Limiting more than debt

As I watch House Speaker McCarthy’s efforts to use the debt ceiling as leverage to decrease future debt, I find myself feeling a bit conflicted. In the past, I have always bristled when politicians of either stripe used the debt ceiling extension as extortion for political purposes. The reputation and stability of the United States economy are as fundamental to our strength abroad as any military force. Watching that being threatened over partisan differences is difficult, and too frequently, there are consequences.

When we tinker with the debt ceiling, we risk a government shutdown, delaying payment of Social Security benefits, payments to contractors and vendors, and on national debt obligations. We have seen what happens when there are little more than whispers of a failure to reach a deal. Currency, commodity, and stock markets are negatively affected, as are international perceptions of our capacity for self-governance.

We don’t have to reach back very far in history to see what happens when Congress fails to raise the debt ceiling. In August of 2011, a failure to raise the limit led to an embarrassing downgrade of the U.S. credit rating by Standard & Poor's. In October of 2013, Congress again failed to raise the debt ceiling, resulting in a partial government shutdown for 16 days. The shutdown interrupted vital federal services and cost the U.S. economy an estimated $24 billion.

You may remember the 2013 shutdown as the year that the World War II Memorial on the Mall in Washington DC, an open-air national monument with no enclosed buildings or exhibits to protect, was inexplicably roped off when a group of Honor Flight veterans visited. To their credit, they breached the barriers, many in wheelchairs, and paid solemn observance at a monument they had fought and bled for. Good for them, but what did that say about us? It was a refreshing representation of our independent, sometimes defiant spirit, but what did it tell friends and adversaries about the stability of our government?

We then cut it close again in July of 2019, when Congress and the White House reached a last-minute deal to raise the debt ceiling, just days before the Treasury Department said it would run out of money to pay the government's bills. As before, the political standoff also caused significant volatility in financial markets.

Given that history, how could it be possible to view a similar standoff as being positive? It’s not easy, but Mr. McCarthy’s effort is appropriately targeted at the debt in question. At more than one and a quarter times GDP, we are among the world’s leaders in debt-to-GDP ratio, and discussion of that matter when raising the debt ceiling couldn’t be more appropriate.

Politicians like to talk about the money. They absolutely love to speak of the debt as though it was a household budget, looking at it strictly in terms of dollars and cents. They give the impression that it’s simply a “kitchen table” issue, reducing the situation to something analogous to family finances and the sometimes difficult consumer choices that we all make. Of course, it isn’t that simple.

Yes, it’s about the money and, yes, it’s about the debt, but it goes far deeper than that. The underlying question is about the size of the federal government. Do we continue to grow the federal government as we have since the New Deal, or is it time to tap on the brakes a bit?

Remember that with every government expenditure, there are (appropriately) rules and regulations about how the money is to be used. That seems reasonable enough, but the regulations tend to remain long after the money is gone. It’s the regulatory framework that follows those expenditures that create new layers of bureaucracy, restrictions, reporting requirements, and ironically enough, more fees and taxes. Each one of those regulatory structures that follow Federal money, in one way or another, results in a reduction in something that we seem to have forgotten about, our Freedom.

I don’t pretend to know the minds of the founding fathers, and I don’t trust anyone who claims that they do, but I often wonder if we are not becoming what Jefferson, Madison, Franklin, and the gang rebelled against. I also question how smart we are as citizens, as we allow the Federal Government to chip away at our freedoms, and do so with our money.

I’m not suggesting that we destroy beneficial institutions developed over the years. We shouldn’t let our infrastructure crumble, short-change the military, curtail medical research, or make any sudden changes to Social Security. Those are all beneficial if not essential, but why can’t we just stop adding to them? Why don’t we hold spending at last year’s levels, and limit growth going forward? That’s what Speaker McCarthy is trying to accomplish, and this time, if it causes a few market jitters, I’m OK with that.