Budgeting Through the Debt Limit


The Republican Party and its House leadership need to find a place to stand in the debt limit battle that is approaching. Lacking a politically-viable place to stand is just a prelude to an inevitable surrender.

On the one side are those who oppose any increase in the debt limit and who demand major spending cuts in return for any debt limit increase. The political fallacy of their position was exposed during the August 2011 debt limit discussions. When push came to shove, the Republicans were unwilling to endanger the credit of the U.S., risk that social security checks wouldn’t go out, or deny pay to the military as they risked their lives in combat.

Obama and the Democrats called their bluff and pulled it off.

On the other side are those who say that the House can carve out exceptions to their refusal to raise the debt limit. These members hope that they can, for example, say that you can borrow more if its necessary to avoid default or to pay social security, etc.

The problem with this approach is that the Senate will blow right past it and refuse to pass the exceptions. Then the Republicans will be right back where they started with, an all-or-nothing decision on closing down the government. If the House pulled that trigger, the Republican leaders know, it is their party that would be blamed and the Senate’s refusal to pass their cushioning amendment would be a forgotten footnote.

And if the Republicans try to redline the areas for which the government can and cannot borrow, Obama can always talk about the areas they leave out: veterans benefits, education, environment, transportation, etc.

So here’s the answer: Raise the debt limit much more gradually than Obama wants. If, for example, he wants three trillion over two years, give him one trillion and dole it out in monthly increments. Give him a debt limit that goes up by four percent per month.

Once the House takes this step, the battle over the debt limit becomes simply a question of how much. And Obama will fare badly in this argument. It will be more spending against less spending, a fight the Democrats will lose.

Because the debt limit increases will not be earmarked for specific purposes, Obama can neither trot out a few key programs, saying they would have to close down, nor can he threaten default. The four percent increases will afford him adequate authority to borrow to meet truly important obligations. The gradual approach to debt limitation will simply force Obama to prioritize and to limit his appetite for spending.

And it gives the Republicans a good place to stand during the battle. If Obama wants three trillion and the Republicans are only offering one trillion, the entire debate becomes quantitative. Obama cannot make it about social security or default. It will just be able how much we want to let him borrow. Here he has public opinion against him, and we can force him to yield.

With the Senate refusing to pass a budget — and with the president using his executive authority to bypass Congress at every turn — the annual appropriations process is not the way to control spending. But you can force a form of budgeting by manipulating the debt limit.

Granted, it’s a little bit like driving a car using the emergency break as opposed to the regular brake pedal, but when the brake does not work, engaging the emergency brake is a whole lot better than crashing! And it is the only way to rein Obama in.

Remember that we are borrowers but also our own creditors. We are borrowing money we print at interest rates we set by fiat. The normal constraints on borrowing — a lack of willing creditors or high interest rates — don’t operate here. It is only through the debt limit that we can achieve any kind of discipline.

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