October 21, 2013

Some problems can’t be solved by better institutional arrangements. The threat of another government shutdown is one of them — and at least one reform idea going around could make things worse.

David Frum today pushes one idea which I like a lot: eliminating the debt limit. He’s right; there’s basically no reason for it to exist. It’s extraneous to the real process of setting government funding and taxation. Eliminating the debt limit would have no net effect on the deficit, on spending, or on taxes. It would just remove something which, essentially, is a pure drag on the system with a possibility of real destruction.

However, he also suggests that we eliminate the possibility of government shutdowns by enacting a fail-safe that would “simply carry over the previous year’s budget month by month until agreement is ultimately reached.” It’s a terrible idea.

The effect of an automatic “clean” continuing resolution is clear: whenever budgeting decisions are contentious (that is, in most years), the side closer to the status quo would close up shop and put the government on autopilot. In 2011, that would have been terrible for Republicans; this year, it would be marginally bad for Democrats. Generally, it’s going to work against whichever party did better in the most recent elections than in past elections — after all, the status quo presumably was passed by those who won past elections. In fact, it’s basically impossible to come up with a rule that would give both parties incentives to actually make a deal (for more on this theme, see Gary Cox).

Meanwhile, by giving one side (and at that, the recent losers) an extra veto against change, an automatic CR procedure would make it even less likely that Congress would go through the regular appropriations process. That process is in bad enough shape already; a fail-safe CR would be even worse. That’s a net loss to everyone.

The truth is that some things can’t be fixed by better institutional design. As long as there’s two independent chambers of Congress and a president with veto power, we’re going to have budget fights. There’s nothing wrong with that! As for shutdowns…other than very short government shutdowns, we’ve only had three: the two in 1995-1996, and the one that ended last week. What they all had in common is that one side deliberately decided on a shutdown strategy. In each case, that was a very foolish strategy indeed, and in each case it backfired on those who instigated it. Contrary to what some believe now, extended government shutdowns are by no means the natural result of partisan polarization.  They come from reckless and destructive parties in Congress, and when one of those shows up, trouble will follow regardless of institutional arrangements.

As Seth Masket argues, it makes some sense in such cases not to “leave dangerous toys lying around.” So, yes, by all means get rid of the debt limit, especially since it has no positive function anyway. But automatic CRs would be a solution worse than the problem.