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Thursday, April 21, 2011

Holding the U.S. Debt-Ceiling Hostage: A Case of Political Expediency over Statesmanship

In April, 2011, S & P lowered expectations on U.S. Government debt from “stable” to “negative.”  The $14.2 trillion debt was still rated as AAA. Ironically, the shift in the expectation did not trigger higher borrowing costs, as the market presumed that a deal lowering the deficit could be facilitated by the warning-call. At the same time, Congress and the president were grappling with the need to extend the federal debt ceiling. The federal government was projected at the time to reach its borrowing limit by May 16th, though the Treasury secretary said he could use accounting options to push the date back to July 8th. Geithner assured the public that Republicans had told Obama that they would go along with a higher limit. “I want to make it perfectly clear that Congress will raise the debt ceiling,” the Treasury Secretary said.  He said the Republican leaders had assured the president that they “couldn’t play around with the government’s credit rating. They recognize it, and they told the president that.” Such a recognition and statement evince statesmanship on the part of the Republicans over political expediency in trying to leverage their votes on raising the ceiling to get more in negotiations on the budget.

However, Rep. Paul Ryan, chair of the U.S. House Budget Committee, said that while it was true that nobody wanted the U.S. Treasury to default, “(w)e want cuts in spending accompanying a raising of the debt ceiling. And that is what we have been telling the White House.” A spokesperson for Obama said a debt ceiling vote could not be contingent on upcoming negotiations over the budget.  So, in effect, the matter of default on the U.S. debt was being used for leverage in negotiations rather than held as untouchable.  It is no wonder S & P lowered its expectations concerning the ability of U.S. Government officials to avoid default.  To say that no one wants default but then to hold it ransom is disingenuous and duplicitous. It is as if to say, “I don’t want to do it but I have to,” when in fact one does not have to do it at all. We see such statements from corporate managers and customer service employees. “Unfortunately, I can’t do that”—when in fact the person or his or her boss could.  The conflation of preference with constraint is ubiquitous in the corporate mentality, and customers typically enable the fallacy by responding to the constraint. “Well, if you can’t do X, how about Y?”  The agent is apt to reply, “Unfortunately I can’t do Y either.”  In actuality, neither X nor Y is illegal and thus could be done.  Similarly, Rep. Ryan could have resisted the temptation to gain greater advantage on the budget by holding the debt ceiling hostage. 

In short, nothing is off-limits to political expediency, and self-interest more generally.  Given human nature, it is amazing that statesmanship has happened at all in the political history of mankind.  The encroaching nature of expediency is similar to the tendency in business for anything to be commoditized.  The question, “Isn’t anything sacred?” thus applies to both business and government, as does the more philosophical question concerning why a human being would recognize any limitation that is not backed up by impossibility.  That is to say, political expediency and the desire to make more money are inherently antithetical to any self-enforced limitation.  It is thus a wonder that some people in business and government have held things to be sacred, or off limits, when they would otherwise be able to profit by them.

Click to add a comment or question on the debt limit and political expediency.

Source:

Geithner Confident Congress Will Raise Borrowing Limit,” USA Today, April 18, 2011, p. 6A.