There are a couple of popular memes about the debt ceiling. It popped up last time and has popped up this time, mostly among people who voted for extreme-right-wing representatives. They mostly fall into two camps: One compares Government-level economics with home-economics, and says that at some point when you're spending money you should spend less. The other one often involves visceral descriptions involving sewage or flooding.
The first example goes something like: When your credit card is maxed out, and you're living in a mansion and driving a luxury car and you can't afford to pay the bills, you shouldn't take out another credit card, you should downsize. This is a bad comparison for two reasons, first, it ignores the differences between personal and national economics, and two, it's not about the debt ceiling.
National economics and personal economics are fundamentally different. One of the reasons is that at home, you can't choose your pay rate. But the government can. Congress can increase tax rates, it can create new taxes, it can close tax loopholes, it can do a number of things to raise revenue. Further, it's done those things before. We pay less in taxes than any other industrialized country. We also pay less in taxes overall than we have at any other time in the last hundred years. I say overall, because some individuals are paying vastly more than they would have in the early twentieth century, but, as a percentage of GDP, we pay less.
Republicans like to say that increasing taxes kills economic growth. That's a lie. Regressive taxes kill growth. Similarly, the wrong taxes may kill growth. But Progressive taxes don't kill growth. The nineteen fifties ushered in the longest uninterrupted period of economic growth in America. Further it created a rising tide that actually lifted all boats. It was the largest increase in the size of the middle class and the greatest creation of middle class wealth annually in any country in human history. The wealthiest Americans at the time were paying over ninety-three of their income in tax.
Let that sink in, if you made over $120,000, every dollar over that you made was taxed, and you got to keep around a nickle. That high-nineties figure was a compromise. There were forces pushing for keeping it all. One of the reasons this worked is because of the deeply progressive nature of the tax. Progressive taxes tax the rich more than they tax the poor. Regressive taxes do the opposite. Regressive taxes hurt growth because keeping money in circulation--that is, spending it on stuff, rent, food, durable goods, and so on, is the most effective way to grow the economy. Investment in pure assets, like stock, bonds, and so on doesn't help the economy. It basically locks that money in a safe. Poor people spend more of their income on stuff, so increasing their disposable income is good for growth. Rich people eventually accumulate all the stuff they need, and then they spend excess on investment vehicles, which can fund businesses, when you are buying stock during an IPO or similar, but usually, just takes money out of circulation.
So, really, the Home Ec. example ignores that you could just earn more money.
The Second example usually involves a house filling with something awful (floodwater, raw sewage, human waste, etc) and describes the house as constantly filling, and describes the debt ceiling as adding another floor on the top. This parallel has two problems. One is that it misdescribes how debt works on a national level. The other is that it doesn't describe the debt ceiling.
Pick a country, any country in the world. That country owes someone money. Owing money when you're a country can be bad or not. Part of what determines whether or not national debt is bad is the amount of debt as a percentage of Gross Domestic Product. This is really important because GDP increases with economic health. That twenty-plus year economic growth the US went into in the fifties? GDP increased every year. In a reasonably well managed economy, GDP will continue to grow. So, debt could constantly increase, and, provided it does so at a rate slower than economic growth, that isn't bad.
I dismissed both parallels as not describing the debt ceiling, let me explain what that means. The debt ceiling isn't some hard limit of how much debt the country can have. Those decisions and numbers were already made when Congress made its most recent round of appropriations. The debt ceiling is a totally arbitrary figure having to do with the amount of money that government can pay as opposed to cash it has on hand at the moment. It's totally arbitrary, and has no direct connection to the debt.
Also, even if the budget were perfectly balanced, there would still be points where the government spent money it didn't have. The government cuts millions of checks per day, but taxes aren't collected on a daily basis. Sometimes more money goes out than is coming in at that moment. On the other had, if we do hit the debt ceiling, the country will stop being able to issue those three-to-four-million checks per day, and bills just won't be paid.
What the first meme describes isn't a debt ceiling, it's the intial appropriate process. What the second meme describes, that's really about deficit negotiation, which is part of the budgeting process. But, neither one describes the debt limit.
But, by all means, lets continue to send around misinformation regarding an absolutely critical issue to demean and denegrate its importance, because that always leads to valuable public debate.
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