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Stepping Away From the Fiscal Cliff

Published: January 24, 2013
Section: Opinions

On New Year’s Eve, most of the world awaited the beginning of the new calendar in celebration. In the United States, the market waited with baited breath as the country continued a long trudge toward economic ruin. A year and half prior, the United States had nearly defaulted on its debt due to political disagreement about raising the debt ceiling. The country’s debt credibility was salvaged only by a last-second agreement of sorts. The agreement basically put off the New Year’s of 2012 dilemmas, the exact same time as the expected expiration of the Bush tax cuts. Thus, the situation appeared to be exactly the same as the original crisis, with an additional political flashpoint.

Unlike that August, however, there was widespread concern about this situation in the media for many months leading up to it. Market analysts, pundits and politicians alike all warned of the fiscal troubles ahead, labeling it with klaxon-like names such as “taxmageddon” and the “fiscal cliff.”

As the event approached, however, an almost lackadaisical air seemed to engulf Congress regarding the situation. Congress took Christmas off and, despite the impending consequences of their procrastination, there seemed to be a general sentiment that the situation would be solved at the last minute (as per last time). Yet, as New Year’s Eve fireworks exploded across the globe, there were no signs of progress in Congress. Finally, the senate passed a bill that punted the issue further down the road to February.

As the ball dropped in New York City, there was no House vote planned. Instead, the House waited until Jan. 1 (technically until after we had gone over the cliff) to vote on the bill. The final vote was 257 in favor, 167 against, on the matter of sending the U.S. into a sovereign default. As it now stands, the country is set for another showdown in a few months, and all analysts predict an even messier situation this time. I would argue that this situation, where the U.S. can be held hostage by a minority of radical legislators, is untenable. The way to alleviate this situation is simple—if not incredibly politically difficult to implement: the debt limit should be eliminated.

The first main argument against the existence of the debt limit is that it should never have existed in the first place. The idea that Congress should be able to place an arbitrary limit upon its own spending is ludicrous. To fully understand how ridiculous this concept is, let us explore an analogous example of the same line of logic.

Imagine if you set an arbitrary limit on your own spending. You then proceed to make a significant amount of purchases at the local mall to the point where the amount of money you have committed to pay is above your “debt limit.” When the mall asks you for the money, you reply that you have it but that you cannot pay it because of the debt limit you have imposed upon yourself. The mall would then ask what many have already asked Congress: if you did not want to take on the debt, then why did you make all those purchases in the first place? If Congress truly wanted to rein in spending, it could do so the old fashioned way—i.e. by not spending the money in the first place.

The idea that it should be able to set a debt limit that can be used to send the country into default is logically incoherent. In addition, the debt limit is most likely unconstitutional. As others have already mentioned, the fourteenth amendment stipulates that the validity of public debt is beyond question. Ostensibly, one could reasonably infer that this means that Congress cannot set an arbitrary limit upon the amount of the debt that shall be paid. The president still has an obligation to enforce the Constitution. This means that he must uphold the validity of the debt and thus continue to pay it. Therefore, both logically and constitutionally, the debt limit most likely should never have come into being.

The second main argument against the existence of the debt limit is that it leads to harmful political and pragmatic effects. This argument is fairly intuitive but important nonetheless. Each of these congressional standoffs risks the United States falling into default, the results of which would be catastrophic for both the economy of the United States and the world. This holds especially true with the world in the midst of a fragile recovery from a recession and standing on tenterhooks watching the financial doldrums of the European Union. While many people respond to this argument with some variation of the idea that Congress will always avert a default in the end, I would argue that even creating the risk of this is unacceptable.

Secondly, all of this uncertainty about the debt situation leads to economic harms. With uncertainty on such a fundamental issue as the debt, the market is wearier than it otherwise would be. This means less economic growth. Additionally, these standoffs ironically lead to higher costs for the United States insofar as agencies that issue ratings on American bonds (and thus determine the cost of borrowing) have and ostensibly will continue to downgrade their rating on American debt. This leads to higher costs overall and thus a further drain on the economy.

Thirdly, there is a general political harm to these standoffs insofar as it leads to more partisanship. The only discourse that takes place in these scenarios is usually angered sniping by both sides—take, for example, John Boehner’s famed three-word greeting to Harry Reid during the fiscal cliff negotiations. This partisanship trickles down to the general populace and radicalizes the political populace on the whole. One can see a change of language between both sides as the hysteria of these standoffs increases. The language becomes more radical and much more pejorative as each side blames the other in these cases. This leads to less general discourse and more partisanship, which holds back the gears of good government.

This, at the same time, leads to more apathy among moderates who find themselves turned off from the political system as a whole. In the end, we are left with echo chambers such as Fox News and MSNBC, insulting their ideological counterparts, with more moderate discourse a fond memory. While the elimination of the debt ceiling will not stop this process, I would argue it would reduce it significantly.

In the end, with all of these drawbacks, one must wonder what the justification for the debt ceiling actually is. The answer seems to be that it is a means through which spending can be curbed and thus the future of the country can be meaningfully bettered. While the future of our country is important, the debt ceiling is not the way to determine our prospects. If someone truly wanted to engage in discourse on the issue of the debt (and it is an important issue), they could do so without pointing a gun at the head of the U.S. economy. There is popular will for budget cuts—it is merely a matter of which parts of the budget are cut. Surely the two parties could compromise on a meaningful solution.

The failed Grand Bargain from the last fiscal crisis suggests that a bipartisan deal is possible, if only radicals (especially those of the Tea Party) would accept compromise. At the end of the day, however, providing a means to destroy the country’s credit rating is counterproductive and dangerous. It is only a matter of time before the country falls over a real fiscal cliff and produces an outcome that both parties regret. That is why we should step away from the edge and eliminate the concept of the debt ceiling.