Abolish the debt ceiling and pass a balanced budget amendment

Bloomberg News

It's debt ceiling season again, and there's real reason to think that this time catastrophe will not be averted at the last minute.

We've been down this road maybe a half a dozen times over the last 12 years, beginning with the 2011 S&P credit downgrade, followed by the "budget sequestration" dog-and-pony show a few years later, and a string of episodic close calls and government shutdowns that few can remember with clarity. 

What's different now is that the House of Representatives is governed by a Republican majority of only five votes, and there are at least five members of that majority who would press a button that says "no matter what do not press this button" out of reflexive spite. What is more, the "extraordinary measures" that the Treasury Department has been using to keep the lights on since January depend on variable tax receipts and expenses. That means Congress and the White House are playing chicken with the headlights off and no brakes.

I'm not the first person to point out that this is no way to run a railroad, but it's worth taking a moment to reflect on what these debt ceiling negotiations are really about and how important it is that they ultimately succeed. 

The United States has spent more money than it takes in for quite some time. While that would be a problem for any individual or even any other country, the United States has the unique ability to print money — that is, incur debt — that investors all over the world continue to demand. The dollar is the global reserve currency, which means that the dollar is the greatest store of value the world has ever known. Backing that value is the full faith and credit of the world's biggest economy.

That dynamic means that Congress can — and both parties have — incurred great deals of public debt to fund things like tax cuts, disaster relief, entitlements, wars and all other manner of political priorities without any meaningful fiscal restraint. And the political animus that we've all been living with since the turn of the century has led what have traditionally been at least somewhat earnest negotiations between political rivals into a decidedly less serious enterprise. 

It's a shame, but it's where we are, and it's where we will be again and again and again so long as the debt ceiling is a viable means for Republicans in the minority to extract some kind of concessions from the Democratic majority — I put it in those terms because Democrats, for all their sins, have not made the same kinds of demands when the shoe was on the other foot. 

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The debt ceiling, ironically, was originally designed as a way for Congress to confer more power to the Treasury Department. Before the Second Liberty Bond Act of 1917 was passed, Congress had to authorize each issuance of debt with stand-alone legislation. That act gave the Treasury the power to issue debt up to a limit, a limit that has since been raised dozens of times over the next century. 

In other words, the debt ceiling was not intended to impugn the credit of the United States or to act as a means for one party to extract concessions from the other. It was created and largely lived its life in a time when Congress took its fiscal discipline very seriously — a discipline that has eroded to the point where monetary policy, rather than fiscal policy, is more often the primary means by which the federal government navigates economic waters.

So how can Congress stop playing Russian roulette with the global economy? I suppose one way would be for Democrats to win supermajorities in both houses and abolish the debt ceiling, but I don't see that happening any time soon — and that would do nothing to instill the kind of fiscal discipline that this whole thing is supposedly about. 

One way would be to propose a trade: Kill the debt ceiling, and adopt a balanced budget amendment to the Constitution. 

You may have heard of balanced budget amendments because they are the longtime stretch goal of Republican lawmakers from time immemorial. Those Republican amendments tend to work like this: The federal budget can't exceed some proportion of the U.S. gross domestic product, and also you can't raise taxes or the debt ceiling under almost any circumstances. In other words, those amendments are designed to gut entitlements and most of the federal administrative state in perpetuity.

That's a bad idea, and Congress shouldn't do that. But there are less draconian flavors of balanced budget amendment to choose from — in fact most U.S. states and several other countries have similar amendments that curb the formation of structural deficits, so it can be done. Most of those amendments make allowances for deficit spending in times of stress or emergency, and in the case of the U.S. there would have to be some kind of on-ramp to the "balanced" aspect of the budget of a decade or more.

There are two problems that such an amendment would have to solve: closing the debt ceiling circus once and for all, and compelling Congress to pass a budget in regular order — that is, on time and passed by each chamber's appropriations committee, something it has not done in forever. I will leave it to the experts to iron out how exactly one would turn those goals into legislative text, but I don't think it's impossible. And such a text would create a permission structure for members of both parties to get serious about spending — and taxation.

I realize that it is quaint of me to shake my little fist at Congress and complain that lawmakers can't get anything done. But if we want the world to continue to believe in the full faith and credit of the United States, we should give them a good reason why.