The Debt Ceiling Distortion

Maybe it’s time to redefine the ‘debt ceiling’—to give it some teeth.

It’s common knowledge that the federal debt has been increasing exponentially. Given Capitol Hill’s long track record of just-in-time increases in the statutory debt limit, one wonders just how much value there is in having a so-called limit (a.k.a. a “debt ceiling”) as it is currently defined—apparently, little besides the political grandstanding value for the party that doesn’t occupy the White House in any given year.
Maybe it’s time to redefine the “debt ceiling”—to give it some teeth.
The chart below is the conventional, “hockey-stick” view of our federal debt, as well as the ever-increasing debt limit Congress supposedly imposes on the fiscal process. Judging from contemporary headlines, op-eds, and letters to editors, this chart alone is sufficient reason to start panicking. Fortunately, however, it’s not the only way of gauging the effects of our federal debt.
This chart might make it seem as if a disaster is in progress. Although that just might be true, panicking is likely a gross overreaction—that is, if we can get the economy growing more rapidly. The second chart below will make that point.
Why might knee-jerk panic be an overreaction? Because it ignores key information. It’s like jumping to the conclusion that your favorite baseball team will lose the game merely because the cleanup hitter has struck out twice in a row. Sorry, but that’s not enough information. For example, what if the rest of the team is about to score plenty of runs while the pitching staff holds the opponents scoreless for the rest of the game? If that happens, who cares about the cleanup hitter’s bad day? A win is a win. As Casey Stengel said, “"The Yankees don't pay me to win every day, just two out of three." And there’s more than just one way to win a baseball game.

Read more: http://www.american.com/archive/2012/april/the-debt-ceiling-distortion