The Debt Ceiling Confrontation Is Playing With Fire

Congressional Republicans are again threatening not to increase the ceiling on the amount of federal government debt that can be issued. On Wednesday, they agreed to postpone this particular piece of the fiscal confrontation, but only until May. The decision to turn the debt ceiling into some form of showdown is a big mistake for the Republicans — and dragging out the indecision is likely to prolong the agony of uncertainty and have damaging economic consequences for the country.

I made these points at a hearing on Tuesday of the House Ways and Means Committee, but unfortunately the Republican majority seems determined to persevere with its destabilizing strategy. (The hearing can be viewed on C-SPAN’s Web site; see the playlist on the right.)

In most countries, decisions about government spending and revenue bring with them an implied, even automatic, decision about how much debt to issue. Spending minus revenue in a year gives you the annual deficit (a flow), while government debt is a stock of obligations outstanding.

Think of it like a bathtub. Spending is water coming in from the tap, and revenue is water leaving through the drain. If there is more spending relative to revenue, there is more water in the bathtub – and the amount of water is the debt. In the United States, for odd historical reasons, Congress makes two separate decisions, one on the flow (spending and revenue) and the other on the stock (the allowed limit on the debt, known as the debt ceiling).