Questions and Answers on the Debt Ceiling Deal
Part 9 of a series
Last Saturday, after the previous edition of this newsletter was put to bed, the Biden administration announced that it had reached a deal with House Speaker McCarthy on the conditions for a suspension of the federal debt ceiling for approximately the next eighteen months. This deal will authorize the administration to resume sales of Treasury debt obligations, thereby replenishing the Treasury's accounts at the Federal Reserve out of which it pays the government's bills, including principal and interest on existing Treasury debt. In return, the administration will agree to Republican demands for slower growth in federal spending, fewer restrictions on oil and gas pipelines, more restrictions on food stamps, and so forth.
By the time this edition of Political Economy Watch appears, the deal will probably have been passed by the Senate and signed into law. Though there's a chance that the Treasury Department's coffers will run dry before that happens, the probability of default is much lower than it was one week ago. The ship of state has pulled over to the shore about a mile upriver from the falls.
Should we be glad that the U.S. did not default on its debt?
I guess so, but only in the sense that we should also be glad that India and Pakistan didn't start dropping atomic bombs on each other overnight. We should be glad that the governments of those countries refrain from mutual assured destruction -- but since we don't have any control over those governments, what does our being glad matter? In what can we take satisfaction?
The key word in these questions is we. Who is the 'we' who would have any say over whether the U.S. defaulted on its debt or not? The overwhelming majority of people in the U.S. had no ability to influence the debt ceiling debate one way or the other. This was strictly an argument between two political parties of the ruling class.
On the one hand, once you start to develop an understanding of Treasury bonds, their role underpinning financial markets and the way breakdowns in financial markets can lead to mass unemployment, you can say that you're glad default was avoided. On the other hand, even if in this 'crisis' you think the Republicans were crazy and the Democrats well behaved, you have to be angry that the Democrats repeatedly allow these situations to develop.
Should we be glad that a bipartisan deal was reached?
No. The fact that the debt limit deal will be described as 'bipartisan' is a sign that the deal will be bad for the bottom 99% of the population. The fact that it will mainly be Democrats hailing the deal as 'bipartisan' is a sign that they continue to willfully blind themselves to the transformation of the Republican party over the last forty years into an ultra-partisan organization. The Democrats still imagine they're dealing with the Republican party of Ronald Reagan and Bob Dole.
Should we be breathing a deep sigh of relief?
No. Having forced Biden to negotiate over the debt ceiling, McCarthy knows that come September he will also be able to force Biden to negotiate over the federal budget directly. His extreme right flank in the House will be demanding deeper cuts in social welfare spending and the imposition of bigger obstacles to dealing with climate change. The debt ceiling is suspended only until after the November 2024 presidential election, at which time we're back where we started.
Did anything good come out of this debt ceiling 'crisis'?
I won't say 'no'; that would be undialectical. It would contradict the premise that every social phenomenon is a unity of opposites. But still ...
Within the Democratic side of the political class there is a growing recognition of the need to scrap the debt ceiling law in its entirety. Biden and Schumer still treat the law as sacrosanct, but a growing number of House Democrats, elite editorial boards and pundits are open to repealing that law. They see that the amount of political energy wasted on these periodic debt ceiling fights is a drag on dealing with the challenges American capitalism faces.
Recognizing that, however, will not be sufficient to get the debt ceiling law consigned to the trash heap. That's because the rhetoric that Republicans, Blue Dog Democrats and many in the mainstream media deploy in support of the debt ceiling law depends upon the notion that federal deficit spending and the national debt (which is the accumulated federal deficit) are inherently bad things. Undermining that rhetoric is difficult but essential. One of the purposes of this Substack blog is to contribute to that goal.
How should we measure progress?
To measure progress we have to set out criteria against which we can make such measurements. These criteria work at two levels, one very general, one very specific. The more general level asks what kind of society we want the United States to be and to become. The more specific level asks how our understanding of money, spending and taxation has to change to accommodate our societal goals.
At the general level, I'm going to lay out three criteria against which to measure the value of any proposal for a change in laws or government policy and practices.
Will the proposed change in law or policy enable us to better cope with the threat of climate change and the transition to a fossil fuel-free economy?
Will the proposed change in law or policy make the United States a more egalitarian society (as measured, for example, by reduced inequality in the distributions of income and wealth)?
Will the proposed change in law or policy reduce the racial inequality which has marked the United States from the very beginning?
In forthcoming posts to this list I will elaborate why I put forward these three specific political benchmarks.
At the specific level, I'm going to lay out one criterion against which to measure the value of any proposal for a change in the way we understand and implement government budgeting, spending and taxation.
Does the proposed change in law or policy reflect an understanding that money is a tool created by the federal government to facilitate mobilizing resources in pursuit of the public purpose?
Admittedly that is a very general criterion, in need of refinement and more specificity. But that's where we'll be going in upcoming posts. Please feel free to provide feedback in the comments.