Do you remember that scene from Blazing Saddles where Bart holds himself hostage? In case you don’t (and sorry for the language in advance if you watch the scene), the town is excited to introduce their new sheriff until they find out he’s African American at which point they inform him he won’t be serving as their sheriff and they turn their guns on him. Bart one ups them and turns his own gun on himself and starts talking to himself like a crazy man as he convinces them all not to shoot him. The towns people all panic and treat him as though he’s been the victim of a hostage situation even though he’s the one holding himself hostage.
As the debt ceiling debate rolls around again it reminds me of what the US Congress is doing to itself – we’ve already appropriated spending, but we’re going to use the debt ceiling to threaten default on ourselves in order to cut spending. In other words, we’re now holding ourselves hostage.
Anyhow, as this whole silly debate flares up again let’s just remember a few things that show how terribly irrational this whole debate really is:
- The US government is a contingent currency issuer. That means we can always produce the currency necessary to pay off our bills. In fact, the US Treasury could legally do this immediately via the Platinum Coin loophole (which yes, is silly, but silly situations like holding yourself hostage in the face of a default that would be catastrophic, require extreme measures).
- The US government cannot “run out of money”. There is really no such thing as defaulting on our obligations which are denominated entirely in a currency we can create.
- The US government is nothing like you or I who cannot tax to procure funding, sell risk free bonds or print off currency if needed.
- The US government is constrained not by an inability to create money, but by the ability to spend too much or create too much inflation.
- If inflation is the real constraint then we should all note that output is low, unemployment is high, and inflation is very low by historical levels. In other words, we could actually use a lot more spending in this environment.
- The debt ceiling is only reached because the US government has already appropriated spending. In other words, this “constraint” is the equivalent of eating a cheeseburger and then tying a knot in your small intestine and then threatening your stomach not to digest the food.
- If we want to have a debate about the efficacy of government spending then let’s have that debate. But let’s not use the threat of default to do so. That’s entirely irrational and using the threat of default to promote a policy position is an abuse of power that should never be tolerated.
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