According to an IGM Forum poll of 40 economic experts, more than 9 out of 10 economists (weighted by their self-reported confidence in their responses) agreed with the following statement: “Because all federal spending and taxes must be approved by both houses of Congress and the executive branch, a separate debt ceiling that has to be increased periodically creates unneeded uncertainty and can potentially lead to worse fiscal outcomes.”
The idea here seems to be that if Congress and the president choose to spend more or tax less, adding to the debt, it’s because they want to. They vote on the level of taxes and spending, which over time determine the level of the debt. So there’s no reason to have a self-imposed debt ceiling on top of that.
This argument might be valid for individual consumers. If you choose to buy a new TV – charging the purchase to your credit card – it’s because you think the benefits from having the new TV exceed the costs. If you’re perfectly rational, there’s no reason for an additional, self-imposed cap on the amount of credit card purchases you can make. (Your credit card company may impose a cap on the total amount you can charge, but that’s different – it’s not self-imposed. Also, less-than-perfectly rational consumers may benefit from restraining themselves.)
But this logic fails for collective decision making. When a group of people – like Congress – makes decisions through a political process, the group does not behave like a rational consumer. Steve Landsburg describes it well:
[D]ifferent spending programs command different majorities. Snip and Snap vote to fund rabbit hospitals; Snap and Snurr vote to fund trapeze subsidies; Snurr and Snip vote to fund lava lamp research. Plausibly, they’d all prefer to eliminate all these programs. Even if Snap thinks rabbit hospitals and trapeze subsidies are both great bargains, he might not be so happy about getting two for the price of three.
In this situation, a self-imposed constraint on spending or debt could potentially result in a better outcome by forcing the group to reconsider the entire spending package.
Note that this is not a partisan issue at all. A politician’s support or opposition for an increase in the debt ceiling seems to depend not on principle, but on the balance of political power. In 2006, President (then Senator) Obama made a speech opposing an increase in the debt ceiling:
The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies …
I therefore intend to oppose the effort to increase America’s debt limit.
Of course, a debt ceiling may not be the ideal form of fiscal restraint. A cap on spending or some form of balanced budget rule may be a better idea. But such restraints certainly have the potential to improve collective decision-making.
Could 9 out of 10 economists be wrong? This economist thinks so.