“If you don’t raise your debt ceiling, all you’re saying is we’re going to balance our budget,” the Kentucky Republican told reporters in Washington Oct. 8. “I think if you propose it that way, the bulk of the American public would say, ’My goodness that sounds like a pretty reasonable idea.’”
It doesn’t sound that way to Holtz-Eakin, who worked with Hubbard at the CEA and is a former director of the Congressional Budget Office.
Bad Idea
“Breaching the debt limit is a very bad idea,” said Holtz-Eakin, now president of American Action Forum, a self- described center-right policy institute in Washington. “While I don’t know exactly what would happen, I don’t want to find out.”
He said Obama needs to get together with Republicans and negotiate a deal to raise the debt limit. “If he doesn’t, he’s going to be responsible for the meltdown,” the economist said.
In the event the borrowing limit isn’t increased, it’s not clear that Treasury has the capability of ensuring that debt payments are made, Holtz-Eakin said. While the government does take in more money than it pays out in interest each year, that’s not true for each and every day.
He said it’s ironic that conservatives are arguing the Treasury can prioritize its payments. “These are the guys who don’t think the government can do anything right,” Holtz-Eakin said. “And they’re going to count on Treasury bureaucrats to manage this phenomenal sleight of hand. I don’t believe it.”
Shuffling Payments
Even if the government were able to shuffle its payments so as to avoid default, it would still have to cut back on other outlays because it couldn’t borrow any additional funds. And that would hurt the economy, said Marron, a CEA member in 2008 and 2009.
“If the government has to suddenly move to a balanced budget for an extended period, the U.S. economy would likely plunge into recession,” said Marron, who is now director of economic policy initiatives at the Urban Institute in Washington.