As Democrats and Republicans continue to feed their hungry flocks with debt-ceiling theatrics, pundits are doing their part for the performers by fanning the nonsensical flames. The Washington Post’s Catherine Rampell has been particularly enabling. To support a “national security” angle to “default” that anyone with a pulse knows won’t happen even if it happens, Rampell quoted fellow alarmist Janet Yellen as suggesting that “default” would “raise questions about our ability to defend our national security interests.” Oh please.
The analysis is backwards. Think about it. The fact that we’re even having a discussion of Treasury expanding the debt ceiling is a loud market signal that Congress will soon allow Treasury to do just that. This is all such a non-story.
Still, it’s a non-story that rates more discussion. For that, it’s useful to bring in the latest column by another Washington Post writer, Charles Lane. Lane wrote that the “debt limit statute is an exercise of Congress’s constitutional power ‘to borrow money on the credit of the United States,’ but in the form of authorizing the Treasury secretary to issue bonds as she sees fit up to a certain dollar amount.” There’s nothing wrong with how Lane put it, but he leaves out one crucial thing: Yellen’s ability to issue bonds is much more than a privilege granted by Congress. If this is doubted, ask yourself if Yellen’s equivalent in Haiti, Peru, or Botswana cold do the same. Hopefully the question answers itself.
Past, present, and future Treasury secretaries can and will be able to “issue bonds” based on a belief in the marketplace that tax revenues into Treasury have been enormous up to now (see $30 trillion+ in total debt), and that they’ll be quite a bit bigger in the future. Politicians and pundits are debating symptoms, not the real problem of too much revenue. Only for it to get worse.
Lane’s column notes the timing of the debt limit statute: 1917 “amid the Wilson [Woodrow] administration’s World War I mobilization.” Lane attaches to the latter the assertion that the statute “would eventually prove a great enabler of both the United States’ 20th century rise as a superpower and the federal government’s increased role in domestic affairs.” Hmmm. His analysis reads as a bit too blithe.
Indeed, imagine if there’s no mobilization in 1917 thanks to Congress holding the line. It’s not unreasonable to speculate that a lack of U.S. troops in Europe would have led to a stalemate in this most needless of conflicts; albeit a stalemate without Germany being put on its proverbial back, and heavily indebted. If so, arguably there’s no devaluation of the mark on the way to a total societal overturn that surely at least factored in the rise of Hitler. Would the world be different today? It’s at least worth asking if our rise to “superpower status” had negative externalities.
From there, what about the domestic impact of the debt statute? Lane references “repeated bouts of massive borrowing” modernly “because of the Great Recession and pandemic.” Ok, so Lane is saying that amid economic weakness born of the Bush administration’s shocking bailout ineptitude, that it was subsequently a source of economic nourishment to give Nancy Pelosi an enhanced ability to dole out precious resources when the private sector was short of them? What about 2020 when a panicked Donald Trump teamed up with Pelosi to subsidize lockdowns with a $2.9 trillion spending bill?
If we ignore the lost-in-theatrics truth that the debt ceiling is only a discussion insofar as Treasury is annually deluged with revenues, we can’t ignore the impact. Rampell and Yellen quite simply believe government spending is economy enhancing, but Lane surely knows better. His column is hopefully a reminder to those willing to look beyond the performing to the unsung truth that too much money in the hands of politicians is dangerous, and that the danger isn’t limited to these fifty states.