Debt Ceiling Theatre, Revival 2023

It’s time again for the debt ceiling theater. Since 1940, Americans have been watching this show about every eight months. The cast and dialogue change, but the characters and plot never change. The Party Out of Power is showing it is hard to spend by refusing to raise the debt ceiling. The “ruling party” trotting on the poor, the environment, the elderly, the military, or anything else that will agitate the electorate, shouting that the “party out of power” is holding the country hostage. Even the media has a prominent appearance as “an institution concerned with informing the public and keeping politicians’ feet in the fire”.

In fact, the actors are there to make money. The media attract viewers and advertising dollars by scaring people of the implications of impending societal collapse. The two parties get to provoke their bases into a sort of half-time brawl between elections. But everyone knows how the show will end.

Every now and then, to get the masses to their feet, the president will make a show in which he will “shut down” the government. But the lockdown only applies to non-essential government services (don’t ask why we’re spending on anything non-essential, anyway). Once the lockdown ends, all money that could have been spent during the lockdown is spent retroactively.

Tunneling is never closed, only delayed.

The show’s ending has not changed in over 90 shows. In due course, Congress raises the debt ceiling and everything goes back to normal. To resonate with voters, the show is heralded as a story of a family grappling with their debt and doing the right thing. The real story is more than one person makes a New Year’s resolution and breaks. There is nothing binding about the debt ceiling. Congress can (and does) raise the cap at will with the same majority vote required to approve spending.

What the public spectacle does is give voters the impression that our politicians are making tough decisions and hitting our financial house in shape. But this is nonsense. The federal debt is now more than $31 trillion. And that doesn’t include retirement benefits that the government has promised to federal workers and Social Security recipients, which it won’t have the money to pay. It’s unclear how much that is, but Social Security estimates are around $50 trillion. Far from being hopeful that the politicians will get a grip on this mess, there is every sign that they have given up trying. The Congressional Budget Office estimates that the federal debt will increase at a rate of $1.5 trillion annually over the next ten years. Given that the CBO undervalued future debt by 80 percent from its previous forecast of over 200, the actual figure is likely closer to $1.8 trillion annually, on average.

If interest rates remain at their pre-inflationary levels, interest on debt will eat up 16 percent of annual federal revenue by 2033 (up from 15 percent today). But here’s the twist: If the Federal Reserve continues to help fund the government’s ongoing trillion-dollar deficit as it has since 2020, we will see continued inflation as growth in the money supply continues to outpace growth in the economy. Ultimately, this inflation is priced into the bonds, and so interest rates rise. But to control inflation, the Fed needs to slow growth in the money supply, but this raises interest rates. Either way, low interest rates are a thing of the past. And being $31 trillion in the hock, just a one percentage point increase in interest rates will eventually increase the government’s annual interest expenditure from 15 percent of its revenue today to 24 percent by the end of the decade.

So when dissolute Democrats get stumbled in their tracks by responsible Republicans, do your best to forget that those roles were reversed just two years ago. Go ahead and convince yourself that it will be different this time, all the evidence is to the contrary. And by all means, fool yourself into thinking we deserve better. But we don’t. We deserve exactly the government we insisted on all these years. We also deserve the heavy price that will come for our irresponsibility in repeatedly re-electing this band. No party theater would color that.

James R. Harrigan

James R.  Harrigan

James R. Harrigan is a senior editor at AIER. He is also a co-host of the Words & Numbers podcast.

Dr. Harrigan was formerly Dean of the American University of Iraq-Sulaimani, and later served as Director of Academic Programs at the Institute for Human Studies and Strata, where he was also a Senior Research Fellow.

He has written extensively for the popular press, having articles appearing in the Wall Street Journal, USA Today, US News & World Report, and a host of other media outlets. He is also the co-author of Cooperation and Coercion. His current work focuses on the intersections between political economy, public policy, and political philosophy.

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Anthony Davis

Anthony Davis

Anthony Davis is the Milton Friedman Distinguished Fellow at the Foundation for Economic Education and Associate Professor of Economics at Duquesne University.

He is the author of Principles of Microeconomics (Cognella), Understanding Statistics (Cato Institute), and Cooperation and Coercion (ISI Books). He has written hundreds of opinion pieces for the Wall Street Journal, Los Angeles Times, USA Today, New York Post, Washington Post, New York Daily News, Newsday, US News, and the Houston Chronicle, among others.

He also co-hosts the weekly Words and Numbers Podcast. Davies has served as Chief Financial Officer at Parabon Computation, and has founded several technology companies.

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