Don’t combine a constitutional crisis and debt default
President Joe Biden and Republican leaders in Congress made next to no progress in their debt-ceiling talks last Tuesday, and talks planned for Friday were postponed. They’ll try again this week. For the moment, both sides seem willing to hit the imminent deadline for resolving their dispute without giving way — hoping to blame the damage on the other side. Readiness to inflict needless harm on the country seems to be the one thing they agree about.
As a result, attention is turning to the mechanics of fiscal breakdown, and what might be done to avoid the worst when the ceiling is reached. Biden says he’s considering invoking the Constitution’s 14th Amendment, one part of which holds that “The validity of the public debt … shall not be questioned.” Some lawyers see this as sufficient authority for the executive branch to ignore the debt-ceiling law.
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Contingency planning for a breach of the debt ceiling is necessary, to be sure — but proposing so drastic a remedy at this point only adds to the risks. Combining a constitutional crisis with collapsing confidence in US government debt is a singularly bad idea.
Advocates of the 14th Amendment maneuver think it would assuage investors’ doubts about the value of US public debt. It would do the opposite. The administration would have cover for maintaining debt-service payments, which is indeed essential. Yet it would achieve this not just by breaching the debt ceiling but by calling into question Congress’s primary role in legislating spending and taxes, the division of powers that lies at the core of the Constitution. The resulting legal battle would be profoundly destabilizing and threaten prolonged uncertainty as the issues were litigated. Over time, the political and economic costs could be higher than those of a temporary cessation of debt payments, grave as those would be.
With days remaining until the ceiling is reached, hours spent musing on the 14th Amendment is time that should be spent on reaching a deal. The basic elements of such a compromise are straightforward: Raise the debt ceiling while promising spending cuts and revenue increases sufficient to gradually stabilize and then reduce debt as a proportion of gross domestic product. So much time has already been allowed to pass that the details will have to be worked out later — but this basic formula can be agreed to right now.
If a deal isn’t struck, is default inevitable? The Treasury has further options for delaying it — none of them good. Various alternatives have been examined in previous debt-ceiling stand-offs and officials are doubtless dusting off that work. Debt-service payments would have to be prioritized while other outlays were delayed, in what would be, in effect, a rapidly widening government shutdown. Plainly, that would be a terrible outcome, albeit less damaging than an outright debt default, with or without a full-blown constitutional crisis.
That the country’s leaders are actually contemplating any of these scenarios is proof enough that the debt-ceiling has become a ticking time bomb. Hopefully this will be the last time it needs to be defused.
— The Editors, Bloomberg Opinion
