Toomey’s legislation is designed to prevent a national default in the event of a fiscal emergency, which could result if the debt ceiling is not raised. Democrats have construed the bill as “wild plan” to “pay China first” and destroy Social Security as we know it in the event of a default. As McArdle points out, that’s not exactly the case:
[T]oomey has the right of it; we should prioritize debt payments over other spending. I know–you’d expect me to say that! But hear me out.
In the first place, our debt payments do not simply go to enrich feckless corporations. They go into things like insurance pools, 401(k)s, and pension funds. If the government stops payments, yes, some rich people would take a bath. But so would a lot of ordinary people.
Even more importantly, if the government misses a debt payment, that’s it for borrowing more money in the near future–and I, for one, am skeptical that the IMF would be able to mount a bailout, which is what we do when developing nations have this sort of trouble. The United States currently runs a $1.5 trillion budget deficit. If we miss a debt payment, that means we immediately have to balance that budget, and keep it balanced…
[I]f we can’t borrow money, no one’s going to bail us out… And you can expect a default to be followed by a pretty ugly recession in an economy as credit-driven as ours.
That said, obviously the best thing to do is raise the debt ceiling, and not put the US government at risk of default. But second best is to buy time while preserving our credit rating. Over the long run, if the credit taps get cut off, the social service cuts will be deeper, uglier, and permanent.