It is according to Austan Goolsbee, the chairman of the White House Council of Economic Advisers. Here is the quote:
This is not a game. The debt ceiling is not something to toy with….If we hit the debt ceiling, that’s … essentially defaulting on our obligations, which is totally unprecedented in American history. The impact on the economy would be catastrophic…..I don’t see why anybody’s talking about playing chicken with the debt ceiling. If we get to the point where you’ve damaged the full faith and credit of the United States, that would be the first default in history caused purely by insanity.
I agree, this is not a game. The situation in which we find ourselves, thanks to the recurring irresponsibility of Congress year after year, is no laughing matter. If the government doesn’t make some serious changes to the way it spends money and borrows money to pay for its daily consumption, if it doesn’t change its practice of paying the interest on its debt by borrowing more and more, if it doesn’t change its practice of making benefit promises it will never be able to deliver, the consequences will be dramatic.
Of course, we can debate whether today is the best time to put an end to the country’s endless recourse to borrowing, but it is wrong to claim that it is insane to be considering it. In fact, insanity is to do the same thing over and over again expecting different results. For instance, increasing the debt ceiling repeatedly and expecting that it will preserve America’s good fiscal health, is insane. Increasing the debt ceiling will not bring fiscal sanity to our country, especially if lawmakers continue to postpone reforming entitlements and cutting spending across the board.
The statutory debt limit was instituted in 1939 as a way to limit congressional spending (as a way to affirm its constitutional mandate to control spending). The idea was to signal to lawmakers that they couldn’t spend and borrow above a certain point. Unfortunately, lawmakers didn’t understand this signal and, since legally the debt limit does not alter the spending and revenue policies that determine debt and deficits, they continued to spend more as the debt limit grew. According to the Office of Management and Budget, since 1940, the debt limit has been raised 98 times. With few exceptions, like during wartime, raising the debt ceiling has not served as a wake-up call that Congress was being a poor steward of taxpayers’ money, but only as an excuse to spend more. This pattern needs to end.
To that effect, I suggest that if lawmakers are going to vote in favor of raising the debt ceiling out of fear of the immediate consequences, they should do it only in exchange for a change in the direction this country is going. For instance, they could vote yes in exchange for a credible commitment to reform Medicare, Medicaid, and Social Security (credible being the important word here), or in exchange for a solid cap on spending across the board, with no exceptions for pet projects, and applicable to all spending, not just new spending increases. They could also vote yes in exchange for a balanced-budget amendment. Whether it is politically difficult or not, the time for actions and changes is now. This country’s fiscal health can’t afford to wait.