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Friday, July 01, 2011

DeLong: The Debt Ceiling in Historical Perspective

Brad DeLong has a history lesson relating to how the Treasury might respond to a failure to raise the debt ceiling:

The Debt Ceiling in Historical Perspective, by Brad DeLong: Mark Tushnet asks a question:

Balkinization: [L]iberals now appear to be trying to put an off-the-wall idea on the table.... For liberals it appears to be the idea that legislation setting a debt ceiling is unnecessary because of Section 4 of the Fourteenth Amendment. Is that an off-the-wall argument? One test might be this: Can anyone locate any writing, preferably legal scholarship but even off-hand musings will do, making that argument prior to, say, November 5, 2010?...

First, Bruce Bartlett--the most aggressive advocate of the Constitutional Debt Ceiling Option--is not a liberal...

Second, the issue has little history for good reasons. Before January 2011 the issue arose rarely. The Gephardt Rule was: vote on a budget, and you are also voting on the debt ceiling increase needed to put that budget into effect. That coupling of spending with debt issue authorizations was one of the pieces of the government Boehner and company broke last winter.

Then-Speaker Newt Gingrich provoked a debt ceiling crisis in 1995 by suspending the Gephardt Rule. Between November 15, 1995 and March 29, 1996, Secretary of the Treasury Rubin declared a debt-issuance suspension period and took various extraordinary steps to avoid breaching the legislated debt ceiling, as detailed in https://www.tsp.gov/PDF/formspubs/GAO-AIMD-96-130.pdf.

During that period, various Treasury staff and others had informal, private discussions about Treasury options if Secretary Rubin ran out of room to keep amortizing the debt and paying the bills without breaking the debt ceiling.

The general tenor of the discussions that I heard was that:

  1. Raising outré scenarios and possibilities publicly before they became imminent was destructive of market confidence and profoundly unhelpful.

  2. Whatever the Treasury did, §4 of the 14th Amendment absolutely, totally, completely prohibited it from ever, ever defaulting on debt it had issued...

  3. The Treasury had a legal obligation to pay all of the bills for discretionary and mandatory spending that had been duly authorized by law, and the Treasury had a legal obligation not to issue debt above the limit. What should the Treasury do if these two legal obligations came into conflict? It was not clear. That's why the Gephardt Rule was a good thing.

  4. It was much, much better for the country if these two legal obligations never came into conflict: for the Treasury to fail to obey Congress's instructions to spend was bad; for the Treasury to issue debt above the debt ceiling was bad--and such debt would probably not be salable at normal Treasury-bond prices. Every nerve should be strained to keep from going there.

The 1995-1996 crisis was resolved in the winter of 1996 when Secretary Rubin informed Congress that he was going to deal with the situation by not mailing out the March Social Security checks. Gingrich then knuckled under.

The lesson I draw from history is that a bunch of us have been aware of this possible conflict-of-laws for quite a while. That Mark cannot find legal academics who have been worrying the issue seems to me to tell us more about what legal academics do than what a court would decide (or, more likely, not decide).

Brad has a follow-up here.

    Posted by on Friday, July 1, 2011 at 05:04 PM in Economics, Politics | Permalink  Comments (18)

          


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