Debt ceiling dramatics
Last week, the House Republicans made what they called a budget proposal. But it really isn’t a budget proposal because despite some specifics it leaves most of the cuts to the Appropriations Committees. (This is part of the gaslighting by the Republicans. Members who voted for the bill can angrily proclaim that they did NOT vote to cut veterans’ benefits. In fact, they can deny voting to cut ANY benefits except those specified in the bill – even though, to reach the number of discretionary dollars cut, some or all of the programs not specifically exempted will have to be cut!)
[For details see Lindsay McPherson, “House passes 1.5 trillion debt limit increase, spending cuts. President Joe Biden and top Senate Democrats say they won’t negotiate, debt ceiling life must be ‘clean’.” Roll Call (April 26, 2023) available here.]
According to this article, the cap on non-defense discretionary spending represents a $131 billion dollar reduction from current levels. As I said above Medicare and Social Security are exempted but everything else is fair game. In addition, the debt ceiling increase is only for one year which means should this bill become law (spoiler alert, it won’t!) in the spring of 2024, with the Republican primaries in full swing, Congress and President Biden would have to go through the same process again.
The day the bill passed, my Congressman, Michael Lawler from NY’s 17th Congressional District voted for it. Had he joined four extremists in voting against it, it would not have passed but he fell into line. Now Congressman Lawler portrays himself as a “non-MAGA” Republican. For example, he does not assert that Biden stole the election. He issued a statement to the press that I consider a perfect example of Republican gaslighting. In my oral presentation, I focused on only one aspect of the statement. I will therefore discuss everything else in an appendix so I can follow the flow of what people heard when they listened.
"Throughout this debate, I have had three basic parameters: the President and the Majority Leader must negotiate with the Speaker; we must cut spending; and we must not default," [The entire statement to the press is available here. ]
My first question is: Why do not defaulting and cutting spending have to be in the same bill? They are totally separate activities. Here is the reason. The Republicans are threatening a default as a way of bludgeoning the Senate Democrats and the White House (remember, the Republicans only control one chamber of Congress) into agreeing to very deep spending cuts including repeal of elements of the Inflation Reduction Act, Biden’s student loan forgiveness program and a whole host of other things passed recently. In other words, they are afraid they could not get the budget cuts they want through the normal course of Congressional activity – say with hearings and mark ups and debate. (Note, their so-called budget came out of the House Republican Conference without a single hearing in any committee!)
The reason the Democrats in Congress and the White House insist on a “clean” debt ceiling increase is because avoiding a default is paying for spending that a PREVIOUS Congress has appropriated while budget negotiations are about NEXT YEAR’S spending.
Consider this analogy. Suppose you eat dinner in an expensive restaurant. When you go to pay for it, you find that your credit card has MAXED OUT. You do not respond to that issue by resolving to fast next week to spend less money. IN FACT, no matter what you resolve to do about NEXT WEEK’s spending, you have to pay for that dinner today!
So what do you do when your card is maxed? Well, you use a different credit card, you borrow from someone you dined with … if you know the owner of the restaurant you put it on a personal tab. (Some credit card companies have very quick ways to raise the credit limit with just a phone call!). In other words, you figure out a NEW WAY to borrow the money if you don’t have cash in your pocket.
THEN, to make up for maxing out one credit card and having to use another one, you MIGHT resolve to spend less in the coming days or weeks. TWO SEPARATE ISSUES – just like the debt ceiling and the budget. The debt ceiling has to be raised because Congress had already committed to spending it --- exactly as you do when you order dinner at a restaurant.
[By the way, lots of the National Debt that has accumulated occurred when every Republican who was in Congress in 2017 voted for the so-called Tax Cuts and Jobs Act (actually the Corporate Welfare Tax Act!). These Republicans then turned around and voted three separate times to raise the Debt Limit while Trump was President.]
But we actually know what the Republicans are up to, because they did the exact same thing in 2011. In that year, the US came very close to defaulting before a compromise between the Republican House and President Obama led to a sequester of federal spending. As a result of that near miss, the US credit rating was downgraded and that cost taxpayers over a billion dollars. That sequester of federal spending actually interfered with the impact of the federal government’s efforts to create a robust recovery from the Great Recession of 2009. The federal deficit, which had risen to 9 percent of GDP in 2010, had fallen to a bit over 4 percent of GDP in 2013. (And it took all the way to 2015 for the unemployment rate to get back to what it had been before the Great Recession.). I actually believe the sluggish growth the economy experienced coming out of the Great Recession of 2009 is one of the reasons many citizens were so frustrated by the slow pace of recovery, that they were willing to take a chance on a man who has since proved to be a criminal charlatan, Donald J. Trump. The Biden Administration remembers this because Biden had been Vice President when the negotiations to raise the debt ceiling occurred in 2011. He does not want to revisit that process again.
The Republicans are playing with fire. Moody’s Analytics came up with the following consequences of a default.
“… even a brief breach of the debt limit would kill nearly a million jobs and cause the economy to sink into a “mild” recession. …Markets would get rocked, wiping out a chunk of the retirement savings and nest eggs of many Americans. ,,,
A prolonged breach of the debt ceiling would spark a “cataclysmic” blow to the economy. … [It] would lose more than 7 million jobs, the unemployment rate would more than double to above 8% and $10 trillion in household wealth would vanish as stocks plunge by more than 20 percent”
(Matt Egan, “Debt default would be ‘catastrophic’ event that could kill millions of American jobs, Moody’s warns.” CNN.com (March 7, 2023) available here.)
Maybe Republicans think that if they can maintain the fiction that the default would occur because the Biden Administration refused to “negotiate” about the House’s budget cuts, the economic catastrophe will be blamed on Biden and the Republicans can waltz back into the White House next year --- and take over Congress as well. In addition, there are some Republicans who think the “best thing” for their side would be a default that would destroy the ability of the federal government to borrow in the future. And in this game of “chicken” with the US economy, many Republicans expect the Biden Administration to “blink first” as the Obama Administration did in 2011.
Because of the danger of a default, we the people must inform ourselves of the facts and the dishonesty of the Republicans --- including the gaslighting evident in Republican talking points around this issue. If we the people make it clear we will hold the Republicans and the Republicans alone responsible for the results of even a very short-term default, they will give up their effort to hold the economy hostage to their ridiculous budget cutting demands.
The rest of Congressman Lawler’s statement follows:
“It is now incumbent on President Biden and Majority Leader Schumer to enter into good faith negotiations with the Speaker on the debt ceiling."
Note the contradiction with his earlier statement that “we” must not default. If that is an ironclad necessity, then what is to be negotiated? “We must not default” means we must raise the debt limit. Period. What Congressman Lawless actually means is --- We have taken the debt ceiling as a “hostage” and since “we” must not default, the Biden Administration must give us “something” in return for our “release” of the “hostage.”
The Biden Administration and the Democrats in Congress know they will have to compromise to pass ANY budget. But that is for next year and the subsequent years. Paying bills incurred in the past in absolutely essential – and (I apologize for being a broken record) is a totally separate question from next year’s budget.
Next part of the Congressman’s press release reads:
"This bill, the Limit, Save, and Grow Act of 2023, is a beginning and puts the President and Senate Majority Leader on notice - the days of one-party rule are over,"
This bill is not a serious budget proposal because there were never any hearings and the enormity of the cuts would never survive actual hearings. So they are hidden in the vague language of identifying the target of budget cuts without specifics. There is no reason presented in any of this why a debt ceiling expansion has to be tied to next year’s budget. It only makes sense in the context of Republican hostage taking.
Final part of the Congressman’s press release:
"The American people elected a House Republican majority to serve as a check and balance on the reckless, out-of-control spending that was the hallmark of the last two years."
This is probably the biggest whopper of all. The ratio of government spending to GDP exploded in the spring and fall of 2020 when both houses of Congress unanimously adopted emergency measures to combat the COVID crisis. The result was that the federal deficit as a percentage of GDP skyrocketed to 14.9 percent. (And that was a good thing, not a bad thing. It helped people continue to put bread on the table even if they couldn’t work. It helped businesses keep paying their employees even as revenues dried up.). As the economy recovered from the pandemic-induced recession, the deficit actually shrank as a percentage of GDP. It was 11.9 percent in 2021 and was down to 5.4 percent in 2022. In other words, there was no “out of control” spending in 2021 and 2022. And the heavy spending in 2020 was something UNANIMOUSLY AGREED TO by all members of Congress and the Trump Administration as important emergency measures.
Needless to say, I am very disappointed in my new Congressman. He should be ashamed of having voted for this so-called debt ceiling bill and even more ashamed of the outrageous non-arguments he used to justify that vote.
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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