Friday, August 19, 2011

The Fiscal Irresponsibility of the "Don't Raise the Debt Ceiling Crowd"

What the folks who argue that the debt ceiling should not be raised fail to understand is that the money the Federal Government needs to borrow is essential not to pay for future liabilities, but to pay the bills already incurred. The federal government already had already taken out the credit card and used it to incur liabilities for certain expenses. Now that the credit card bill is coming due, and the federal government is short on cash, is the fiscally responsible thing to do simply to tell our creditors that we can't and won't pay, even when we can secure the funds to do so by increasing our debt ceiling limit?

Many of these absolutist "don't raise the debt ceiling" zealots, chief among them Michelle Bachmann, often use the argument that we Americans have to manage a fiscally responsible household and live within our means. But their attitude towards the debt ceiling is fiscally irresponsible and actually is the worst attitude to hold if fiscal responsibility is the supposed goal.

Let me explain it in the individual household finance terms they can understand. Let's say, in a family, the husband discovers his wife has a shopping problem and has maxed out their credit card credit limits. The credit card bills are coming due, and there's just not enough funds coming in to the household to make the minimum payments on these bills and also to pay the mortgage, feed the family, cover the doctor's bills, pay the roofers for the work they just did in replacing the old roof, and pay the neighbor's kid his fee for having just mowed the lawn, etc. The wife has acknowledged her problem and has agreed to cut back on the usual extras in the household budget in order to help regain the household's financial footing. But, that promise won't do anything about the current predicament. So, what does the family do about the current predicament?

Well, the family has a couple of options. First, the family can simply skip out on paying some of their bills. Maybe the doctor? Maybe the grocer? But, regardless, skipping out on paying some bills means damaging the family's credit rating and ruining the fiscal standing of the family in the marketplace. It may also mean that the grocer or the doctor might simply refuse to deal with the family in the future -- and that's true even if the family pays the grocer or the doctor if they know that the family is overextended and is NOT paying someone else. It could be them next time around. Second, the family knows that its income-to-debt ratio is such that if it can get the bank to loan it some more money while it tightens its household fiscal belt, it will be able to meet all its current obligations. And the bank, looking at the households financials, agrees. It's willing to loan the family more money (1) because doing so is sustainable, and (2) because not doing so would be damaging to the health of the economy that is dependent on the family's ability to meet its current and future obligations. The only thing getting in the way is the family's willingness to accept the loan, which crotchety old uncle Joe (who lives frugally within the family) has to sign off on. But crotchety old uncle Joe would rather teach the family a lesson by refusing to allow it to accumulate a bit more debt and forcing the family to make do with the first path of default, thus ruining the family's credit (including his own) and its fiscal standing in the marketplace. You tell me: is crotchety old uncle Joe acting responsibly? Or is he being a damn fool? I think the we all know the answer.


Eric said...

Perhaps uncle Joe isn't just being spiteful. Maybe uncle Joe is suspicious of the wife. She promised to cut back on the usual extras, and then the very next day she took a $10,000 cash advance on one of the credit cards and sent it to one of those televangelists with bad hair who promised to use it to feed starving children in Africa. Then she hit another credit card for $50 and used it to buy some books on Feng Shui. Then she took $5,000 out of their savings account and lent it to the neighbor's kid to pursue his degree in Eastern Philosophy. She promised to cut back on her 3 pack a day cigarette habit, but when Joe noticed she didn't seem to be doint it, and asked her about it, she told him that she had formerly planned to start smoking 4 packs a day, so really she could go up to 3.2 packs and it would count as savings. Then she told him to quit being such a crusty old asshole or else she would cut the electric line that runs to his appartment.

She did agree to look into hiring a cheaper gardner, but only after she meets with the homeowners association in 6 months to determine if they will allow her to use a gardner who doesn't belong to the gardner's union (and it's not her fault if half the people on the homeowner's association have family who work for the garder's union).

She promised to drop the premium channels from their cable subscription, but she *really* enjoys True Blood on HBO and her life would be worse without it, so she dropped the premium package which gave her HBO, Starz, Showtime, and Cinemax for $98 per month, but signed on for a new one that lets her keep HBO for $75 per month. The basic package only costs $40 per month, but she hopes if she doesn't talk about that nobody will mention it (she knows Joe will mention it, but he just complains about everything anyway so maybe nobody will listen to him).

Then, to top it all off, last week Joe saw her walking out of the banker's office. Her hair was messed up, her lipstick smudged, and a couple of the buttons on her blouse were undone. He approached her about this and she told him, "I'm trying to save our family here, and you are just getting in the way!" The next day when Joe got in the family pantry to dig around for a meal, he noticed someobdy had subtley placed Alpo cans next to Campbell's soup. He wonders what that means. Surely it's not soem kind of threat.

Joe gets angry about all this sometimes and looses his temper. He's not sure what to do. He's pretty sure the wife can't be trusted, and he's pretty sure there is some funny business going on between her and the banker. He has doubts that their plans have much to do with the best interests of the family, but he sees there would be some very hard times if their relationship fell apart... But it's all so slimy and wrong, and Joe was raised better than that. Joe chooses the hard way, and he prays at night for his family. He hopes he's right.

Huck said...

Heh! That's classic, Eric. If crusty old uncle Joe wants to cut off his nose to spite his face, more power to him. And if he wants the family to renege on his current obligations when a plan to cut back expenses is on the table, that's also his prerogative. I see your point and understand why crusty old uncle Joe's nose is out of joint. But I still think it's fiscally irresponsible. In fact, not a single thing of what you wrote speaks to responsible behavior on uncle Joe's part. You leave uncle Joe's decision to his feelings about the wife, and to some irrational reliance on God and prayer that it will all work out in the end.

Seems to me that a responsible position would be one in which the husband, in consulation with the rest of the family, should at least have the chance to get his wife in line before old uncle Joe and his moralizing ruins the family. Seems to me that the grocer and the doctor and the neighborhood lawn-mowing kid who need to be paid also don't deserve to be punished because crusty old uncle Joe finds the wife to be all slimy and immoral. It's an odd notion of fiscal responsibility that would argue that stiffing the doctor, the grocer, the gardener, etc., is what he simply hopes is the "right" course to deal with the wife.

Eric said...

Well, the wife has put the family in a position where there is no way to fix the problem without being irresponsible. It is irresponsible to borrow money in a (futile) attempt to remedy a problem that was caused by borrowing too much money, especially when the best effort the wife has put forward in terms of reining in her spending amounts to throwing a hundred dollar bill at a thousand dollar problem. Joe is absolutely right about that. It is also irresponsible to default on the irresponsible lenders who allowed you to borrow that much money in the first place. You'll get no argument from me there.

My only argument is that, given the flakiness and questionable morality of the wife, Joe's solution isn't any less morally teneble than any other I've heard. There's really no reason to think borrowing more money is going to solve the problem. I'm not so sure I'd do the same thing as Joe were I in his position, but I don't think he's wrong for doing it.

It's also worth noting that there is a third solution you left out: Joe's family could always fire up their HP printer and print up dollar bills to pay their debts, without borrowing any money. It's about as irresponsible as the other two options, but you might get Joe to go for it.