Saturday, July 16, 2011

Republicans and the Debt Ceiling

On Friday, July 15th, Jonathan Alter, columnist for Bloomberg View, joined Lawrence O’Donnell to talk about the debt ceiling negotiations.  During his appearance he made a statement that I found unbelievable, that all republican candidates for president oppose raising the debt ceiling.

“Even now all the [Republican] presidential candidates are on record wanting to take the American economy all the way over the cliff into default if necessary.”

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I had trouble believing that all of the Republican presidential candidates opposed raising the debt ceiling, so I did my own investigation. Below are the positions of the major Republican candidates for president on the debt ceiling.

Ron Paul                               No

Ron Paul political director Jesse Benton told CNN, “Dr. Paul is committed to leading the charge against raising the debt ceiling and is running this campaign to win the presidency.”

Gary Johnson                       No

Gary Johnson said in an interview with the Fiscal Times, “For all the talk of Armageddon—and there will be tremendous hardship if we don’t raise it, the problems we’ll face by not doing so will pale in comparison to what’s down the road."

Michelle Bachmann                 No

Michelle Bachmann says in a campaign ad, “I will not vote to increase the debt ceiling.”

Tim Pawlenty                        No

A Politico article cites Pawlenty as saying, “I don’t think we should raise the debt ceiling.”

Mitt Romney                          Won’t give a straight answer

David Frum explained Mitt Romney’s answer about a debt ceiling question quite well with the headline, “Mitt Romney dodges on the debt ceiling.”

Romney’s unintelligible answer was, “The answer for the country is for the president to agree to cut federal spending and cap federal spending and put into place a balanced budget amendment. That for me is the line in the sand. It is within the president’s power to say to the leadership in the house and the senate that ‘I’ll cut spending I’ll cap the amount of spending and I’ll pursue a balanced budget amendment and if the president were to do that this whole debt limit problem goes away.”

Herman Cain             Raise the ceiling this time then prioritize spending

Herman Cain’s position is complicated and lengthy. You can hear him explain it at length on a Fox News Sunday clip. He says that you must raise the debt ceiling this time because the republicans in congress waited too long to prioritize spending, meaning specify what is paid and what isn’t once the government hits the debt ceiling and must drastically cut government services. He says that we should prioritize the payments on the debt, military spending, Social Security, and Medicare. That actually totals pretty close to what the government would be allowed to spend without borrowing, but would require the end of college aid, Medicaid assistance to the states, meat and poultry inspections, food stamps, and unemployment benefits. I explained the effect that not raising the debt ceiling would have on government services at length in a previous post.

Rick Santorum                     Yes, if it comes with specific concessions

Rick Santorum said on his campaign website that he would support a debt ceiling increase if it was accompanied by cuts and caps on government spending and a balanced budget amendment.

His full statement was, "I urge Speaker Boehner and Minority Leader McConnell to stand fast against attempts by President Obama and Congressional Democrats to use the debt limit vote as a vehicle to raise taxes. This is a real opportunity for our nation's leaders to come together, cut and cap government spending, and, most importantly, pass a Balanced Budget Amendment to our Constitution so that we never have to raise our nation's debt limit again."

Newt Gingrich    Raise the debt ceiling as much as Obama is willing to cut

Newt Gingrich said at a campaign stop, “Don’t give him a penny more in debt ceiling than he accepts in spending cuts and if he only wants to accept enough spending cuts to get through the next 6 months that’s fine. Then six months from now, you’ll have another fight and get another round of spending cuts from it, but insist that we turn the corner and we move on a trajectory that gets us back to a balanced budget and then stay on that balanced budget long enough to pay down the national debt.”

Jon Huntsman                                 Yes

Huntsman told the St. Petersburg Times (which runs Politifact), “I think everybody agrees that it’s a big deal to get serious with the debt ceiling. And I have every confidence that cooler heads will prevail and by our deadline. It is my hope that we’ll have cuts commensurate with the raising of the debt and some serious steps toward a balanced budget amendment. … There seems to be a deal in the works," Huntsman said.

Where does this put Alter’s claim that all Republican presidential candidates oppose raising the debt ceiling? Four Republican candidates [Gingrich, Santorum, Cain, Huntsman] support raising the debt ceiling at least one more time. Four [Bachmann, Paul, Johnson, Pawlenty] state without hesitation their opposition to raising the debt ceiling. One response [Romney] is simply unintelligible. Jonathan Alter is wrong and I will be writing The Last Word to ask for a correction.

But let’s look at the consequences of the positions stated by the candidates.

If the US doesn’t raise the debt ceiling, credit ratings agencies will downgrade the creditworthiness of US debt. When the federal government is allowed to borrow money again it will have to pay a higher interest rate on its debt. That will mean that the US debt will be larger than if we had passed the debt ceiling on time. It would also mean that businesses, students, and families will face higher interest rates when they try to borrow money to finance their home, college tuition, or expand their business.

These higher interest rates coupled with the collapse of demand caused by the immediate 43% cut in government spending could send the country into a double-dip recession.

As for the balanced budget amendment, which was brought up by Santorum, Romney, and Huntsman, you actually want to have a deficit during a recession to act as a stimulus. This is why we shouldn’t cut spending before the unemployment rate is back to a normal level (which I define as under 6 percent). It’s during economic boom years that you want to pay off the deficit.  Ezra Klein has a great column where he explains why a balanced budget amendment is a bad idea.

Of all of the republican candidates for president only Newt Gingrich and Jon Huntsman hold what I consider to be a reasonable position on the debt ceiling.

What’s Obama’s position? He wants congress to raise the debt ceiling past the 2012 election that’s accompanied by a grand deal to slow the growth of the national debt over time that includes both spending cuts and tax increases. This comes despite his own vote against raising the debt ceiling when he was a senator in 2006.

Here is my position on the debt ceiling. We shouldn’t have one. The treasury should be able to borrow the amount required by the taxes and spending congress authorizes each year. We shouldn’t have a separate vote which is politically difficult that threatens to shut down large portions of the government, raises the cost of borrowing, and hurts economic growth.

My plan to deal with the deficit was explained at length in a previous post.

P.S. Here is a Planet Money (NPR) podcast about the history of the debt ceiling.

Originally posted July 16, 2011

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