What Ceiling?
Congress punted, as usual, on a timely annual budget and now has just a couple of weeks to decide whether to authorize further debt by raising the “debt ceiling.” The ceiling is a mirage, and it is difficult to take the debate seriously. Does anyone really believe we will stop spending? Partisan differences have never been greater, but all Members can agree that without money to spend, they may as well go home. One way or another, they will blink and move on to more productive arguments about how to spend the money.
In my opinion, the most likely scenario is that the limit will be raised by a few trillion dollars to pretend no one has surrendered and assure another WWF-style match in a year or two. I do remain hopeful that someone will step up and propose — as Treasury Secretary Yellen has suggested — eliminating the ceiling, which nowadays only enables disingenuous claims and threats that come at the expense of real debates about who will pay for past and future spending. No one knows how much debt we can bear, so the amount authorized by Congress is arbitrary. Whatever the amount, specifying it constitutes agreement that we will continue to spend more than we have. Many of us have learned from our own experience that this is a hard habit to break that usually doesn’t end well. Yet we are supposed to believe that what does not work for us as individuals will somehow work for us collectively.
This may appear to be a surrender of fiscal discipline, but let’s be real — we gave up in the 20th century. It’s time to end the charade and focus on actual choices. We teach children that they cannot have their cake and eat it too, while our federal government does exactly that. We cannot agree on priorities, so we agree to put it on our tab and let the children deal with it at some later date. Fears of runaway spending are not entirely unfounded. Ideas supporting ambitious federal interventions now include Modern Monetary Theory, which decouples taxation and spending. Here again, though, it’s not as if we were holding back. We have been running very large deficits for many years thanks to accommodation by the Federal Reserve. Congress authorized every expenditure, and they will continue to do so using any justification they like. Regardless of why or how we spend more than we collect in taxes, our debt will rise.
Here’s an idea: Balance the budget. If we take responsibility for deciding what we are willing to pay for, we (or rather, future taxpayers) will no longer need to worry about when we will become debt slaves. And when I say we, I mean working people, not capitalists. As I explained in Chapter 2 of my book, Social Security Basic Income, our income inequality problem is a direct consequence of financialization of our economy by the Federal Reserve. Our government’s need to borrow cheaply reduces borrowing costs for Wall Street, too. They have used our money to invest in capital assets, not labor. No wonder housing is not affordable.
This cycle will not be broken until we reduce our dependency on monetary stimulus. It’s not the average person who has become addicted to cheap money, but our so-called capitalists who don’t really know what it’s like to pay real market value for money. That would mean paying a competitive interest rate for our savings instead of borrowing from a central bank at near zero cost while we are forced to buy their stocks because the banks pay us almost nothing for our savings. We can afford to let interest rates return to normal only if we reduce our debt.
We could reduce spending, but it doesn’t look like that is going to happen in my lifetime. That means revisiting our tax code and obviously, raising taxes on those with the highest incomes. Let the debate begin on the optimal profile of marginal tax rates — the income levels at which they rise and how high they go. It will be far more interesting and productive than the current farce about the debt ceiling.
