THE DEBT CEILING “CRISIS” AND THE CREDIT CARD ANALOGY

10/11/13

The other day, a regular reader asked why I haven’t written anything on the debt ceiling imbroglio or the government shutdown inconvenience.   The reason involves more than a lack of time as I toil more on other endeavors:  I haven’t written on the debt ceiling and the government shutdown because until (maybe) today, I haven’t had anything unique, or at least different, to say about these twin situations.  As loyal readers know, unlike many commentators who make vast money flapping their jaws or drying out their pens, I am not in the habit of parroting what others are saying in order to increase the quantity of red meat thrown to the true believers; I try to say something no one, as far as I know, has said about a situation.  That what I write becomes common knowledge a few days or weeks after I write it is a recurring phenomenon over which I have no control.

Note that I used the term “situations,” “imbroglio,” or “inconvenience” when referring to the debt ceiling or the government shutdown when the rest of the world refers to them as “crises.”   As I have said before, but not lately, in my various commentaries, the term “crisis” and its plural have been overused to the point of trivializing the term, as has been the case with many words in our modern world.   Everything, it seems, is a crisis.   This reflects the current tendency to assume that life should be free of risk, discomfort, or inconvenience.   Anything that threatens the presumed right to live in a manner that would make a renaissance potentate envious while being completely free of genuine concern or care thus becomes a crisis.   Thus, genuine crises, like the Cuban missile crisis, which had the potential to incinerate much of the world, become trivialized, put on a par with, for example, not being able to get all the gasoline we want at prices we consider fair (the OPEC oil “crisis” that prevailed when I first started to drive), the movement of a few warships in the Mediterranean, or the inability to visit a national park or a national monument for a few days.

That having been said, while the so-called “government shutdown” that somehow doesn’t affect vast reaches of the government bureaucracy, is something of a yawner to the vast majority of people, a genuine default by the U.S. Treasury would approach the scope of a crisis, not on a par with the Cuban missile crisis, but a crisis nonetheless.   Most people, however, don’t understand what is going on here and use some oversimplified analogies to explain the situation.  

John Kass, Chicago Tribune columnist and WLS radio talk show host, yesterday used the analogy of a credit card when attempting to explain the debt limit situation.  He said that extending the debt limit is akin to giving the government our credit card to do with as it pleases.   Since Mr. Kass, a good fiscal conservative with libertarian instincts, knows at least as well as anyone else that the government has had our credit card for generations, one assumes that he meant that extending the debt limit is akin to increasing the debt limit on the credit card the government already has.

This analogy is good as far as it goes, but it misses one side of the equation.   The government takes on debt to cover spending that has already taken place, money that has been appropriated and spent, or, to use the analogy, charges that it has already made on our credit card.  So when the government looks to expand the debt limit, what it is asking for, to use the credit card analogy, is permission to pay the bills on that credit card.  To extend the analogy, if you refuse to pay your credit card bill, that doesn’t make the charges go away; it only gets you into deep, deep trouble…or at least it used to before the government decided that those who abuse credit are somehow victims and therefore entitled to succor from an always benevolent, with your money, government, but I digress.

So if we refuse to extend the debt limit, we won’t be cutting spending; we will just be refusing to pay our bills.  While this has become fashionable for individuals in the last five or so years, the markets won’t look kindly upon the government mimicking the “What, me worry?” approach to finance that it has made possible, indeed desirable, for its citizens.

But let’s take a step in the other direction.   It is entirely responsible for, and even incumbent upon, the GOP to insist on fiscal restraint in exchange for extending the debt limit.  To use the credit card analogy, this is like a benevolent, but stern, dad agreeing to pay his presumably grown child’s foolishly inflated credit card bill in exchange for tight restraints on future spending.   While the GOP may be a poor candidate for playing that role (Note the “fiscal restraint” the GOP showed when its man George W. Bush was in the White House and the nagging and justified belief that the Republicans would like the government to stop blowing money on the President’s misguided priorities so that it can blow money on the GOP’s misguided priorities, usually involving foreign conflicts in places where we have no business.), somebody in Washington should be playing that part, and as the almost microscopically less boobish of the two boob parties that populate Washington, the GOP, I suppose, by process of quick elimination, is the party to play the role of fiscal disciplinarian.

The problem is it’s very hard, and irresponsible, to enforce fiscal discipline under these circumstances, when, unless some kind of deal is reached today or soon thereafter, the U.S. Treasury will default on its obligations.  To further employ the credit card analogy, if the account that one’s presumably grown child is abusing is a joint account with his or her father, dad cannot credibly threaten to not pay the credit card bill; to do so would damage not only his kid’s credit but his credit as well.   His name in on the credit card; if he defaults, he and his entire family suffer.  Our name is on the federal credit card; if we default, we hurt ourselves, the entire country, and the entire world financial system.

So threatening to default on our obligations, to not pay our credit card bill, if you will, is very much akin to holding a gun to our own head and threatening to shoot.  The Democrats aren’t stupid; they understand this and consequently hold most of the cards here.  One wonders if the GOP has figured this out yet.