The United States has experienced many periods of crippling partisan conflict in Congress. It has also experienced bouts of heavy national indebtedness.
Yet it has seldom, if ever, experienced both simultaneously. This helps explain why Treasury securities have come to be regarded as “risk-free,” safe enough to use as reserves in banks — and central banks — around the world.
Now, though, the government’s publicly held debt exceeds 70 percent of gross domestic product, Congress is more polarized than it has been since the 19th century, and both conditions are likely to persist.
This state of affairs makes the impasse over extending the debt limit especially fateful.
How did we get here? Between 1789 and 1917, the federal government’s debt wasn’t much of an issue at home or abroad. As Anita Krishnakumar showed in a 2005 article for the Harvard Journal on Legislation, the U.S. government was small and generally went into debt only to pay for wars, or when recession temporarily dried up tax revenue.
Each time, Congress voted on specific bond issues. The understanding that debt was temporary blunted partisan resistance; once the crises passed, government reverted to balanced budgets or surpluses.
It was not until global military conflict reached America’s shores, in the form of World War I, that Congress felt obliged to end the practice of separate votes on each war-related bond issue. The result was the debt-ceiling law, which was supposed to constrain indebtedness without the need for constant votes.
But just a decade after the Great War came the Depression, followed by World War II and then the Cold War. The net effect was a large national debt that ebbed and flowed but never disappeared.
The permanent debt was accompanied by a new, and seemingly permanent, consensus that accepted a large national security establishment — to prevent a repeat of global war — and a large government role in the economy to protect against macroeconomic vicissitudes. Debt-limit laws regularly passed, more or less eventfully, but without anything like today’s drama.
Indeed, 1917 marked a new dawn of relatively low partisan conflict in U.S. politics, and it lasted through the fall of the Soviet Union in 1991, according to an authoritative analysis of congressional voting data by political scientist Keith Poole. In that time, the United States experienced a civil rights revolution, Vietnam and Watergate, yet its basic political stability remained so axiomatic that investors literally banked on it.
Now, of course, the partisan comity that Poole documented has broken down. Why — whether because the Cold War no longer provides a common enemy or because selfish ideologues gerrymandered themselves into safe congressional seats — hardly matters.
Neither the “war on terror” nor the Great Recession rekindled national unity, as many once expected. To the contrary, they spawned new divisions that the political parties have rushed to exploit.
But while GOP factionalism and extremism caused the present predicament, they are also symptoms of a wider breakdown in national consensus that must be addressed if we are to reassure the global economy about long-term U.S. creditworthiness.
Reforming the debt-limit law is one place to start. It has its virtues, chief among them the power to periodically focus the nation’s attention on its accumulated debt burden, which, though related, is a separate issue from the annual level of spending, taxes and borrowing.
Alas, the law was crafted in a different era, before U.S. debts were so large, and our ability to service them so crucial to the world’s well-being. Our politicians were not so easily frightened into voting against a debt increase — or so easily tempted to partisan blackmail.
We need a new debt-limit law for a new era of permanent debt and permanent partisan conflict. Ideally, a reformed procedure would preserve the law’s power to focus Congress on accumulated debt while removing, or minimizing, incentives to delay passage, and thus usurp presidential power.
There should still be votes, but less frequently and with as little as possible at stake each time. One way to achieve this would be to exclude from the debt limit Treasury debt held by the Federal Reserve or trust funds such as Social Security and Medicare, as Krishnakumar has suggested. What’s really relevant to the government’s credit is not how much it owes itself but how much it owes foreign governments, banks, pension funds and others — about $10 trillion of the current $16.7 trillion debt.
Is it sensible to talk about preventing the next crisis before we’ve even resolved this one? Actually, I can’t think of a better time.