Lessons from the Shutdown: Debt Ceiling Costs and Consequences

The Lessons from the Shutdown Series examines the costs and consequences of the recent shutdown and debt ceiling fights. In this piece, Philip Wallach argues that the costs and consequences of the debt ceiling far exceed any benefits from the policy, and that conservatives, in particular, should demand a change.

Ever since the contretemps of summer 2011, many of us have come to see the debt ceiling as a disaster waiting to happen.  At best the debt ceiling seemed to be an out-of-place relic, a “disorderly defense against government spending,” as Brookings’ Marshall Robinson described it all the way back in 1959.

But many fiscal conservatives have continued to defend the debt ceiling as a device to focus attention on debt in our otherwise myopic and messy budgetary process.  In an article for National Review, I raise two key arguments for these defenders to consider.   The first goes to the benefits of choosing the debt ceiling as a rallying point against debt, given the overwhelming need to eventually raise it.  Because of the inevitability of this outcome: 

“Far from offering fiscal conservatives a potent weapon, the debt ceiling represents a kind of roach motel for opponents of debt: They can go in for the chance to make self-righteous jeremiads, but they can’t escape until they’ve capitulated.”

The second argument goes to the costs of debt ceiling brinkmanship.  Some sophisticated defenders seem to think these are negligible, because congressional leaders will always be ready to prevent default in the end.  For those making this kind of argument, I ask: just how sure are you?  If we think probabilistically, and admit even a small chance that the maneuver will go wrong, its expected value turns sharply negative.  Read the whole thing for an elaboration.

In a post at FixGov, I walk through the likely mechanics of rendering the debt ceiling appropriately obscure via expansion of the Gephardt Rule or the McConnell Rule.  And if fiscal conservatives feel they need some mechanism for forcing consideration of debt, I offer some alternatives, including the poetically named, “No Budget compromise between the House and Senate, Late Pay.”