Mark Thoma points us to this John Berry column (Bloomberg)
Feb. 23 (Bloomberg) -- The scary, totally unfunny debt ceiling farce is playing once again in Washington.
With the federal government debt about to hit the $8.18 trillion legal limit, the Treasury Department last week suspended sales of special securities bought by state and local governments so that regular auctions of Treasury bills and notes could continue.
More such steps undoubtedly will have to be taken in coming weeks until Congress screws up the courage to increase the debt limit. At some point next month, Treasury will run out of such stop-gap measures and regular securities auctions may have to be postponed.
F. Ward McCarthy of Stone & McCarthy noted that Treasury officials said they were confident Congress would act ``because it would be in `nobody's interest' to fail to do so.''
``Let's hope that this confidence is not misplaced, because it could be very disruptive,'' McCarthy told his clients on Feb. 17. ``While it was in nobody's good interest, prior debt ceiling impasses have resulted in Congress orchestrating intentional delays in passing increases in the debt ceiling, temporary increases in the debt ceiling, interruptions to the Treasury financing calendar, the threat of government shutdowns, and the attachment of questionable parasitic legislation to increases in the debt ceiling.''
The problem, of course, is that voting to increase the debt ceiling is approving profligate behavior, even though they have little choice because of earlier tax and spending decisions.
The rest of the article deals with the debate over making the tax cuts permanent. I'll save that for another day. Don't worry, the issue isn't going away. I want to take up this little game they are playing with the debt ceiling.
The appropriate analogy here is a credit card where you, the spender, also control the credit limit. So, after a big shopping spree, you think that you'll send yourself a message by deliberately not raising the credit limit--even though your next trip to the grocery store will surely put you over the limit. Serves you right, you say. Maybe a week of eating cold cereal instead of your usual breakfast, lunch, and dinner will teach you a lesson. Then, to complete the self-flagellation, you tell all your friends about the extreme sacrifice you have been forced to make and how this will steel your resolve to improve your spending habits. You want their pity. You want to be recognized for your "sacrifice."
Who wouldn't be able to see through that? It's silly, isn't it?
Eating cold cereal for a week is not going to teach you discipline, and it's not sustainable in the long run. The long run solution is to avoid the spending spree in the first place.
Choices have consequences. Playing games with the debt ceiling does not negate those consequences. The present value budget constraint must hold. You can vote either side of the constraint up or down as you please. The other side must rise or fall with it. Full stop.
But alas, who among us believes that this is the last time we'll be seeing this silliness play out?
Anyone?
That's what I thought.
Just five years ago Greenspan was worried about excessive surpluses. Bush was promising tax cuts without deficits; returning the people's money to the people, he said.
Heck, Congress was going to have to vote on lowering the debt limit!
Just five years ago ... it seems like another era.
The present value condition must indeed hold. But your massage analogy may be a bit too small government conservative for liberals and I am pgL. Let me change the credit card analogy just a bit. The mortgage is coming due next week and I have to decide between getting out this consulting project so I can pay the mortgage given I've max'd the credit card v. watching the Olympics (CalculatedRisk has given me Sasha fever). Aha - up the credit card limit and watch Sasha as I don't need that consulting revenue after all. n
You won't believe it, pgl, but after I wrote that analogy I wondered if you would respond to that effect! So the sentence about voting either side of the PV budget constraint up or down was for you. The story works both ways. Your analogy is just as valid.
And just so you know, I did come up with the grocery example as a clever play on "no free lunches"! That is, as you know, a point where we agree. That agreement makes any discussion of what we would do to either side of the PV budget constraint more productive and less frustrating than it would otherwise be.
Didn't Bernanke say something to the effect that it's Congress' job to determine the size of government and the taxes required to support that must follow suit. See here:
http://delong.typepad.com/sdj/2006/02/covering_the_ec_4.html
I took that to mean he understands that if you vote one side of the constraint up (or down) you need to do likewise on the other side. Note that Congress didn't necessarily like being reminded of that. The truth hurts, as they say.
So yes, your point is duly noted and added to the record.