say the debt ceiling is unconstitutional and refuse to abide by it. He should then order the Treasury to continue borrowing money to meet the obligations that Congress HAD ALREADY VOTED FOR.
Let the Republicans sue --- by the time the suit gets to the right-wing yahoos on the Supreme Court, the Democrats will have swept the Republicans out of power in the 2o24 elections.
[There are a number of excellent articles discussing various things Biden could do, short of compromising with the Republicans. On January 20, 2023, New York Times opinion columnist Jamelle Bouie wrote the following: “You Can Let Republicans Destroy the Economy, or You Can Call Their Bluff,” available here.
The article I drew on for my argument combining Article 1 with the 14th Amendment is by Thomas Geoghergan, “The Constitutional Case for Disarming the Debt Ceiling,” The New Republic (January 6, 2023) available here.
Michael Meeropol is professor emeritus of Economics at Western New England University. He is the author with Howard and Paul Sherman of the recently published second edition of Principles of Macroeconomics: Activist vs. Austerity Policies
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