In brief response to my friend Kevin D. Williamson on the debt ceiling and the rating agencies: He certainly is correct that without an increase in the debt ceiling, the FY 2011 budget cannot be financed with current revenues. But that really is not the right question. The issue is whether in the short term some sort of crisis will emerge upon a failure to increase the debt limit in early August. Obama’s threats about Social Security checks simply are empty, as I understand the law, as the Treasury has the authority to transform the bonds held in the (phony) Social Security “trust fund” into ordinary Treasury debt, to be sold to the public as long as the proceeds are used to pay Social Security benefits, regardless of the statutory debt limit. (In my old age I forget the specific provisions of the Social Security Act as amended.)
More narrowly, but more important politically, federal tax revenues in August are likely to be on the order of $175 billion; my crude guess is that interest on the debt, Social Security, and Medicare and Medicaid will be around $150 billion. Of course not all bills would be paid; but how many people will die in the streets if the Departments of Agriculture, Commerce, Education, Energy, HUD, Interior, Labor, Transportation, and the EPA are shut down for, say, a month? Total monthly spending by those bureaucracies: approximately $22 billion. Would there be some upheaval? Yes. Would this demonstrate the worthlessness and worse of much federal spending? The word “yes” is wholly insufficient.
My original post was directed at the narrow argument that some sort of fiscal crisis would emerge attendant upon a failure to increase the debt limit, with upheaval in the markets, economic destruction, and the various other plagues worthy of Passover promised by Mr. Obama and his various flunkies. And now by the rating agencies. That the latter have climbed aboard this bandwagon is powerful evidence of the reverse, as Moody’s and the others are incapable of escaping the mindlessness of conventional wisdom, and more generally have never demonstrated anything other than analytic skills utterly mediocre. The reality is that a failure to increase the debt limit unless a real process of fiscal discipline is imposed would be hugely advantageous economically and politically. Again: The Republicans should pass a series of small increases in the debt limit with equal reductions in outlays. The Senate Democrats would find it deeply problematic to obstruct them, and then President Obama would be forced to sign or veto. Apart from the salutary economic effects, this would be an excellent way to frame the central political question as November 2012 approaches.
— Benjamin Zycher is a senior fellow at the Pacific Research Institute and a visiting scholar at the American Enterprise Institute.