[ President Biden should do “whatever it takes” to avoid an
economic catastrophe. House GOP-led efforts are to blame for the
impending debt crisis. In 2011, the GOP’s demands for massive
spending cuts sabotaged the Great Recession recovery.]
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WEAPONIZING THE DEBT LIMIT SHOULD NOT BE NORMALIZED  
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Josh Bivens and Samantha Sanders
May 9, 2023
Economic Policy Institute
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_ President Biden should do “whatever it takes” to avoid an
economic catastrophe. House GOP-led efforts are to blame for the
impending debt crisis. In 2011, the GOP’s demands for massive
spending cuts sabotaged the Great Recession recovery. _

,

 

Recent reports indicate that the debt limit “X-date” could come
as early as June 1
[[link removed]].
On this X-date, the U.S. Treasury will no longer have enough cash in
its accounts at the Federal Reserve to meet all the legal spending
obligations legislated by Congress. These obligations include paying
holders of U.S. Treasury debt, Social Security checks, and
reimbursements to doctors treating patients covered by Medicare and
Medicaid. The normal way of dealing with such a cash
shortfall—selling new debt issues and depositing the proceeds into
the Treasury’s account—is exactly what the debt limit will make
impossible on that date.

If the X-date comes and nothing is done except the federal government
fails to fulfill its spending obligations, economic calamity will
ensue: People who depend on programs like Social Security and food
stamps will suffer, and the spillover effects on the larger economy
would certainly cause a recession—and a truly horrible one if the
stalemate lasted for any significant amount of time.

The factor forcing this terrible outcome would not be any implacable
economic reality, it would simply be Congressional Republicans
weaponizing the absurd political institution
[[link removed]] that
is a statutory debt limit that can only be adjusted through acts of
Congress. With a responsible Congress, the debt limit would be a silly
inconvenience to policymaking. But twice in the past 12 years,
Republican-led efforts in Congress have brought the nation to a
near-crisis—and the current near-crisis could still graduate into a
real crisis in coming weeks.

In 2011 (the last instance of protracted debt limit brinkmanship), the
GOP demands for large spending cuts did mammoth damage to the living
standards of U.S. families by sabotaging the economic recovery
[[link removed]] from
the Great Recession and financial crisis of 2008–09. This time
around, the GOP demands are not just for recovery-damaging spending
cuts
[[link removed]],
but also for a complete do-over on already passed legislation; Speaker
McCarthy’s recently released list of demands includes rolling back
student debt relief as well as the Inflation Reduction Act’s (IRA)
climate provisions and enhanced enforcement against the nation’s
rich tax cheats
[[link removed]].

The cuts to IRA climate provisions would be literally
catastrophic—the act’s climate provisions are the only thing
keeping the U.S. economy on a path of needed emissions reductions to
contain the worst damages of climate change. Further, hundreds of
billions of dollars of planned private investment have already begun
[[link removed]] based
on the incentives provided in the IRA. Stripping these climate
provisions away would snap the economy back to a path toward climate
catastrophe and be a huge waste of society’s resources.

All of this clearly calls for abolishing the debt limit to keep
irresponsible Congressional majorities from holding the nation’s
economy hostage to its policy preferences in the future. But what
makes today’s debt limit showdown so bad is how _normalized_ it
has become—often with the encouragement of too many in D.C.
policymaking circles
[[link removed]] who
should know better. Many institutions and people who had argued
forcefully in the past that the debt limit should not be wielded to
force policy concessions—from business lobbies to former Treasury
Secretaries to bipartisan think tanks—have instead this time blessed
the absurdly shallow “deal” put forward by Speaker McCarthy. If
this drive to normalize debt limit brinkmanship does not spark an
economic meltdown this time, we all know where it leads next time.

This makes it imperative that the Biden administration does whatever
it takes to keep the debt limit from binding our nation’s continued
prosperity (yes, the nod to Mario Draghi
[[link removed](2022)703367#:~:text=On%2026%20July%202012%2C%20then,transactions%20programme%20(OMT)%20tool.] is
intentional). Their negotiations with Speaker McCarthy cannot include
spending cuts or special legislative processes that make it easier to
enact cuts going forward (no supercommittees
[[link removed]]).

Some defenders of the debt limit claim that it is good because it
forces Congress to “reflect” on the nation’s fiscal trajectory.
Former Trump administration budget director Mick Mulvaney made this
claim
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how the debt limit should be treated: “_…__the debt ceiling is
really that buzzer that goes off when your battery is busted in your
smoke alarm. It always goes off at an inconvenient time, it is always
a pain to change it, but you always do it._”

This analogy is predictably terrible as a description of the real
world. A faulty battery in a smoke detector can’t burn your house
down. The debt limit could. But if Mulvaney really thinks that’s how
the debt limit _should_ operate, then a deal could be constructed
consistent with this interpretation: each debt limit breach should
lead to an entire day of legislative debate in Congress over the
nation’s fiscal trajectory. And that’s it.

If the Speaker doesn’t agree to that deal, then the administration
should use the range of accounting
[[link removed]] and legal
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[[link removed]] available
to them to keep the debt limit from binding. These are all suboptimal
relative to debt ceiling abolition in the short run, but in the long
run they will end up implicitly codified (unless the Supreme Court
wants to take responsibility for forcing an unnecessary economic
crisis) and will take the prospect of a debt limit crisis off the
table of future presidents and Congresses. This would be a huge gift
to the future.

_[JOSH BIVENS [[link removed]] is the chief
economist at the Economic Policy Institute (EPI). His areas of
research include macroeconomics, inequality, social insurance, public
investment, and the economics of globalization._

_Bivens has written extensively for both professional and public
audiences, with his work appearing in peer-reviewed academic journals
(like the Journal of Economic Perspectives) and edited volumes
(like The Handbook of the Political Economy of Financial Crises from
Oxford University Press), as well as in popular print outlets (like
USA Today, the Wall Street Journal and the New York Times)._

_Bivens is the author of Failure by Design: The Story behind
America’s Broken Economy (EPI and Cornell University Press)
and Everybody Wins Except for Most of Us: What Economics Really
Teaches About Globalization (EPI), and is a co-author of The State
of Working America, 12th Edition (EPI and Cornell University Press)._

_SAMANTHA SANDERS [[link removed]] works
to ensure that policymakers and advocates have access to EPI research
that supports improving the lives of workers and their families and
reducing economic inequality. Sanders also works in partnership on
behalf of EPI with allies and advocates in the progressive movement._

_Prior to rejoining EPI in 2022, Sanders worked at More Perfect Union,
a nonprofit media advocacy organization focused on covering stories
about labor, worker power, and the economy primarily through video,
social media, and online reporting. Sanders also worked on the team at
the Groundwork Collaborative, designing programs and developing
policy-informed messaging to advance a strong progressive narrative on
the economy._

_Sanders originally joined EPI in 2017. She came to EPI after serving
as a policy adviser in the U.S. Department of Labor’s (DOL’s) Wage
and Hour Division (WHD). At the WHD, she worked closely with agency
leadership on issues including the future of work and employment,
overtime pay regulations, communications and public engagement,
strategic enforcement of labor standards, and more. Prior to joining
DOL, Sanders led digital communications for the Religious Action
Center, a faith-based advocacy organization.]_

Economic Policy Institute [[link removed]] 
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Washington, DC xxxxxx

PHONE: 202-775-8810 • [email protected]
 

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