Two years into the Obama administration and the overused tactic of claiming crises to push legislation is becoming tiresome.
Remember, immediately after President Obama came into office, we were warned that if the massive Stimulus program wasn't passed immediately, unemployment would go up above 8.1 percent. And the health care takeover had to be passed by August 2009 or public and private health care costs would spiral out of control.
Of course, it is now obvious that neither the stimulus program nor Obamacare had any prospect of accomplishing their stated goals. And then there was the start treaty with Russia which absolutely had to be passed quickly last month or real damage would be done to US-Russian relations. Yet, in what was widely seen as a slap against President Obama, the Russians didn't see any urgency in passing the treaty, and indeed they still haven't passed it.
Now the Obama administration is warning of disaster if Congress doesn't quickly pass an increase in the debt limit. The federal debt last week passed $14 trillion, up from over $10 trillion at the beginning of the Obama's presidency. But with the federal government authorized to borrow a maximum of $14.29 trillion, the federal government won't be able to borrow more money after the beginning of March unless the debt ceiling limit is increased.
According to Austan Goolsbee, chairman of the Obama's Council of Economic Advisers, the “impact on the economy would be catastrophic" if congress fails to pass the debt ceiling and a vote against passing the debt ceiling would produce "the first default in history caused purely by insanity.”
Such hyperbole does not pass the most cursory scrutiny: "the first default in history" surely seems to imply that congress never before failed to pass a debt ceiling increase, yet it has happened over and over before. Examples include: December 1973, March 1979, November 1983, December 1985, August 1987, November 1995, December 1995 to January 1996, and September 2007. And no, there was no crisis in the economy nor any default. Instead, the government simply was forced to temporarily stop borrowing and cut spending to align expenditures with revenues. And on Thursday, Treasury Secretary Timothy Geithner said, "Even a very short-term or limited default would have catastrophic economic consequences that would last for decades… For these reasons, I am requesting that Congress act to increase the limit early this year, well before the threat of default becomes imminent."
Even the two infamous government shutdowns -- for five days in late November 1995 and then a few weeks in December 1995 and January 1996 -- did not lead to a default. They do not seem to have damaged the economy either as there was no increase in unemployment during either December 1995 or January 1996. And quarterly GDP kept chugging along. -- The main drawback is that some Federal employees had to miss a paycheck or two, certainly a non-trivial problem for some individuals who did not have any money saved up.
Ironically, back in March 2006 when President Obama was a Senator, he had no problem voting against a stand alone debt limit extension. The final vote was a close 48 against the increase to 52 in favor of it, but back then he was very upset about the then $248 billion deficit. On the Senate floor, Senator Obama complained: “The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the U.S. Government can't pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government's reckless fiscal policies. ... Increasing America's debt weakens us domestically and internationally. "
And, of course, during the 2008 presidential campaign, Obama promised time after time "a net spending cut" to make government smaller than it was then in order to cut the deficit.
Hopefully a government shutdown will be avoided. But there can be benefits. Newt Gingrich argues that the shutdowns in 1995 and 1996 were used as leverage to force President Clinton to agree to four years of balanced budgets. With the 2011 deficit predicted to be an astounding $1.5 trillion, the third year in a row with such a large deficit, the gain from fiscal sanity from using the debt limit to get some cuts in spending will far outweigh any short-term inconveniences.