By now, everyone knows the script on the great debt-ceiling “crisis” that befalls us every two or three years. It happens like clockwork.
First, the Republicans say that they’re not going to vote to lift the ceiling unless their demands are met. This time the demand is a repeal of Obamacare.
Second, the mainstream press goes on the offensive, attacking the Republicans for their reckless, dangerous, irresponsible conduct. If the Republicans don’t give in, the editorials and op-eds exclaim, the government will have to shut down, causing the United States to fall into an economic crisis that would be a thousand times worse than the Great Depression.
Third, the Republicans give in and vote to lift the debt ceiling. Statists go out and celebrate, knowing that they’ve bought another two or three years of out-of-control spending and debt for their favorite welfare-warfare state programs.
Actually, the best thing that could ever happen to the American people is for the debt ceiling not to be lifted.
What is the debt ceiling? It is an acknowledgement by federal officials that too much government debt is a bad thing, even a dangerous thing for society. It is a declaration by the Congress itself, and ratified by the president, that says: “This is the total amount of debt that the federal government will be permitted to incur. It will not be permitted to incur any debt on top of that.”
Greece is an example of why Congress has imposed a maximum amount of debt that the federal government is permitted to incur. In that country, there wasn’t a debt ceiling. The government borrowed and borrowed and borrowed, each time adding to the total amount of debt that the government owed. The situation finally got to the point where the government lacked the tax revenues to cover all its expenses, including interest on the accumulated debt. It was bankrupt, much as some American cities are.
It’s not difficult to understand the problem. The federal government spends more than it collects in taxes — much more — about $1 trillion more per year than it receives in taxes.
How does it spend more than it receives? It borrows the difference. Each time it borrows that $1 trillion, that’s another trillion dollars added to the total amount of debt owed by the government. So, each year a trillion dollars, more or less, is being added to the total amount of the debt owed by the government.
Who is responsible for repaying all that debt? Technically the government is. But don’t forget where the government gets its money — from taxpayers. Ultimately, the American taxpayers are on the hook for repayment of the massive debt that the feds are accumulating.
And make no mistake about it: In a severe financial crisis, the feds will stop at nothing to collect the money necessary to repay that debt. When Argentina was faced with such a crisis, the government confiscated people’s retirement accounts.
So, what happens if the debt ceiling isn’t lifted? That means the government can’t borrow any more money. It has to live within its means — i.e. with the taxes that are coming in. That means, obviously, it has to slash spending to the point where expenses equal revenues. No more borrowing.
What’s wrong with that? That’s what’s called a balanced budget.
The statists, especially those in the mainstream press, have a conniption fit over such a scenario. They can’t imagine life in which the federal government isn’t on a massive spending and borrowing scheme. They make two claims: that the government will have to shut down and that there will be a default on the debt.
But neither scenario is necessarily true. After all, the government has choices on where to apply the tax revenues it is receiving. It could apply them to the debt. It could also shut down welfare-warfare state departments and agencies. It could end the drug war. It could shut down foreign imperial military bases and bring back U.S. troops from faraway lands and discharge them into the private sector. It could shut down all sorts of unnecessary things while continuing to operate.
Obviously, it’s not an ideal situation from a libertarian perspective because it leaves a lot of illegitimate functions of the federal government in operation. But from a fiscal-responsibility standpoint, it’s the best thing that could ever happen.
But even a reduction in size of the welfare-warfare state terrifies the statists. They would rather America go under instead, which is why they continue to advocate for the lifting of the debt ceiling and the continuation of the federal government’s out-of-control spending and borrowing binge.
P.S. The debate over national service at Cato Unbound, in which I am participating, is heating up. Click here and scroll down to “The Conversation.”
