Why is the Debt Ceiling so stupid?
Why is the Debt Ceiling so stupid?
Watching the fictional Will McAvoy talk to people on Twitter shows me just how much people do not understand the Debt Ceiling fiasco we repeatedly go through. So, I'm going to attempt to create an understandable analogy. Please leave comments and help me refine it!
The post below is essentially the same as the content of the video, so pick your poison.
People have been fond of comparing the Federal Government Budget to a Household Budget. It's a terrible comparison, but it appeals to people so I'm going to try. Let's say this household has a husband, wife and a couple of kids. The wife manages the budget and tells the husband what to buy and when. When the wife tells him to make a purchase, he absolutely must do it. The husband has a credit card that he must use for the purchases.
(If it makes you happy, you can make the guy in charge of finances and vice versa, or you can have Michael and Steven or you can have Sarah and Christina, it doesn't matter.)
Each month, the wife gives the husband $2,500 in their bank account. However, she orders the husband to spend $3,500 every month. So, each month the husband spends the required amounts on clothes for the kids, new kitchen appliances, car insurance, the mortgage, gas for the car, home security system, etc. He uses the money in the checking account and then puts the rest on the credit card. Since he's spending more than he's receiving every month, the credit card balance is growing and growing. The amount has grown to $15,900 and the credit card has a limit of $16,000. This means next month he won't be able to pay the mortgage, buy gas for the car, buy food for the kids lunches, etc. He calls up the credit card company and asks if they would be willing to increase his credit limit and they are! He's a good and trustworthy customer, they'd be happy to increase his limit... but, unfortunately, his wife tells him he is not allowed to increase the credit limit on the card.
He says, "But you told me I need to buy things this month which total $3,500 and we're at the credit limit. You're the one who told me to spend that money! If I can't borrow more money, then I won't be able to pay the mortgage, power, water, gas, the gardener, etc."
She says, "You still have to pay all of those things and you don't get any more money and you're not allowed to borrow more."
He says, "But that doesn't make any sense! It's impossible!"
That's the situation. It's hard to describe and the analogy is awkward at times... mostly because the real situation surrounding the debt ceiling is stupid itself which is why we don't see it in our personal lives.
Here is the translation:
The wife is Congress. She takes their income (tax revenue) and uses it to pay down the credit card balance. She also tells the husband how much and on what to spend. These are appropriations bills passed in Congress. (Not to be mistaken with the Budget. The Budget is non-binding, but appropriations bills require the President to spend that money. BY LAW... because the Appropriations bill is LAW.)
The husband is the President. He receives orders to spend a certain amount of money on certain things and is required to do so (by the appropriations bills).
The checking account is the Treasury. Tax revenues are deposited into the Treasury and the husband/President uses them to pay for the expenses he was ordered to by the wife/Congress.
The credit card is the Debt and the credit card limit is the debt ceiling.
The credit card company, which is willing to increase the credit limit, is a combination of all those willing to purchase Treasury bills. There are plenty of people still willing to loan the United States money which is why the Credit Card company is willing to increase the credit limit, i.e. debt ceiling.
The Congress passes laws which order the President to spend money. The Congress passes laws which control how much money the Treasury receives in taxes. The Congress refuses to increase the debt ceiling which is the only way the Treasury can get the money it is legally required to spend according to the orders from Congress.
Hopefully, I haven't bored you to death by now. So, what do you do in this situation? Just borrow more and more? When does the insanity end?
On one hand, the wife wants to get more money so there is enough money to spend on all the things they need. On the other hand, the wife feels its better to just spend less (even though she's the one ordering the spending). The husband, even though he doesn't have any authority in the spending and cash decisions, sits down with the wife to try to work something out. She tells him his outrageous spending must end.. the husband tries to ignore the insane fact that it was the wife who ordered the spending and continue on in the negotiations. In the end, they agree that the wife will give him more money each month to pay for expenses and she agreed to reduce spending orders by... well, she didn't say. They agreed to sit down again later to figure out how to reduce spending. However, the spending changes they are going to agree on are not going to be enough to close the deficit. But let's remember one more time, that the spending decisions are ENTIRELY the responsibility of the wife/Congress. The President is only getting involved because the Congress is issuing conflicting orders and is going to destroy our economy.
The agreement pathetically changes the numbers from income of $2,500 each month to $2,560 and the expenses don't change. The wife/Congress will still be ordering the husband/President to spend more money than we have which means even after these agreements we are still going to have to borrow more money...
... and the wife/Congress still refuses to let the husband/President borrow more money to pay for all of the bills that the wife/Congress ordered.
That's the insanity. Did it make any sense?