The Agenda

The Debt Limit and Uncertainty


Over the last couple of years, a common conservative talking point about federal policy changes has been that uncertainty is dangerous. When people don’t know what future government policies will look like, the risk inherent in business investment is greater, without average returns being higher. Higher variance in returns means greater reluctance to invest, and lower economic growth.

This argument is true, although sometimes the importance of uncertainty can be overstated. Still, isn’t it odd that we’re not hearing it in regard to the debt limit negotiations? A debt limit standoff certainly fosters uncertainty, discouraging investment and growth.

The biggest problem that a debt limit impasse could create would be the creation of uncertainty about whether the government will default on interest payments. However, as I’ve written before, I think there is actually very little risk of that (and the bond markets seem to agree, as bond yields are not spiking.)

But there are other ways that the debt limit fight certainly creates uncertainty. The biggest unknown is this: if we get to early August without an increase and Treasury starts selectively delaying payment of bills, what will go unpaid?

Will the government shut down infrastructure projects, as happened in California during a 2010 budget impasse? That risk may be discouraging investment in the construction industry. Will national parks shut down? That risk might be discouraging investment in tourism. Will federal workers be paid with IOUs instead of cash? That is a relevant risk for any person considering investment in the federal worker-heavy Washington area. The possibility that Social Security checks could be delayed is a worry for any business that caters to seniors. And so on.

As with any policy, there could be good reasons to manufacture a debt limit impasse despite the uncertainty it creates. (In my view, there aren’t, but there could be.) Still, opponents of a clean debt limit increase need to account for the uncertainty that their preferred policy will foster.

Most Popular

Economy & Business

The Swamp: Navarro Nucor Edition

The Wall Street Journal has a story today about the ties between President Trump's trade adviser, Peter Navarro, and the biggest steel company in the U.S. -- Nucor Corp. It is particularly interesting in light of the stiff steel tariffs successfully pushed by Navarro, which he championed ever since he joined the ... Read More


EMPIRICAL   As I can fathom neither endlessness nor the miracle work of deities, I hypothesize, assume, and guess.   The fact that I love you and you love me is all I can prove and proves me. — This poem appears in the April 2 print issue of National Review. Read More

Nancy MacLean Won’t Quit

One of the biggest intellectual jousting matches last year was between Duke history professor Nancy MacLean, who wrote a slimy, dishonest book about Nobel Prize–winning economist James Buchanan and the whole limited-government movement, and the many scholars who blasted holes in it. If it had been a boxing ... Read More
Politics & Policy

Rolling Back Dodd-Frank

The Senate on Wednesday passed a bill that would roll back parts of Dodd-Frank. The vote was 67–31, with 17 members of the Democratic caucus breaking party lines. If the legislation passes the House and is signed, it will be the largest change to the controversial financial-reform package since it became law in ... Read More

How Germany Vets Its Refugees

At the height of the influx of refugees into Germany in 2015–17, there was little doubt that mixed among the worthy cases were economic migrants taking advantage of the chaos to seek their fortunes in Europe. Perhaps out of instinctive pro-immigrant sentiment, Germany’s Left obscured the difference. Its ... Read More