Sunday Morning Economics - Debt Ceiling Simplified

It is factual to say the our burgeoning federal debt is a consequence of budget choices made by both Democrats and Republicans.  It has been a bipartisan endeavor to borrow money to finance expanded federal spending, underwrite the indirect costs of tax cuts, maintain social safety nets and expand assistance during recessions.  It is an oversimplification to suggest that growth in spending is the sole domain of Democrats or cutting taxes is the sole domain of Republicans.  

Democrats and Republicans mutually engage in both pursuits.  

Recent history suggests that the largest drivers of our accumulation of debt has been the federal response to the economic downturns of the 2008 financial crisis and the 2020 pandemic crisis.

You may recall that when Obama took office in 2009 he inherited a recession from Bush.  In response, he persuaded Congress to authorize $787 billion in stimulus spending and tax cuts.  Safety-net spending continued at higher levels over the ext few years as the economy slowly rebounded.

After COVID spread across the globe in 2020 leaving floundering economies everywhere in its wake Trump persuaded Congress to authorize a much larger aid package exceeding $3 trillion.

Biden ascended to office in 2021 and signed into law an additional $1.9 trillion in stimulus.

It would be fair to question the efficacy of individual components of all of the foregoing.  Both parties continue their finger-pointing.  And economists disagree amongst themselves.  Nevertheless, there is general agreement that in the face of a serious economic decline federal spending (and its resultant borrowing) to protect citizens, businesses and stimulate the economy is a good thing.

There is also general agreement - amongst economists anyway - that recent inflationary pressures can be laid at the feet of flooding the economy with all of that liquidity.  But I digress.

So, is it a small matter to assign blame to individual parties or administrations for the debt?  Of course not.  Like I said at the outset this is bipartisan.  The deficit increased by roughly $12.7 trillion under the administrations of Bush and Trump.  And an additional $13 trillion under the administrations of Obama and Biden (so-far).

Of course, these are simply the raw numbers and do not account for the deficit impacts of policy decisions that persist for many years after presidents depart.  Nor does it address the fundamental principle of matching spending with revenue.  In years of extraordinary spending demands my own household may exceed its revenue resources.  But subsidizing a lifestyle solely with borrowing is reckless and fraught financial planning. 

The important thing to remember is that we got here largely as a consequence of the actions of the four most recent administrations.  As you witness the current drama remain mindful that any newfound spine for deficit spending is coming from many of the same members of Congress who sat idly by and with nary a whimper raised the debt limit three times while the former guy was in office. 

Sure, they want to blame everything on the current guy.  That is theatrics and politics.  I get it.

I'll conclude this post with an observation and admonition.  Failing to raise the debt limit does nothing to control spending for the simple reason that the money has already been spent.  Getting your undies in a knot for all the stuff they've already bought doesn't do anything to stop Congress from spending the money from the get-go.  It may keep your base in a near-state of constant agitation and near-erotic arousal but when you pick it apart it's conflated virtue-signaling.  Sure, I admit to being raised in a simpler time; but I learned this:

Paying your bills is virtuous.

Playing with dynamite is dangerous.

You're welcome.

And stay-tuned.....