I have yet to hear a coherent explanation of why restricting total government expenditure to revenue by hitting the debt ceiling would lead to the default on one particular expenditure (debt payments). I have; however, heard several media outlets assert it. Actually, almost all of them. Politicians too! John Boehner blamed the president,
“The president -- the president, his refusal to talk, is resulting in a possible default on our debt.”
Barack Obama also perpetrates this idea, stating that if Republicans don’t resolve the debt ceiling standoff,
"we stand a good chance of defaulting."
But then I read the writing of economists, and they say that it just isn’t true.
David Friedman puts out a nice little post on why the debt ceiling doesn’t lead to debt default.
There is also a bit of a non-sequitur written in the comments by one IGM Panel Expert. Caroline Hoxby, a Stanford economist, states,”The federal govt could make its interest payments on current debt even if the debt ceiling were not raised.”
And then there is The Economist’s blog, Free Exchange,
“Failure to raise the debt ceiling need not entail default”
On my rounds of economics blogs, and I have several dozen of them, I have not heard a single one state the idea that failing to raise the debt ceiling entails default on the debt.
Why isn’t what economists are saying obvious? Saying that not raising the debt ceiling means default is like saying that a family with plenty of income not getting another credit card means they can’t buy food. It just doesn’t make sense to say that if we have to limit expenditure to revenue, then we have to default on the most important expenditure of all!
This, of course, isn’t new. Several years back the president and everyone in the media warned that if we don’t raise the debt ceiling, we’ll have to default on social security. Apparently, any time we approach the debt ceiling, the thing that needs to be cut is whatever cut is the scariest of all.
Here is my interpretation: The media likes superhero stories. Politicians like to look like superheroes. So the big story about politicians swooping in at the last minute to make a deal and save us from the worst thing ever emerges from the political and entertainment systems. There’s another player, people. People like to watch superhero stories. They like the entertainment and they like rooting for their political team to beat the bad guys and save the world. They also don’t like cognitive strain or intellectual discipline. Diligent seeking makes them uneasy and uncertain. Why else would they be so ignorant on something they perceive to be so important?
