Debt Ceiling

Friday, 05 August 2011 02:15

Written by Neric Acosta

What exactly is a debt ceiling? An office colleague posed this question to me and I was hard-pressed to give a fairly intelligent answer. This, of course, was related to the congressional-White House crisis that had almost ground Washington to a standstill – and threatening not only the American economy but the rest of the global economy as well.

To put it simply, a debt ceiling is a limit to what one can borrow from banks – or in the case of a government like that of the United States,’ its borrowing authority to continue to fund its vast range of programs and reduce its deficit. The squabbling over debt and deficit strategy in Washington between Democrats and Republicans for weeks turned bitterly partisan, not least because of the intransigence of populist and highly polarizing movements like the Tea Party.

To begin with, America, for all its vaunted strength as the world’s economic superpower, is in deep debt. A 14 trillion-dollar debt, in fact. It is difficult to wrap our minds around the idea of a billion let alone a trillion dollars. But as a website on the debt crisis in the United States would point out, a trillion dollars made up of stacks of a hundred dollar bills would pile up higher than any New York skyscraper.

The last-minute deal in Congress, a cliffhanger if there ever was one with epic implications, was meant to avert a debt crisis that would have made America default on all its obligations and undermine its credit rating. This would have wreaked havoc on Wall Street and sent shockwaves around the world, threatening to deepen the global recession that came to a head in 2008 with the subprime housing debacle.

Still and all, the 2 trillion-dollar deficit-reduction plan, by way of spending cuts, that the compromise legislation set in place will hardly cover the mounting funding needs for wide-reaching social programs on education, health, the environment, and even defense. The ascendant and increasingly strident Tea Party Republicans played out in full ideological fashion their demands for a much-reduced role for government altogether, calling the $2.4 trillion in cuts insufficient – never mind if this would mean the country defaulting on its debt and credit-worthiness.

What is at work here is the increasing polarization of political thought in the world’s superpower. On one hand you have a democracy that has seen forms of extremism, with movements like the Tea Party calling for minimal government and less regulatory authority altogether, demanding tax cuts even for the wealthiest, and proposing spending cuts across-the-board even at the risk of greater social discord. All this to putatively enable ordinary people and businesses to grow and flourish without the heavy hand of the state and allow for more private initiative that would, on a whole, drive opportunity and employment all around.

On the other hand, you have the school of thought that demands an interventionist role for the state – to bridge social divides and provide for the protection of the “commons” of clean air and water, public schools and healthcare centers, law and order, and national security. As society becomes more complex, government cannot retreat from addressing social inequality and uneven playing fields. To be interventionist, therefore, requires more taxation to fund programs and even resort to acquiring loans and living off debt to spend for various initiatives that would benefit, arguably, the public good.

What then, is the role of the state in a democracy that is committed both to private enterprise and the free market, and yet founded also on the very idea of equal opportunity and access to the basic rights to health, education and environmental protection, security? The answers, one way or another, are shaped or given form in the political arena by political parties, and driven, some more forcefully than others, by ideological frameworks. The choices made on behalf of the public are made to a large extent with reference to the latter – although mixed or defined also with the vagaries or fickle-mindedness (not necessarily with reason) of public opinion. The infighting and polarized debates in the American polity has only shown that dark side to demagoguery, owing to some of the machinations of the Tea Party Republicans.

President Barack Obama has now signed the emergency law that has allowed government to pull back at the nick of time from reneging on many of its funding commitments to the public. A financial and economic catastrophe has been averted, as has been a possible government shutdown. But what does that say of America and its politics? And does this divisiveness and cutthroat partisanship in the political realm bode ill for efforts towards economic recovery or sound fiscal policy?

The lessons, moral and otherwise, are legion. For now, the take-away is that of the raising of a debt ceiling, which perhaps means that in the economy as in politics, we all need some reprieve, the space to breathe, compromise, rebuild and find common ground. The alternative could simply be paralysis and destruction. A no-win situation for anyone.

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