Debt Ceiling Answer #2: Split The Difference
January 5, 2013 16 Comments
If you don’t like my suggestion for Geithner to just ignore the debt ceiling (if he believes what Smart People are saying), I’ve got another one. This one has the benefit of being, I believe, ideologically neutral.
It’s called Split The Difference™ (copyright The Crimson Reach/all rights reserved).
Essentially, since the claim here is that Congress has commanded Geithner & co. to spend $X more than Congress lets them get by borrowing, and we should all be outraged about that, they should instead just borrow $(X/2), but spend only that and no more.
It seems to me this could actually be a respectable course of action if done right. They don’t just do it suddenly and without warning. Geithner goes to Congress well in advance and declares his intention openly: “Your esteemed branch has given me a contradictory set of commands. I cannot carry out both. Therefore, unless these commands are reconciled or amended, my best, good-faith, neutral effort will be to split the difference between them. I regret but that I know of no other, better way to attempt to carry out my sworn duties as best as can be humanly done.”
If nothing further happens, this does:
- Treasury violates the debt ceiling and borrows $(X/2) in debt.
- It also disobeys Congress’s spending bills by spending $(X/2) less than Congress said they wanted spent.
It of course pays full debt-service on outstanding debt (since ‘debts shall not be questioned’ and we don’t want a default); the “X” number was calculated taking this into account.
They would enact the cut by giving every single thing a haircut across the board (i.e. if X/2 is Y% of total spending, then every single federal budgetary outlay gets a Y% haircut).
Once again, Geithner doesn’t do this on the sly on a Friday evening. He tells Congress his plan to do this way in advance.
What would happen? Of course there would be a huge Congressional freakout about it. But then what?
The Smart People answer is that, since The Will Of Congress was so obviously and clearly to spend all that money and not a penny less, they would recoil in shock at Geithner spending $(X/2) less than that, and would move to raise the debt ceiling to close that gap. If you agree with Smart People, that’s what you think would happen. Geithner’s bluff would therefore never be called, nor does he get in any trouble, as the crisis solves itself. In fact he is probably praised for his political courage.
I am not sure that’s what would happen though. Probably the first outcries of reaction would be from Congressmen clamoring to shield their pork and pet projects from the Geithner Haircut. Hastily-drafted bills would be passed, or riders attached to existing bills, ensuring that Senator So-and-So’s Bridge To Nowhere gets fully funded at 100% not (100-Y)% no matter what.
Geithner assents to all of these until he runs out of money. “Ok fine you want to shield the Bridge To Nowhere from my haircut. Done. Let me refresh my calculation. Ok now I have to haircut all the rest of it by Y1%.” Where Y1 > Y.
Then Y1 becomes Y2 and Y3 and so on until ultimately Geithner says “that’s it. all the money I committed to spending by splitting the difference is claimed. The rest gets a 100% haircut.”
OR, Congress starts getting its act together and haggling over what to cut themselves.
This would be interesting if nothing else because it would create, for the public, a visible accounting of Congressional spending priorities. It would, in effect, force them to, like, budget, being a reasonably natural and orderly way of giving the axe to less-popular or -needed spending items.
Or yeah, maybe they’ll just raise the debt ceiling.
But either way, I think this would be an honorable course of action for Geithner if the US Treasury really is as befuddled, hamstrung, and threatened by the Debt Ceiling Crisis™ as Smart People say. Incompatible spending/debt numbers? No problem, just Split The Difference! What could be more logical?