April 11, 2011
Can Government Debt Be An Asset?
With a government shutdown successfully averted, the new issue is how to deal with the debt ceiling. The debt ceiling provides a statutory cap on the amount the federal government can legally borrow. Of course, it's pretty well known that the debt ceiling needs to be raised, because Congress already committed to obligations in December that required raising the ceiling. They conveniently punted on raising the debt ceiling then, and simply made commitments that would require future action. As CNN.com explains: "[M]uch of the political rhetoric is misleading because the money has already been committed and lawmakers are arguing over whether to pay the bill, according to former Congressional Budget Office Director Rudolph Penner."
I am not a huge fan of our ever-increasing national debt, but I am even less fond of a national default on debt already incurred. We, through our representatives, agreed to pay off our debt, and we need to follow through on those obligations. It is possible that some cuts can be made to limit the necessary increase in the debt ceiling, too, which I support, but the solution needs to include not defaulting -- period.
In the film (and book) Barbarians at the Gate, Henry Kravis was famously attributed with saying, "Debt can be an asset. Debt tightens a company." Maybe that can be true for the government, too; maybe debt can tighten a country, so that our government can be more efficient, more focused, and more productive. Of course, this can't happen if the nationl debt continues to increase without even acknowledging that the ceiling needs to be raised and accepting the concomitant criticism that follows at the time. The first order of business, then, should be to ensure that the government can't increase debt obligations without at least raising the debt ceiling (if needed) at the same time. There should be no punting the issue down the road. By waiting to have the conversation about increasing the debt ceiling, the Congress that took on the obligations avoided the other consequence of taking on such debt, also as explained in Barbarians at the Gate:
Henry Kravis: "Debt can be an asset. Debt tightens a company."
F. Ross Johnson: "It does wonders for the sphincter, too."
Perhaps it's best that those go hand in hand when it comes to incurring government debt.