THE DEBT CEILING IS NOT A CREDIBLE COMMITMENT.

For the past hundred years, the federal government has acknowledged the reality that somebody has to hold the government's bonds, and that there might be reluctance for people to hold those bonds if they're not worth the paper they're printed on.  "The budget ceiling is a recognition, admittedly honored more in the breach than in the observance, that G - T = ΔM + ΔB isn't just for the economics journals, and that financial markets can discount the value of a public debt even if that debt is issued under a valid ceiling approved by the two houses and autographed by the President."

Joseph Stiglitz, who knows a thing or two about the economics journals, implicitly recognizes the working of that budget constraint.  If the government commits to spend more now, it's committing to future increases in tax revenues or to issuing additional bonds.

Expanding the debt limit is not a conversation about future expenditure, but about meeting the level of spending Congress has already passed. If you pass a law that expenditures should be X dollars and taxes Y dollars, then the deficit will be X minus Y. You can’t change that, and a third law contradicting the first two makes no sense.

If Congress passes expenditure bills that sufficiently exceed the revenue bills enacted, the administration can’t comply simultaneously with all three—that is, with the expenditure bills, the tax bill, and the debt ceiling. It has the responsibility of interpreting which is overriding, and here the inviolability of the debt and other obligations is the overriding principle. Conservatives in Congress using the debt ceiling as a political tool are putting our economy at severe risk. It’s our responsibility, and within our power, to rein in this behavior, and to debate fiscal policy on its merits.

Perhaps reining in that behavior includes a commitment to borrowing less money now, in the form of cutting current spending, something that Professor Stiglitz would prefer not take place, or in the form of raising taxes, something he endorses.

In our democracy, we have three fundamental ways of dealing with excessive deficits. We can democratically, through Congress, approve tax increases—such as a windfall profits tax on corporations that have made off like bandits during the pandemic and the war in Ukraine while many Americans suffered, partly because of the high prices that firms with market power can charge. Or we can democratically approve expenditure decreases through Congress, both now and in the future. If Congress wants to reduce Social Security or curtail Medicare or eviscerate our education, infrastructure, environmental, and technology programs, it can do that; we have constitutional processes, requiring assent by the executive branch, with an override by Congress of any veto.

Finally, we have elections. Obviously, I wish there were less voter suppression, less gerrymandering, a stronger relationship between “the will of the people” and election outcomes. Still, there is some accountability: If the electorate is dissatisfied with either side of the equation, either with expenditures or taxes, they can reflect that dissatisfaction in their voting.

But one thing neither Congress nor voting can change is arithmetic—the reality that deficits are the simple difference between expenditures and taxes, and debt is nothing but the accumulation of deficits and surpluses.

Yes, and capital markets have a say, whether the Congress and president, or his handlers, reach a deal, or not.  "The government budget constraint will bite at some time, and the time will come when an increase in the debt ceiling will not assuage financial market fears about solvency risk. Nobody knows the day and the hour: it could come at the end of the year or when Congress fails to pass a budget or when the indebtedness reaches 150% of gross domestic product or when the Cubs win the World Series."  The Cubs have since won a World Series, although the federal debt has not yet hit that 150%, and the continuing resolutions continue.

Voters, however, understand the problem.  Here's Associated Press and a poll.  "Few are following the debate closely, but most want Congress to increase the debt limit with deficit reduction conditions."  The poll does not disaggregate by party affiliations: presumably Republican voters want a commitment to reduced future spending, or a freeze on spending, while Democrat voters want to tax somebody, preferably not them.

A CNN poll offers the necessary disaggregation.

Majority support for raising the debt ceiling in some fashion cuts across party lines, but most Republicans (79%) and independents (58%) say the limit should only be raised if spending cuts are enacted at the same time, while Democrats are split between supporting a debt ceiling increase no matter what (46%) and raising it only alongside spending cuts (45%).

Democrats who say they are very or somewhat closely following the negotiations are most likely to say that Congress should raise the debt ceiling no matter what (64%), but that drops to 29% among Democrats following less closely. Among independents and Republicans, the gap between those following closely and those less tuned in is far smaller (27% of more tuned-in independents say it should be raised no matter what compared with 18% among those following less closely; for Republicans, those figures are 7% and 5%, respectively).

Partisans of both parties fear that their side will concede too much for a deal.  Look, that's the nature of a compromise, that's also the nature of a Nash equilibrium.  That's also for another day.  Reason contributor Veronique deRugy submits the winning argument to close posting today.

A better question is this: Is it credible to bet on investors agreeing to buy $114 trillion in debt over the next 30 years? China and Japan have already reduced their holdings of American bonds, while the Fed already holds 25 percent of our debt. It's unclear that domestic investors will step up to the plate. What happens then? Taxes can only be raised so much. Under the current tax system, on average, the United States has raised about 18 percent of GDP in tax revenue. But in 30 years, spending will be 30 percent of GDP.

My hope is that if you've read this far, you now understand that Congress should start working diligently to stop our debt from growing. No side is going to like what's required, but it must be done. And the longer we wait, the more painful it will be.

For "Congress should start working more diligently" substitute both "reduce spending" and "collect taxes."

So mote it be.