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Trying to “fix” fiscal policy is incredibly difficult, because invariably, any time you want to change a part of the tax code or the budget you end up hitting some group of powerful citizens who are too politically costly to mess with.But there is one change that could be made without hurting anyone: Getting rid of the debt ceiling.
The debt ceiling is a stupid, arbitrary rule that says Congress has to authorise going into more debt, beyond just the vote on the budget itself. It’s the #1 source of vulnerability for the U.S. government. Because the U.S. can create its own money, there’s zero chance of default, unless a committed opposition uses the debt ceiling as leverage to go too far. When S&P downgraded the U.S. credit rating after the last debt ceiling debacle (a downgrade, by the way, which had zero effect on anything) it identified that the biggest threat to the U.S. was politics, not actual debt loads. Eliminating the debt ceiling would defuse this one political vulnerability.
Despite the horrible fight in 2011, some people insisted that the whole affair was actually a good thing, because the debt ceiling provided an opportunity to take stock of the nation’s finances, and force politicians into hard choices. Some people even suggested that the ‘Boehner Rule‘ — agreeing to cut spending by the same amount as the debt ceiling was raised — would become a permanent feature of all negotiations.
This argument might still hold some water if not for the fact that the sequester (the future spending cuts agreed to in debt ceiling fight) is loathed by both parties. Everybody now hates what the Boehner Rule hath wrought.
In the best of times the Debt Ceiling is a pointless technical vote. In the worst of times, it’s an opportunity for one side to hold the nation’s economy hostage. At no time, is it a useful mechanism for constraining spending, or having a debate on anything.
With the government set to debate a whole range of fiscal issues in the coming weeks (or months) no move would be more conducive to stability than getting rid of the debt ceiling. And nobody would be hurt either, which can’t be said for any other change in our fiscal system.
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