Payment Prioritization Is a Threat to Democracy

(Originally published here.)

Back in January, the last time we were worried about the debt ceiling, JPMorgan’s chief economist said that a default on U.S. government debt would transform the world into a Hieronymus Bosch painting of hell. This is why lots of people have spent lots of time coming up with tricks to get around the impasse created by Congress, including a declaration that the ceiling is unconstitutional, a platinum coin with a ludicrously high face value and a scheme to refinance existing bonds into new instruments that are worth more. (Some of those ideas are easier to implement than others.)

Congressional Republicans don’t like any of these. They would prefer that the government avoid default by simply promising to pay bondholders before anyone else. Since debt-service costs are a small fraction of tax revenue, this should theoretically make default impossible. Martin Feldstein, a Harvard economist and a former adviser of several Republican presidents, has endorsed this idea, although there are lots of good reasons it might not work and it would be undesirable even if executed properly.

Yet there is an even better argument to be made against payment prioritization: It would transfer the power to determine the funding of government programs from Congress to the executive branch. A rump of representatives could collaborate with a president to use the debt ceiling and the prioritization process to defund whatever programs they disliked, irrespective of what the rest of America’s legislators wanted.

Imagine if a small minority and an ideologically sympathetic president joined to deprive the military of the resources it needed to station forces abroad, or shut regulatory agencies that made life difficult for key donors, or eliminated food stamps and Medicaid. The government would run a balanced budget and avoid missing payments on its debts, though programs the majority of Americans deemed essential would cease. It would, in effect, be the end of U.S. democracy as we’ve known it for more than 200 years.

The Constitution’s separation of powers is supposed to prevent these sorts of outcomes by empowering Congress to determine taxes and spending. Presidents can veto programs they dislike and the courts can overrule laws that are unconstitutional, but the power of the purse is supposed to rest with the representatives of the people. Any Congress that voluntarily gave away this power would erode an important check on presidential authority.

Most people argue that the debt ceiling should be raised because the economic costs of failing to do so would be catastrophic. That’s true, but the cost to America’s democratic institutions could be even worse.

(Matthew C. Klein is a writer for Bloomberg View. Follow him on Twitter.)


About Matthew C. Klein

I write about the economy and financial markets for Bloomberg View. Before that I wrote for The Economist on a fellowship provided by the Marjorie Deane Financial Journalism Foundation. I have worked at the world's largest hedge fund and read every FOMC transcript since May, 1987.
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