Here are two striking headlines from recent days:
To this news we may add these facts:
- The debt limit has been hiked 74 times since 1962. The most recent increase, signed by President Trump, was for $318 billion, permitting a total debt of $20.16 trillion. But that takes the government only through Dec. 8. A new debt ceiling will have to be set then.
- So far this fiscal year, the national government has paid more than $434.6 billion in interest on its debt. The high mark was set in fiscal year 2011, when almost $454.4 billion was paid. The fiscal year will end Sept. 30, so stay tuned.
- Some of the Treasury debt is owed to other U.S. government agencies, such as the Social Security Administration. (For decades, the Treasury borrowed Social Security’s surplus revenues and spent them on other government functions.) But this should bring no comfort, because the Treasury has to borrow money to repay agencies whenever its IOUs come due.
The phrases “debt ceiling” and “debt limit” must be taken with a 5 lb. bag of salt, of course, because Congress, which spends the money, is also the entity that increases the amount the government can borrow. Whenever the government’s borrowing nears its limit, we’re subjected to fretting about the “full faith and credit of the United States” and we’re assured that the borrowed money will be used “only” to pay bills already incurred and not new spending. To which I ask: why does the government have the power to incur expenses it will be able to pay only if its debt limit is raised later?
The ceiling is often likened to a credit card limit, but that’s a bad analogy. Consumers can ask banks to raise their credit limit, but they cannot raise it themselves, and the banks can say no. Congress, on the other hand, raises its own limit.
Because the sky is apparently the limit to its debt, the government actually has a debt sky. Trump reportedly favors eliminating the debt ceiling. Senate Minority Leader Charles Schumer (D-NY) agrees with Trump, and the two are said to have a “gentlemen’s agreement” on this issue. Presidents dislike debt-ceiling legislation because members of Congress often include unrelated budget items that would otherwise be vetoed.
While we might appreciate an end to the charade, this nevertheless seems to be “progress” in the wrong direction. The right direction would be toward eliminating government borrowing by requiring a balanced budget — at a far lower level than the current $4.147 trillion.
Borrowing has at least three counts against it.
First, it makes government look less expensive than it is and therefore leads to more government. Imagine if Congress and the president had to raise the full $4.147 trillion through taxation. Government spending might come under scrutiny as never before, and that then might prompt a radical reevaluation of the government’s role. Nothing concentrates the mind like having to face the full cost of one’s choices.
Second, borrowing permits a gross injustice: the imposing of fiscal burdens onto generations too young to vote or even unborn. Talk about taxation without representation! True, our descendants will be free to repudiate the debt and repeal taxes, but the powers that be will hector them endlessly about their obligation to pay the government’s debts.
Environmentalists often admonish us to leave our children the planet in better shape than we found it. By the same token, we should leave the fiscal environment in better shape than we found it. In both cases, it would be wrong to burden them with the consequences of our irresponsibility. If for no other reason, we should get our fiscal house in order now.
Third, the taxpayers will bear the full burden of the government’s profligacy, which today stands at well over $61,000 per citizen. To be sure, a mounting debt could prompt the central bank, the Federal Reserve, to “monetize” it by creating money out of thin air and robbing the people of purchasing power. And inflation can undermine a society. However, monetizing the debt is harder than it once was because of changes in the world financial system. As economist Jeffrey Rogers Hummel shows, inflation just doesn’t benefit the politicians the way it used to. Hummel writes:
“Inflation over the last few decades has in fact become a trivial source of government revenue. This outcome stems not merely from the worldwide decline in inflation rates that began in the 1980s. That disinflation was as much an effect of the way sophisticated financial systems now prevent governments from gaining much revenue from even severe inflation as it was a cause of falling inflation revenue.”
It’s time for the government to stop borrowing.