Obama Must Re-evaluate the Debt Ceiling

During an interview last week with CBSnews.com, President Barack Obama said that “raising the debt ceiling, which has been done over a hundred times, does not increase our debt; it does not somehow promote profligacy. The average person thinks raising the debt ceiling must mean we’re running up our debt.” 

However, when looking at United States history, we can see that raising the debt ceiling has allowed for enormous increases in debt, which directly contrasts with President Obama’s statement.

The president’s first quote is correct in a literal sense: Raising the debt ceiling does not actually add more debt to our national deficit, just as jumping off a high cliff does not kill you. However, hitting the ground most assuredly will. His argument is perhaps best suited to a theoretical discussion, and his claim does not hold true in the real world economy. Just as it is fair to say jumping off a high enough cliff results in death, raising the debt ceiling does result in indirectly adding more debt.

According to the Congressional Research Service, from June 28, 2002 to Dec. 28, 2009, Congress raised the debt ceiling nine times by an average of $716 billion per increase. On June 28, 2002, the national debt was $6.4 trillion, yet by Dec. 28, 2009, the debt rose to nearly $12.39 trillion. 

In Obama’s second statement, he tried to say that a debt-ceiling raise does not mean that U.S. debt levels will inevitably rise. However, whenever a debt-ceiling vote has taken place during Obama’s presidency, the federal government spent so much more than it took in that the increase in debt reached the ceiling imposed by Congress. 

If the debt ceiling and levels of debt continue to increase faster than a proportional increase in gross domestic product (GDP), then debt-ceiling discussions have to provide a wake-up call to the government and to the people. Recently, this call has been ignored and massive spending has been enacted as a way to supposedly boost the economy according to the Keynesian theory of economics. However, Keynes only advocated deficit spending in economic downturns and in fact supported austerity measures during booms. Since the 1980s, debt has increased as a percentage of GDP from slightly above 20 percent to nearly 100 percent in 2012. Even the Congressional Budget Office said that this level of debt is “unsustainable.”

While the U.S.’s debt still isn’t at levels near Japan’s 225.9 percent debt-to-GDP ratio, or Italy’s 118.4 percent in 2010, it still poses a major problem. Both Italy and Japan have experienced lower growth rates over the past few years, partly due to such high debt-to-GDP ratios. According to a 2010 paper by Carmen Reinhart and Ken Rogoff, countries with debt-to-GDP ratios of over 90 percent experience lower growth rates. While critics have pointed out errors in the paper’s calculations, they have also concluded that high debt levels are associated with lower growth levels.

None of this means that the debt ceiling should not be raised. In fact, according to the Government Accountability Office, the debt ceiling limits the U.S.’s capacity to pay debts it has already incurred from spending enacted through its annual budget. Therefore, if the debt ceiling is not raised, the U.S. could not continue to spend money already approved in its federal budget. Because of this, the debt ceiling is conventionally raised to continue spending that has already been approved by Congress per the corresponding year’s federal budget. 

Obama has criticized Congress for using the debt ceiling as “a bargain chip to set policy,” but historically the debt ceiling has been used for little else besides this purpose. In fact, since the debt ceiling limits the capacity to pay incurred debts, its only practical purpose is to help determine fiscal policy. The debt ceiling issue allows the U.S. government to take a step back and reassess its fiscal responsibilities so that in the next federal budget it can hopefully enact some type of austerity plan. If Obama truly wants to change the perception of raising the debt ceiling as promoting profligacy, he needs to get Congress to include spending reforms by adding them to the latest debt-ceiling bill.

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