at least for the moment, the US Senate avoided a crisis over the federal debt ceiling, after some House Republicans reluctantly agreed yesterday to help Democrats defer their accounts to December. The fact that the United States has endured confrontation after confrontation in Congress on the matter – and almost certainly will do so again in just a few short weeks – is, as many other commentators have noted, utter nonsense. If you were in the prime of your life; had a good stable job; and that you needed the money to make your old, beautiful home safe and comfortable, wouldn’t you take out a loan, and especially if you learned that lenders were rushing to give you money at an interest rate? about 0%?
The United States does not own it, but it can very well afford to borrow, and not raising the debt ceiling created by Congress is like saying the United States will not honor the payments it has. already promised to do. This utterly unnecessary bankruptcy crisis is perpetually on the horizon, not because the country cannot pay its bills, but because enough powerful people cannot. In the past, similar mistakes have led to disaster.
As a historian of the French Revolution, I cannot help but think of the impending bankruptcy of the state which plunged France into crisis in the late 1780s. In terms of “economic fundamentals”, the Pre-revolutionary France was in good shape: it had the largest population in Europe, thriving agricultural and manufacturing sectors, and an effective tax rate well below that of Great Britain. Nonetheless, decades of conflict over the size and purpose of its central government have made disputes over budget deficits and national debt to dominate French public debate. For years, the monarchy had tried to tax the super-rich; in response, many aristocrats, traditionally exempt from paying the head tax levied on commoners, called these efforts tyranny. Claiming to speak for France as a whole, members of a tiny and extremely privileged elite thwarted all plans to tax their wealth – and did so in a way that rallied public opinion to their cause. Who else would defend the rights of the French nation against the encroachments and greed of the expanding Great Government?
The Norman nobles and Parisian magistrates were, one might say, the Koch brothers of their time: determined to maintain their own position by fueling popular populism. Their successful portrayal of the monarchy’s budget crisis due to its own opulence – even today, don’t we imagine that France’s money was spent on Marie Antoinette’s dresses and cakes? – made state finances a moral rather than a political problem. Like so many others in America today, these critics of the centralizing monarchy framed political arguments in terms that sounded like financial or budgetary terms. None of these interested aristocrats intended to start a revolution. But by blocking necessary tax reform, they sparked a political confrontation that ultimately turned the summer of 1789 into a social, cultural and economic crisis of unprecedented proportions.
Of course, 18th century France differs from 21st century America in countless ways. The United States has developed a host of mechanisms, including the creation of the Federal Reserve System and the rule exempting basic budget bills from filibuster, to stabilize the economy and protect the functioning of government. But these mechanisms only work if officials consciously activate them.
In recent times, the opposite seems to be happening, with Republicans in particular turning once-routine administrative actions into opportunities to seek partisan favors. (The GOP’s effort to avoid certifying the presidential election result is another example.) These developments threaten not only democracy, but the procedural safeguards designed to protect it. Virtually everyone, including the millions of people who have ignored the issue of the debt ceiling as “just policy”, assumes that disaster will eventually be averted. This assumption actually increases the danger. A crisis is only under control until it is under control, and Americans should all be wary of political actors who think that avoiding the worst is someone else’s job.
In truth, the financial situation of the federal government is much better than that of the fictitious owner who can borrow for nothing. The United States is not a human being with a finite life who needs to save for retirement; it is a nation whose Constitution is committed to establishing justice and promoting general welfare. As long as the nation maintains itself politically and respects scheduled payments, large institutional investors are more than happy to lend it money.
The debt ceiling is a relic of the first American enterprise in the mass debt market, the Liberty Bond campaign of 1917-18. With the costs of WWI far exceeding those of previous conflicts and progressives’ proposals for new taxes stuck in Congress, the United States turned to bond peddling (like Britain, France and Germany had already done so successfully). Putting a limit on the total value to sell created a shortage, thus stimulating interest. Advertised in magazines, sold through women’s clubs and Boy Scouts, and available for purchase in theaters and department stores, Liberty Bonds were central to the process of selling the war to ordinary Americans. (Remember Socialist Party leader Eugene Debs was jailed for speaking out against this.) The Liberty Bonds helped pay for the war but, more importantly, they measured and produced popular support for it. Rising public debt revealed growing national prosperity – who knew so many bonds could be sold so quickly? – which in turn amounted to greater patriotism.
Over the past century, Congress has repeatedly raised the country’s credit limit. In 2019, lawmakers suspended the issue for two years; yesterday, Republicans agreed to an interim extension. The potential economic consequences of more demagoguery in a month and a half are serious; the default would immediately cut Social Security benefits, federal workers’ wages, payments to Medicare claimants and more. Because, as lawyer and Harvard professor Chris Desan likes to say, money is one of the key institutions through which policies are formed, the repeated political positions around the debt ceiling have also revealed a real constitutional crisis – a crisis just as serious as the one posed. by suppressing voters or reconfiguring the three branches of government along almost purely sectarian lines. Article I, Section 8 of the Constitution gives Congress the power to “borrow money on credit from the United States,” but Republicans in Congress continue to refuse to use this superpower.
The fact that the United States today faces no economic or financial obstacles to further borrowing, only political-legal obstacles, may be a relief, but it also speaks to the country’s growing ability to self-sufficiency. -inflict economic trauma. Its reputation has already been badly tarnished by erratic foreign policy, the lack of a national response to the coronavirus pandemic, and ongoing civil rights crises too numerous to list. Missing payments in early December, even if measures were found to catch them later, would further deteriorate the credibility of the United States. Restoring it would not be easy. Sadly, the allure of political postures and line art is again as great as it was in 1789 – or, thanks to the widely expanded media ecosystem and attention economy, perhaps even bigger.
Karl Marx argued that revolutions must borrow their poetry from the future because they give birth to a world that does not yet exist. It’s strange to say that money also derives its value from the future – from what you can do with money tomorrow, next month, next year. This is what makes money a “store of value” and also what makes prolonged hyperinflation such a terrifying possibility. Regardless of its physical form (whether it is a coin, paper, piece of metal, computer code, or cowrie), money has no of value only if someone else accepts it. Today, just about everyone is willing to accept US dollars, and US Treasuries are still considered, like Liberty Bonds in their day, to be the safest investment possible. If the United States were truly lacking, that may no longer be true.
Money and monetary systems are constantly changing, even when they do so in the name of stability once and for all. The passage of the United States to the gold standard in 1900 did not prevent the crisis of 1907, the creation of the Federal Reserve did not prevent the bank failures of the Great Depression, and the international monetary agreement d postwar period known as Bretton Woods (with the US dollar defined in terms of gold and other dollar-linked currencies) could not withstand the pressures of globalization and the unprecedented scale of global economic growth after 1945.
Like political institutions, monetary institutions are a work in progress; value, like democracy, is something in constant construction. But at least the basic conception of democracy – that people elect leaders to act on their behalf and for their good – allows the possibility of change. By agreeing to a postponement, Senate Minority Leader Mitch McConnell set the stage for another version of this constitutional crisis and even more disruption in the activity of actually governing. But there is a better solution: abolish the debt ceiling once and for all.