In Defense of the Debt Ceiling
Senior Editor, CNBC.com
Felix Salmon calls the debt ceiling “built-in systemic stupidity” and asks why we have it at all.
I’m happy to provide the answer.
The first answer is that the constitution requires a debt ceiling, at least indirectly. Congress is saddled by the first article of the constitution with the power to “borrow Money on the credit of the United States.” It long ago abdicated a portion of this power by enabling the Secretary of Treasury to approve debt issuances without the specific approval of Congress. But its not clear that, absent a constitutional amendment, Congress can delegate this power altogether.
Prior to 1917, Congress had to approve each individual issuance of US debt. This power was rarely used. The first post-constitutional issuance of national debt was undertaken to pay for the War of 1812. The next time the US government went to the debt markets was during the depression of 1837-1843. In these issuances, further votes of Congress were required to authorize the government to make principal and interest payments as they became due.
It wasn’t until the Mexican War in 1847 that Congress first authorized the US Treasury to issue debt on which interest and principal payments were automatically approved. The real debt explosion, however, occurred during the Civil War—when the national debt ballooned to $2.75 billion from just $58.5 million. But even during the Civil War, the specific kind of debt issued by the US Treasury had to be approved by Congress. Both the terms of the debt and the interests rates to be paid were subject to the approval of Congress.
It was the First World War that undid Congressional micro-management of the debt. For the first time, in 1917, Congress passed a law that allowed the Treasury Secretary to borrow amounts up to a certain limit without having to get approval for each issuance. Nonetheless, Congress was, at this point, still dictating limits for various types of debt: $4 billion for war-savings certificates, $4 billion for certificates of indebebtness, and later, another $7 billion in Treasury notes.
During the Great Depression and WWII, Congress delegated even more of its borrowing power to the Treasury, adopting a single debt ceiling over the various ceilings for types of borrowing that had been adopted during WWI and its aftermath. The Treasury Secretary was now free to borrow up to the Congressionally set limit in whatever form he thought most appropriate given market conditions. That is the system, more or less, we’re still operating under.
While this system strikes many as archaic, there is good reason for it. In the first place, it maintains the system of accountability for national debt set up by the constitution. Lawmakers must go on record as approving an increase in the debt limit in order to enable the government to borrow to fund the spending the lawmakers have approved. They must confront, in a very public manner, the costs of the programs they have enacted.
One of the ways in which government is able to operate unaccountably—that is, outside of democratic checks and balances—is by facilitating public ignorance about its activities. The debt ceiling vote helps raise public awareness about the costs of government, keeping government accountable and increasing democratic participation.
This is inconvenient for lawmakers and a great many of them would probably like to escape this burden. Far better to have unaccountable bureaucrats take responsibility for the debt. But they sense, I suspect, that the American people would balk at an attempt to completely abdicate responsibility for the debt of our government.
In short, the debt ceiling may not be the perfect way to check the irresponsible practices of government. But it is the one we have. And doing away with it would likely just make government more likely to incur even greater levels of debt outside the view of the American people.
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