Politics & Policy

The Real Debt Ceiling

What will happen in a decade or so, when default becomes inevitable?

The fight over the federal shutdown, in which Barack Obama pronounces himself ready to negotiate with atomic ayatollahs in Tehran but not Republicans in the House of Representatives — the body constitutionally empowered to manage budgetary concerns — is a prelude to the coming fight over the statutory debt ceiling. How either of those will play out politically is anybody’s guess, though one should never underestimate the Republicans’ ability to screw up being on the right side of an issue.

While there is panicky talk of default in Washington, the financial markets give no indication that they are expecting a default on Treasury bonds, which is only sensible: Even without extending the debt ceiling, current revenues are more than enough to cover debt payments, several times over. There are technical concerns within the federal government that complicate the issue, but debt ceiling or no debt ceiling, the money is there to make interest payments. Surely an administration that came into office on the heels of a financial crisis and claims the unilateral power to assassinate American citizens is not waiting on Congress to tell the Treasury Department how to perform its most elementary function? Surely the American people, in their wisdom, would not elect such irresponsible amateurs to high office? (Twice?)

Refusal to raise the debt ceiling will never necessitate default — unless the interest payments we owe exceed the revenue we have. That is not even close to being the case — net interest payments have been running around 7 percent of revenue lately. But if current trends continue, that number will change. In 2010 Moody’s, working from Congressional Budget Office projections described by one analyst as “wildly optimistic,” calculated that policies being pushed by the Obama administration could drive interest payments as high as 20 percent of federal revenue by 2020. The CBO’s polite-nod-to-reality “alternative fiscal scenario” projects that sustained deficits will mean that interest payments will cost us an additional 1 percent of GDP in ten short years. And those are far from worst-case, Chicken Little scenarios. A return to the interest rates that prevailed as recently as the 1980s would turn our federal budget upside-down practically overnight, with interest expenses far outpacing tax revenue. When debt-service costs exceed revenue, default is a practical inevitability.

Sure, that’s probably a remote risk — but it is the purpose of government to help us mitigate such risks, not to court them on our behalf. The entire theory of liberal government is that we band together to provide certain public goods, risk mitigation being paramount among them. We don’t maintain an army because we’re expecting to be invaded, or a police force because we expect to be murdered, but because the world is full of unexpected and unpleasant possibilities.

A responsible fiscal policy is like a missile-defense system or a nuclear arsenal: It may prove its worth during an emergency, but it proves its worth just as much, if not more, in the absence of such emergencies. If you are very fortunate, and you live a long life free from illness and accident, will you feel that you wasted all the money you spent on health insurance? One of the differences between responsible people and irresponsible people, between responsible institutions and irresponsible institutions, is a proactive and intelligent approach to managing risk.

Interest payments are the only truly mandatory spending our federal government does, even though it treats a rather large category of outlays — from such minor expenditures as the presidential salary to big-ticket items such as Social Security and Medicare — as “mandatory.” Assuming that the CBO’s less-optimistic debt-service projections are somewhat accurate, then by 2023 those outlays will be quite close to projected revenues — and that’s absent any sort of economic crisis or interest-rate spike. Put another way, if we assume that Social Security checks and other entitlement liabilities are just as sacrosanct as interest on Treasury bonds, then we are already locked in on a course in which the cost of past promises will likely match or exceed present revenues, not at some far-off point in the future, but around the time today’s elementary-school students head off to college.

Avik Roy is right: The fight over Obamacare, as necessary and consequential as it is, means popping a pimple on the copious backside of the welfare state. Medicare, Medicaid, and Social Security, along with the growing burden of interest payments for past excesses, are the horsemen of our fiscal apocalypse. As the poor people of Detroit are finding out, at a certain point the imbalance between revenue and promised spending means that politics is no longer a question of what we want to do, but of what we have to do. Detroit’s crash landing may be padded by aid from Michigan, some federal largesse, and some private-foundation money, but there is no equivalent assistance available for the federal government of a country responsible for a fifth of the planet’s economic output.

If you think that our politics looks polarized this week, imagine what it’s going to look like when the choices are a more or less identical partial shutdown of the government plus suspending most or all Social Security payments indefinitely, eliminating federal health-care benefits, and/or defaulting on our bonds and enduring the subsequent economic chaos. There are people in Congress, Senator Rand Paul among them, with serious if necessarily imperfect plans to help get us from where we are to a safer and more sustainable place, and the main obstacle to such reforms is not gridlock or special-interest lobbying or any of the usual suspects in Washington: It is the willful ignorance of the American people, who refuse to demand that their elected representatives act like responsible adults who can count.

It’s the people who elected and reelected Barack Obama and his team — and it’s the people saying “Don’t touch my Social Security! I paid into it!,” along with the so-called conservatives in farm states who make like Pharisees every time they catch sight of an EBT card on the way to deposit their farm-subsidy checks. Everybody is talking this week about dysfunction inside the Beltway, but the problem, America, is you. None of that spending is free. And if you want a quantitative measure of the real long-term impact of that national immaturity, see those accumulating interest payments.

Senator Ted Cruz tried in his way to issue a wake-up call, and of course he was mocked for it: “Too dramatic, too radical. Hey, let’s see what Jon Stewart has to say!” Senator Cruz is a radical in the literal sense: He’s looking at the root of the problem, which is the mutated role of the state in our national life, what Frédéric Bastiat called “that great fiction by which everyone endeavors to live at the expense of everyone else.” In fact, Senator Cruz is not half radical enough, and neither are his more cautious colleagues. We’ll deal with the statutory debt ceiling, one way or the other. The real debt ceiling is a different matter.

— Kevin D. Williamson is a roving correspondent for National Review and author of The End Is Near and It’s Going to Be Awesome.


The Latest