Lawrence O'Donnell Has Not Quite The Last Word on Raising the Debt Ceiling

MSNBC Olbermanniac replacement host Lawarence O'Donnell has a formidable presence and knowledge base (he worked as a Senate staffer for Sen. Daniel Patrick Moynihan (D-N.Y.) and was a producer of The West Wing, a teevee show prized for being more realistic than reality (or so I've been told)).

All of which has got to help O'Donnell sound like he's knows what he is talking about when he is flat-out wrong.

Which he is when he claims, as he did last night, that the government has never actually reached the debt limit. In a conversation with former Clinton admin economist Alice Rivlin, O'Donnell said this (rush transcript courtesy of MSNBC, emphasis mine):

…what would happen if we failed to raise the debt ceiling on the day it approaches, where at the stroke of midnight we crack through it at the treasury. and it's not an easy thing, because we've never done it.

Our story thus far: The debt ceiling or limit dates back to the World War I era and represents the amount of money the federal government can borrow to operate without having to go back to Congress to specifically authorize an increase in the credit line. Total federal debt is the sum of all deficits and unpaid borrowing going back to the fat years…of George Washington. Including intra-governmental transfers (such as all those IOUs in the Social Security "trust fund") and debt held by outside investors (including your pension fund, the Chinese, et al) totals around $14 trillion, or basically the size of the economy itself (not a good thing). When the tab hits $14.3 trillion, Uncle Sam's credit line will go dark unless the government specifically authorizes an extension, which has happened oh about 10 times since 2000.

Because he speaks with the authoritative disdain of a prep-school and Hah-vad grad, O'Donnell always sounds convincing. However he, and many other commentators and pols are simply wrong that a) the federal government has always raised the debt ceiling before it's been reached and b) the consequences of failure have been terrible or, to echo Obama adviser Austan Goolsbee, "catastrophic." Treasury Secretary Tim Geithner has said that a debt limit FAIL would be the "first default in history caused by fiscal insanity," but failing to raise the limit is not the same as defaulting on anything. As the Government Accountability Office has flatly said (page 10), "Treasury has never been unable to pay interest or principal on debt held by the public because of the debt limit."

As Reason columnist and Mercatus Center economist Veronique de Rugy has written, the debt limit was reached in the 1980s, in the 1990s, and in 2002 without being rolled over immediately. In 1995-96, in fact, the limit was in force for six months, all without a "catastrophic" result that anyone can remember. The increasers say that failure to raise would send the wrong signal to the "markets." Mebbe. But so does a continuing inability to address levels of spending as a percentage of GDP not seen since World War II and debt at 100-percent-plus of total GDP. The SNAFU argument for boosting the limit doesn't cut it anymore.

O'Donnell is right that the Republicans are hypocrites when they now oppose lifting the limit while being in favor of jacking it during the Bush years. He doesn't often mention that Barack Obama has switched sides on the issue, too. Back in 2006, Sen. Obama voted against increasing the limit, calling the need to do so "a failure of leadership."

Hitting the debt limit means that the government would have to funnel some of the expected $2.2 trillion in revenue this fiscal year to cover the $200-$300 billion in anticipated interest costs. The debt limit is there precisely to force the government to stop every once in a while and account for why it's borrowing so much money. Rather than, I don't know, living within its means mostly, carrying some long-term debt at favorable rates and going on the street once in a while during cash-flow crises and then getting rid of the debt in flush times (doesn't anyone in this place have a mortgage, an equity line, and a second-cousin once removed named Nunzio? I can't be the only one).

I never thought I'd have a kind word to say about congressional Republicans, but good for them for pushing for some fiscal reckoning before rubber-stamping more rubber checks. I know they'll be singing a different tune when President Trump is running the show (and here's hoping the Singing Senators are gone for good), but we live in the fierce immediacy of now. And right now, the government's gotta get its balance sheet in order. And tomorrow too.