The Debt Ceiling Is an Artificial Crisis | Opinion

The following is a lightly edited transcript of remarks made by Betsey Stevenson during a Newsweek podcast debate on the debt ceiling. You can listen to the podcast here:

I want to clarify that the debt ceiling fight is not a fight over how much debt we should have. When we debate how much we're going to spend and how much we're going to tax, those are spending plans and revenue plans. That's when we're deciding how much we're going to deficit-spend, and deficit-spending accumulates to build up the debt. The debt ceiling fight is about an artificial line where we say, well, we all passed—Republicans and Democrats together— bills that mean that we systematically, year after year, bring in less revenue than we spend. And today, we're hitting this level where maybe we should just stop paying our bills. Maybe we should default. Maybe we shouldn't send out Social Security checks. No American really wants that. We need to agree on what our spending plans should be. We need to agree on what our revenue plan should be, and then that's going to result in debt.

I think it's important that we talk about the debt, but we've created this sort of artificial crisis with the debt ceiling for most of history. As Phil pointed out, it was just raised without any real debate, because it was also set in nominal terms. Imagine if we had the debt ceiling that goes back over 100 years ago, we'd basically have no debt today. There is good reason to have some amount of debt. There are bad reasons to have some amount of debt. And there is some amount of debt that might be too much debt. Those are all debates for us to have, but we shouldn't have those around a conversation about whether we should or shouldn't default on the debt.

The motorcade carrying US President Joe Biden
The motorcade carrying US President Joe Biden travels to the US Capitol in Washington, DC on October 1, 2021. MANDEL NGAN/AFP via Getty Images

I think that we should not have a debt ceiling. It's completely absurd. So think about what happens if we hit the debt ceiling and we don't raise it—then we start arbitrarily not paying some people money that we legitimately owe them. We start not being able to roll over the debt as it comes due. This is a really arbitrary way of deciding who gets hurt, and who doesn't get hurt, from us spending too much and not bringing in enough revenue.

If you're worried about debt getting too high and you want some arbitrary line, well, then instead of a debt ceiling where we automatically default, we could have a revenue minimum amount, where if we hit the debt ceiling, we could automatically say taxes go up by 10 percent for everybody because we don't want more debt. At least then, we would have something that the pain was in proportion to what people pay into the system. Maybe we could have an automatic wealth tax, where if we hit a certain amount of debt, anybody who has more than $50 million in wealth has to chip in 3 percent of their wealth. Those are just as sensible—in fact, probably more sensible rules than a debt ceiling where we start not sending Social Security checks to people who depend on Social Security checks to live. So I think if you think about what the alternatives are, you start to think about how ridiculous the idea of an automatic default point is.

Betsey Stevenson is a professor of public policy and economics at the University of Michigan and a former member of the White House Council of Economic Advisers.

The views expressed in this article are the writer's own.