Paul Krugman Offers Predictably Insane Take on Debt Ceiling Showdown

Economist Paul Krugman poses before a conversation at the 92nd Street Y on Sunday, Oct. 14, 2018, in New York.

Washington is facing yet another showdown over the debt ceiling, the legal limit on how much debt the federal government can take out. Treasury Secretary Janet Yellen is now warning Congress that we might reach that limit as soon as June 1, meaning Congress must act to pass a bill raising the debt limit. If it fails to, the United States would default on its debt — a catastrophic outcome that would cause an economic crisis.

So, it’s no surprise that as the clock ticks closer to catastrophe, the rhetoric in this debate is getting heated. But what is surprising is just how little resemblance that rhetoric bears to the actual reality of the situation.

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President Joe Biden has accused “MAGA Republicans” of “reckless hostage-taking” and House Speaker Kevin McCarthy (R-CA) of “threatening” to “default on the national debt.”

Meanwhile, the liberal media are similarly condemning Republicans. In perhaps the most stark and unhinged example, New York Times columnist Paul Krugman accused Republicans of engaging in “a financial version of January 6.”

Based on all this rhetoric, you’d be forgiven for thinking that Republicans are for some reason refusing to raise the debt limit and risking a national crisis. But that’s not the case. The House, which is the only part of the federal government Republicans control, has already passed legislation that would raise the debt limit and eliminate the threat of default — until the next time we hit the limit.

That legislation, the Limit, Save, Grow Act of 2023 , not only raises the debt ceiling but also cuts spending back to fiscal 2022 levels, which, spoiler alert, were still quite high. It also includes some partisan victories for Republicans, such as repealing the crony climate subsidies Democrats passed in the so-called Inflation Reduction Act, blocking Biden’s student loan bailout, revoking expanded IRS funding, and adding work requirements to Medicaid.

This means that in order to avoid a default, all Democrats have to do is pass this bill through the Senate, which they control, and have Biden sign it into law. The ball is 100% in their court.

“One party has taken care of the debt ceiling. We have lifted the debt ceiling. … The Democrats have not,” McCarthy said after the bill’s passage. “[If] the president wants to make sure the debt ceiling is going to be lifted — sign this bill.”

So Republicans are not forcing America to default. If the U.S. does, it will be because Democrats chose to default rather than accommodate the Republican concessions — which, to be clear, aren’t exactly draconian. In fact, the legislation has received ample criticism from the Right because it doesn’t do nearly enough to reduce the debt.

As James C. Capretta wrote for the Dispatch:

“While these savings are significant, they remain small relative to the size of the nation’s budget problem. Even if the House bill were to become law — a highly unlikely scenario — the government would still borrow $15.5 trillion over the next decade and run an annual deficit in 2033 of nearly $2.2 trillion, or 5.6 percent of GDP. For context, the average deficit from 1970 to 2008 was 2.4 percent of GDP.” So, Republicans aren’t “holding the Democrats hostage” or anything “crazy” like that. They’re just asking that we contribute a few trillion dollars less to our mountain of debt over the next decade.

What’s more, Democrats can negotiate with McCarthy. They could almost certainly reach some sort of compromise that includes fewer partisan poison pills. But they are demanding that Republicans blindly raise the debt limit without any reforms or concessions. That’s like responding to your out-of-control credit card spending by taking out a new credit card with a higher limit yet not changing any of your habits. It’s fundamentally unreasonable, and Republicans need not go along with it.

They’ve done their job. And it’s not “insurrection” or “hostage-taking” to ask that the government slightly reduce the rate at which it is burying the public in debt.

If the U.S. does default, that catastrophic outcome will ultimately be the Democrats’ fault because they will have chosen partisan stubbornness over modest concessions in the public’s best interest.

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Brad Polumbo ( @Brad_Polumbo ) is a libertarian-conservative journalist and the co-founder of BASEDPolitics.