Google analytics

Wednesday, June 29, 2011

Do 63 percent of Americans really want the consequences of another debt-ceiling fight?

by John MacBeath Watkins

According to a recent CBS poll, 63 percent of Americans think raising the debt limit is a bad idea.

I'm wondering, if you asked the same people if you think it's a good idea for congress to default on our country's debts, would they still think it's a good idea? Or if you asked, should congress vote to shut down the government, how would they respond?

The framing of the question is important, because hardly anyone understands what the debt ceiling is. If people think you're asking, "should congress vote to increase the debt?" I'm sure at least 63 percent will say no. And yet, that really was the meaning of the question they were asked.

But the debt ceiling is a stranger beast than that. Congress voted to increase the debt back in December, when they told President Obama that he could have an extension on federal employment insurance if they could extend the Bush tax breaks. Having voted to spend the money, they now must raise the debt ceiling to actually pay the bills.

If they don't, we have some options. We can stop paying our creditors, stop paying interest on the national debt, stop paying federal pensions and Social Security, stop paying doctors to treat Medicare patients -- so, default on the debt, which will vastly increase the interest costs on the debt in the long run, and possibly also stop paying retirees the money they need to pay their bills, and doctors to treat them.

Do you imagine 63 percent of Americans favor that?

The reason you don't hear about other countries having this controversy is that they don't have a debt limit. They have a budgeting process, and the assumption is that if they budget the expenditures, thereby requiring the government to spend the money, they must intend for the government to spend it. The debt ceiling does not appear in the U.S. Constitution, and in fact, we didn't have one until 1917 (some history for you here.)

 This went along with greater authority to create debt, in the form of Liberty Bonds, to finance World War I. In 1919. the debt limit was $43 billion, but the actual debt needed to finance the operations of government was $25.5 billion. In other words, congress gave the executive branch plenty of room to work.

Since then, the debt ceiling has become a political football. In the 1995-1996 debt ceiling crisis, a Republican congress forced government "shutdowns" twice, with a large number of federal employees furloughed.

As this GAO study points out...

When a debt ceiling is reached, Treasury is unable to issue additional
Treasury securities without adding to the public debt and exceeding the
debt ceiling. Treasury is also unable to discharge its normal trust fund
investment and redemption responsibilities.
 One of those trust fund redemption responsibilities is paying Social Security recipients. In 1995-96, this could be avoided, because we had a strong economy, and the government had more options for avoiding disruptive cutbacks. As Bill McBride notes on the Calculated Risk blog:

In fiscal 1995, the government could do the same "extraordinary measures" as today to delay the day of reckoning, and then eventually cut off all non-essential discretionary outlays (the "government shutdown"). That was enough to buy more time, and the government didn't have to default on the debt, or cut Social Security or Medicare payments.

Now there is a cyclical deficit on top of an even larger structural deficit. It is impossible to just shutdown non-essential discretionary outlays - the cuts will have to go deeper. So the comparison isn't valid.
This should concern our congressmen, because even in the 1995-96 crisis, voters didn't much care for congress's actions.

Polls on this are going to be meaningless unless pollsters ask questions that are meaningful to those interviewed. Older voters will understand the stakes better if they are asked if congress should vote to shut the government down as they did in 1995-96. Younger voters might not recall those events, but such a question would come closer to understanding how they would react to the actual events likely to unfold than simply asking if the debt ceiling would be raised.

And this framing is important, because I think congressmen are acting on faulty information that makes them think they can shut down the government again, this time with the approval of the voters. If they have a faulty picture of how their actions will be received, we can expect them to act in a faulty manner.

Consider this NBC/WSJ poll,which shows how differently people react based on what they think the consequences will be. Once they know the possible consequences, those favoring an increase in the debt ceiling are a plurality (46 percent to 42 percent.)

The problem is, the consequences are not at all predictable. We can ask the question in terms of the last shutdown, but it would likely be worse this time, because we are operating in a much more fragile economy.

No comments:

Post a Comment