Does a federal debt limit make sense when Congress can — and does — raise the limit regularly? Economist and Forbes columnist David Malpass doesn’t think so.
The current debt limit applies only to past obligations, not new spending, making it ineffective. It’s like stating a desired limit on your credit card bill but not limiting usage. Thus, one of America’s key structural reforms should be to replace the law with one that, when violated, forces spending reductions and asset sales but doesn’t threaten shutdown, default or nonpayment of obligations.
The 1917 law created the framework for the current national debt, ending the requirement that each bond issue pass Congress. It allowed $8 billion in national debt, the first tranche of an ultimate $30 billion debt to fund World War I, repayable in gold. Congress eventually abrogated the gold clause in a law the Supreme Court later found unconstitutional; however, the “debt limit” had served its purpose by dramatically expanding the federal government’s ability to borrow to fund deficit spending.
Efforts to fix the debt limit by attaching spending cuts or balanced budget requirements don’t work. It’s not that fiscal conservatives lack backbone or public support. It’s simply that the current debt limit doesn’t create any leverage over Washington’s tax-and-spend culture. Failure to increase it causes sudden nonpayment of past government obligations and contracts, which is politically and economically unacceptable to all.
