Debt Ceiling: Institutional Design By Accident

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It’s clear at this point that the function of the statutory debt ceiling is to allow an opposition-party congress to try to extract some concessions from the White House. So you might think that was the purpose of the thing. But you’d be wrong. As Sarah Binder explains the original idea was simply to free congress of the responsible to authorize each individual issuance of debt:

Judging from the NY Times coverage of the 1917 episode, legislators paid little attention to the implications of mandating a ceiling. They focused instead on Treasury Secretary McAdoo’s request for a higher borrowing limit so as to fund an expensive war effort. The ceiling was created to empower, not rein in, Treasury (prompting a failed effort to create a congressional committee to oversee Treasury’s actions). Similarly, the creation of the aggregate ceiling in 1939 reflected congressional deference to Treasury, granting the department flexibility in refinancing short term notes with longer term bonds. As the Senate floor debate makes clear, senators viewed the move as removing a partition in the law that hampered Treasury’s ability to manage the debt.

This is basically just one of those things that turns out to happen when your country has an unusually long period of continuous government. An institution that was set up at one time for one reason morphs around into something else. Unfortunately, the current practice represents a major threat to the economic health of the country, one that won’t go away even if we resolve the current standoff.