The ‘debt limit’ Kobayashi Maru

Other countries don’t do this. Businesses and households don’t do this. Other countries and businesses and households don’t do this because it doesn’t make sense.

As per the U.S. Constitution, Congress passes budgets that set the levels of spending and revenue for the federal government. The executive branch (ultimately, the president) is legally bound to follow those mandates from Congress. So what happens when Congress mandates more spending than can be paid for with the revenue it instructs the government to collect? Well, the government borrows money in order to comply with the legally, constitutionally mandated spending determined by Congress.

But here in America we add another factor — a contradictory, nonsensical, arbitrary factor that periodically threatens to destroy our whole economy. We also have a congressionally mandated “debt limit” or “debt ceiling.”

That creates the Kobayashi Maru flusterclump idiocy we’re in now:

1. The government is legally, constitutionally mandated to spend what Congress ordered it to spend.

2. The government is legally, constitutionally forbidden to collect enough revenue to pay for this legally, constitutionally mandated spending.

And, thanks to the bonkers idea of a legal “debt ceiling”:

3. The government is legally, constitutionally forbidden to borrow any more money.

If you’re not a Star Trek fan, let me explain that the Kobayashi Maru is a fictional training exercise for Starfleet Academy officers. It’s a no-win situation — a scenario in which there is no right action, no way to succeed. Whatever you do in the Kobayashi Maru will be wrong.

That’s what the debt ceiling creates for America. It means, no matter what, some law must be broken. If Congress does not increase — or, better yet, abolish — the debt ceiling, then either the government will break the law by borrowing money it is forbidden to borrow or else the government will break the law by not spending money it is constitutionally mandated to spend. Either way, Congress is demanding that the executive branch break the law.

My take on this is that the debt-ceiling law is itself therefore unconstitutional. It interferes with the constitutional responsibilities laid out for Congress and for the executive branch. Those responsibilities trump the lesser claim of reckless “debt limit” legislation that’s less than a century old. Thus if the executive branch – i.e., President Obama — is faced with the Kobayashi Maru of having to choose which law to break, it should break that law and force it to be defended in court.

That’s what Henry (“Not That One”) Aaron argues today in The New York Times,Obama Should Ignore the Debt Ceiling“:

Failure to raise the debt will force the president to break a law — the only question is which one.

The Constitution requires the president to spend what Congress has instructed him to spend, to raise only those taxes Congress has authorized him to impose and to borrow no more than Congress authorizes.

If President Obama spends what the law orders him to spend and collects the taxes Congress has authorized him to collect, then he must borrow more than Congress has authorized him to borrow. If the debt ceiling is not raised, he will have to violate one of these constitutional imperatives. Which should he choose?

… If the debt ceiling is not increased, the president should disregard it, and honor spending and tax legislation.

A decision to cut spending enough to avoid borrowing would instantaneously slash outlays by approximately $600 billion a year. Cutting payments to veterans, Social Security benefits and interest on the national debt by half would just about do the job. But such cuts would not only illegally betray promises to veterans, the elderly and disabled and bondholders; they would destroy the credit standing of the United States and boost borrowing costs on the nation’s $12 trillion publicly held debt.

There is no clear legal basis for deciding what programs to cut. Defense contractors, or Medicare payments to doctors? Education grants, or the F.B.I.? Endless litigation would follow. No matter how the cuts might be distributed, they would, if sustained for more than a very brief period, kill the economic recovery and cause unemployment to return quickly to double digits.

Nor is it reasonable to expect the president to collect more in taxes than is authorized by law. For him to do so would infringe on Congress’s most fundamental powers and the principles on which the nation was founded.

The only defensible option for the president if the debt ceiling is not raised is to disregard the debt ceiling.

There is, however, one other possibility. Obama could do what James T. Kirk did when facing the Kobayashi Maru: rewrite the rules.

The following suggestion may sound outlandish or impossible, but it’s not. It’s the only legal recourse — the only way for the government not to break its own laws if the debt ceiling is not abolished: Have the Treasury mint one thousand $1 billion platinum coins.

It’s legal. Every other approach, including Aaron’s, is not.

Is it kind of goofy? Sure, but it’s far less goofy than the Kobayashi Maru of any of the various illegal options — all of which would entail enormous suffering on a massive scale.

I’m a big proponent of avoiding enormous suffering on a massive scale. Particularly when such suffering is unnecessary.

So mint the coins.

  • flat

    you know when I read these numbers my brain somehow shuts down.

    I read an article once that said a normal person isn´t able to fully comprehend such high numbers.
    so I see myself as a relative smart guy (yes, you can start laughing now) and I yet I have trouble to comprehend it.

    and if smarter people than me are completely dumbfounded by it, than I am glad I am not the person who is supposed to come up with a sollution.

    And I am really happy that I am not the person who is supposed to enforce the sollution, through the US congress.

  • friendly reader

    This analogy only works if the debt-ceiling issue was a single-time event like the Kobayashi Maru test. It isn’t. It comes up again repeatedly. It’ll come up again in only 6 weeks.

    So while minting coins works, if that’s the new rule we make, we’ll be forced to use it over. And over. And over again. We don’t need a cheat code for the game. We need to end it – i.e. the “get rid of the debt ceiling altogether” option.

  • FearlessSon

    Traditionally, the debt ceiling was a non-issue, something that the legislature simply rubber-stamped because they knew it was necessary to carry out the things that they were charged to carry out.

    Only since Obama took office has this been seen as an issue.

  • roisindubh211

    I’m glad I’m not the only one. I seem to be constitutionally incapable of remembering what my student loans debt is. Cannot keep that number in my head, nor can I reliably remember my yearly income. Brain just goes ‘Nope, don’t want that in here!’

  • http://apocalypsereview.wordpress.com/ Invisible Neutrino

    The idea of a debt limit in the first place was total political showmanship back in Reagan’s time. (>_<) Why these absurd ideas get invented as a substitute for real action is beyond me.

  • esmerelda_ogg

    At least one part of this mess is easy to understand: Why is Congress (for which read the House Republicans) so determined to put the country – their country, let’s remember * – in such a disastrous situation? Well, look at the possible outcomes.

    The executive (for which read President Obama) eviscerates the Federal budget; the economy collapses and there are fights for years and years over the specific cuts he chooses. They get to call Obama a catastrophic president.

    Or Obama refuses to play (as friendly reader points out, this is not a one-time problem unless the Republicans come to their senses) and ignores the debt ceiling; lenders raise interest rates on loans to the Federal government (and I couldn’t blame the lenders), so the economy slips backward; and meanwhile the Republicans get to scream about Obama ignoring the law.

    Or, somehow or other, taxes are raised (I don’t think the executive can do this without cooperation from Congress, but who knows what happens in such an unheard-of situation); everybody is unhappy because nobody in all the six thousand years since the Sumerians first invented taxes has enjoyed being taxed; and the Republicans get to yell “Tax and spend! Tax and spend!!”

    In short, no matter what the executive does faced with this legislative tantrum, the Republicans get to screech that Obama is eeeevil. That’s the goal of the exercise.

    * NOTE: When I stress that this is their country, I don’t mean that the House Republicans should get to insist that they get their way no matter what the consequences. I mean that, like all citizens, they have responsibilities to their country. Since they’ve accepted jobs as legislators, it’s their obligation to govern it in a way that will benefit everyone.

  • http://redmarkedward.com/ Mark Edward

    Eliminating the debt ceiling would solve this problem. But what about the next problem, namely that our country is an unfathomably huge debt? Borrowing money will offset the problems now, but when will we ever post off all those debts? There’s no possible way except to do the (legal) “cheat code” of adding fifty or so trillion dollar platinum coins as legal tender. So getting rid of the debt ceiling fixes this particular legal problem in the present, but it only helps strengthen another ongoing problem, one that is extremely unethical: borrowing money, at interest, with no intention of ever paying it back.

  • http://apocalypsereview.wordpress.com/ Invisible Neutrino

    Canada and Europe and Japan all seem to get along fine without debt ceilings, you know.

  • FearlessSon

    But, but, but… real action is haaaaard! [/whine]

  • http://redmarkedward.com/ Mark Edward

    The US gets along well, too, but that doesn’t mean our $12 trillion is justified. I’m wondering out loud… how do we get rid of the debt itself without crashing the country into the ground, instead of making it bigger by removing a debt ceiling? Because even legally removing the debt ceiling seems like one of the many lose-lose options.

  • http://apocalypsereview.wordpress.com/ Invisible Neutrino

    As a percentage of your national production (GDP) it’s ~100%. That’s not far from Japan’s, which is also ~100%.

    People used to doomsay Japan all the time but after almost 20 years of claiming Japan’s gonna collapse and it hasn’t –

    Well, let’s just say the bloom’s off that rose.

  • TomG

    It’s not enough for the Treasury to mint the coin(s). The Federal Reserve has to agree to accept the coin. The Fed has already said that it will not do so. (The Fed could change it’s mind, of course, but that seems unlikely at this point.)

  • Veylon

    Japan may not be the best example. It has it’s share of economic woes and then some. 100% GDP debt is a bad thing, bad for Japan and bad for the USA. Going into debt should be a temporary measure for when it’s not feasible to raise taxes to pay for necessary services. What the country needs to do is understand that funding all the stuff we wants costs money and that the money needs to – sooner or later – come from taxes.

    All this borrowing from the future is easy and convenient now, but will come back and bite us someday when payments become due when things aren’t so sunny.

  • Lori

    Is there a country (that isn’t a petrostate) that you think does serve as a good example? What do you mean by feasible? Do you mean as a practical matter or as a political matter? Because the US could raise tax rates if our politics wasn’t so broken.

    The bigger problem here is that it makes no real sense to talk about the government shut down that’s due to happen in about 4 1/2 hours in terms of optimal ratios of debt to GNP and how to fund ongoing costs. That’s a debate over the budget, not the debt limit. The GOP is engaged in hostage-taking, not wrangling over fiscal policy.

  • Haven

    Next to a default, the US refusing to take on any more debt would actually be the worst possible thing for the global economy. That is not hyperbole: US debt is seen as the safest possible investment, the best place to stash your money, to the point where people will lend us money at a negative interest rate because they can’t just stash it all in their mattresses.

    So I’m not sure where you’re getting this idea that the US has “no intention of ever paying [our debts] back”–it’s right there in article 6 of the Constitution, and everyone believes we can do so to such an extent that it’s the foundation of the entire global economy. The debt ceiling is the only thing that can disrupt that, and it’s an entirely artificial crisis.

    (The “cheat code” isn’t necessarily a bad thing either–I’m just an armchair economist, so someone with more knowledge feel free to correct me, but it seems that the consequences of that, mainly inflation, are much less severe than defaulting, and even if we weren’t using it solely to pay off debt it could be a great stimulus to the economy if used correctly, say on infrastructure or programs like foodstamps, to the point where it would probably be worth the inflation.)

  • friendly reader

    Japan’s not a great example because it’s also very dissimilar to the United States. It has a falling population size due to low birth rates (1.4 births per couple) and infinitesimal immigration, plus a ballooning aging population. It has limited natural resources, relying heavily on imports of food and oil. They recently had to shut down almost all their nuclear power generators, increasing fuel imports. All of those contribute to their economic woes, and are not issues in the United States.

  • http://apocalypsereview.wordpress.com/ Invisible Neutrino

    All this borrowing from the future is easy and convenient now, but will
    come back and bite us someday when payments become due when things
    aren’t so sunny.

    If the USA was at war and it had to borrow up to its eyeballs to fight that war do you think you or anyone else would be complaining about mortgaging the future? Hell no!

    Winning a war keeps the biggest damn asset the country has – itself – in business and that’s good for it.

    In the same way, in peacetime, a country has itself as an asset to draw upon as needed to pay down that debt and it can do so as long as it continues to function.

    The Republicans, ironically, are endangering that functioning a lot more, right now, today, than any part of the national debt will do in 20 years.

  • http://apocalypsereview.wordpress.com/ Invisible Neutrino

    Quite a few would agree. If it comes to the “fire” (hyperinflation) or the “ice” (economic depression) they would opt for the “fire” if only because you can always print away debts held domestically, but debt + a sudden economic crash = a serious problem.

  • http://apocalypsereview.wordpress.com/ Invisible Neutrino

    Since the US Government owns the Fed, the question is academic.

  • Andrew G.

    the trillion-dollar-coin fix would not cause inflation any more than just raising or eliminating the debt ceiling would.

  • P J Evans

    Actually, the law goes back to 1917.

  • Lori

    I can comprehend the number, but for me being unable to remember my student loan debt total is a survival mechanism. If I really thought about it I’d lose the ability to get out of bed.

  • Buck_Eschaton

    I’m no expert but why does a monetary sovereign such as the U.S. Federal government have to borrow money. I understand it to be a political decision, basically a decision to grant welfare to the rich. Why does the government create the money, give it to the rich/bankers and then borrow it back at a high interest rate. I wish I was in that business. It doesn’t have to tax, except to control inflation. Why can’t the federal government just print debt free money, and take the banks and rich out of the equation.

  • http://apocalypsereview.wordpress.com/ Invisible Neutrino

    You’re joking, right? The only time I’ve heard it coming into force was when Gramm-Rudman got passed.

    Hmm.

    I sit corrected.

  • http://apocalypsereview.wordpress.com/ Invisible Neutrino

    Canadians are not thrilled either.

  • Ross Thompson

    nobody in all the six thousand years since the Sumerians first invented taxes has enjoyed being taxed

    To quote Chief Justice Olver Wendell Holmes: “On the contrary, I enjoy paying taxes; with them I buy civilisation”.

  • Lori

    I hate this bullshit. I especially hate that, thanks to gerrymandering, it’s unlikely that the people responsible for it will pay any meaningful price for it.

  • Buck_Eschaton

    I mean really, they’re all so concerned about the “Debt”. I think they just want a reason to loot social security, to make the poorer even poorer, to lower our wages even lower. Really the “Debt”, those politicians are so worried about it. At the very least $85 billion dollars every single month for years now, “liquidity” being directly injected into the banks to prop up the stock market and prop up executive compensation. To keep propping up the stock portfolios of the super rich. Really, at least $85 BILLION every month, at least $29 trillion given to the criminal banks since 2008, absolutely given to the rich…and we wonder why the rich keep getting richer and we have to suffer under austerity. I wonder why our “Debt” is so large. Could it be the guy down the street getting a couple hundred dollars a month, or the drug money-laundering bank getting billions. Hmm? Must be the guy down the street.


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