Tuesday, August 2, 2011
The Debt Limit – Forgetting History
This weekend I heard Senator Reid say that debt limit increases were routine during Reagan's terms as President, and that Reagan probably did not spend more than ten minutes on the issue. As I mentioned in a previous post about how the debt limit was finally increased the day before an interest payment date in November 1985, this is clearly not true. A more recent example of a particularly difficult debt limit exercise was Clinton's battle with Speaker Gingrich, which resulted in two government shutdowns. The shutdowns were due to appropriation bills not having been enacted, but the debt limit, which the Treasury had reached at that time, was also one of the tools the Republicans were using to pressure Clinton, ultimately unsuccessfully.
The Democrats have been arguing that debt limits in the past have been routine in order to portray their current opponents as extreme. It is not necessary to misrepresent the past to make that case. The periodic debt limit crises, which are purely political exercises, should be eliminated, since they terrify people and sow doubt among foreign investors, including foreign governments and central banks. The crisis just ended was particularly bad; do we really want to repeat this experience? Unfortunately, we probably will.