Good sense may be a rare commodity in Washington these days. But lawmakers have finally recognized they were flirting with mutually assured destruction. Now, thankfully, they have downgraded the nation's debt threat to DEFCON 3. The U.S. House of Representatives has passed a Republican motion to raise the nation's borrowing limit for four months. The move implies the GOP will now try to cut the deficit by threatening to shut down the government instead. It's less messy and might just work.
The bill is simple enough. It gives lawmakers until May 19 to approve a budget. That may seem easy. But Congress hasn't managed this seemingly basic task in nearly four years, relying instead on resolutions to fund the government. In a fitting twist, the House bill also plans to withhold congressional pay if a budget isn't in place by April 15. But the average lawmaker's net worth was almost $8-million (U.S.) last year, according to Opensecrets.org. So docking a $174,000 annual salary might not be that painful a spur to action.
But Wednesday's vote shows Republicans are rethinking the dubious strategy of threatening to blow up the entire economy by holding down the debt ceiling. Abandoning their threats to force a U.S. default doesn't eliminate their leverage to demand spending cuts, however. If a budget isn't accepted, they can refuse to fund the government, forcing it to shut down.
Though inconvenient, a short closure should have minor economic consequences. It closes parks and museums, endangers public safety and adversely impacts federal contracts, to name a few. The longest shutdown – 28 days in 1995 and 1996 – cost taxpayers $2-billion once adjusted for inflation, according to the Office of Management and Budget. By contrast, a mere 10-basis-point hit to Treasuries from a default would increase U.S. annual borrowing costs by more than $7-billion.
That month-long shutdown, along with an expanding economy, had some effect. Federal outlays grew by less than 3 per cent in the four years that followed – slower than the decades before and after, which averaged 4.8 per cent and 7.6 per cent, respectively. And surpluses followed. History suggests it's safer – and more productive – to put a gun to Uncle Sam's kneecap than his head. Republicans finally seem to have remembered.