SCOTT SIMON, HOST:
You may have heard this before. The federal government hit its legal debt limit in January - $31.4 trillion. This week, House Republicans approved a bill to let the country keep borrowing money, but with strings attached. President Biden says they're unacceptable. Since 1960, Congress has raised, extended or revised the debt limit 78 separate times - 49 times under Republican presidents, 29 times under Democratic administrations. Kathleen Day is a business journalist who teaches financial history at Johns Hopkins University's Carey Business School.
Professor Day, thanks so much for being with us.
KATHLEEN DAY: Thank you for having me.
SIMON: We've had a legal debt ceiling for more than a century. Why?
DAY: Because Congress is the keeper, constitutionally, of expenditures. And so when we were spending less money, Congress needs to approve every time the government had to borrow money. But then with World War I, they had to do it so often, they just said, enough of this. Let's just give you the authority to do - to borrow money up to a certain limit. And so ever after, we've had these debt limits. So Treasury can borrow up to a certain amount. And then when it hits that amount, it has to go back to Congress and get authorization.
SIMON: You've called the debt ceiling a useful reminder.
DAY: I think it is. I know that's not a popular thing to say, but I do think it's important because borrowing is a serious business. It's just too bad that elected officials in politicizing the debt ceiling have started to use it as a wedge to talk about budget cuts, when, really, the time to talk about budget cuts is in the budget process.
SIMON: Do we need to remind ourselves, why is an onerous debt a bad idea?
DAY: So this goes back to Jefferson and Hamilton. Jefferson was always worried. He understood the utility of debt. He just under - he also understood the - for him, the bigger worry was the downside if you get in trouble with it. Whereas Hamilton understood that, yeah, there's that downside, so you got to watch it, but the good that it can do is required for an industrial growing economy, which he envisioned - the United - correctly - he envisioned the United States would become. So there's good debt and bad debt. Debt is just debt. It's the people that either use it wisely or don't.
SIMON: Yeah. But when the debt is $31.4 trillion, that's eye rolling, isn't it?
DAY: Maybe. But we're an eye-rolling country. We're big. Now, that is about 120% of our economic activity, and that's about 2 1/2 times more than it has been traditionally. Historically, there's a reason it has gone up, most of it because of tax cuts. And it's not good to spend more than you anticipate having. So those were unfunded tax cuts, which is really not a smart thing to do. And one of the reasons it's not smart is that you might have an emergency. And in fact, we did. It was called COVID.
SIMON: Is part of the idea of a debt ceiling to focus the mind of people in Congress and, for that matter, the executive branch about reaching a budget agreement?
DAY: It's to remind people that we're racking up the debt, and it's something that should then be brought up in the budget process. But they're putting the cart before the horse if you bring up budget cuts during the debt ceiling talks. You should use the debt-ceiling talks to remind you that during budget talks you should talk about the debt ceiling.
SIMON: So where does that leave us now? And I say us, meaning the country as much as Congress.
DAY: I think the debt ceiling is a reminder, but I think voters got really sick of the government shutdowns that happened when they reached a budget impasse. So every year Congress has to pass a budget. And so when they couldn't do that because it became very political, the government shut down, and voters got sick of that. And I think voters are going to send them the same message eventually, is that, you know, guys, we sent you there to fix this. Do not default. Because you know what? Every time they skate close to the edge, it cost taxpayers hundreds of billions of dollars.
SIMON: Even without defaulting because the rates go up.
DAY: Even without actually defaulting, if you start to raise the specter that we could, debt holders of U.S. debt become a little bit anxious that there might be a delay. They demand higher interest rate and compensation for those worries. And then it cost taxpayers billions of dollars in money to borrow what they're going to have to borrow.
SIMON: So both sides should sit down, stand up, negotiate with no preconditions.
DAY: You know, I don't want to prescribe what - how they should do it, but it shouldn't be budget cuts for political things. And one of the things that our country is built on is compromise. We have gone to extremes, you know, in our 200-plus-year history. But eventually, we come back to the middle. People like things to work. Americans are very - we - if cultures have characteristics, I do think our culture is one of practicality. People like things to work. And right now this process is broken, when you've politicized whether or not we should pay our bills. We have to pay our bills.
SIMON: Kathleen Day, lecturer at Johns Hopkins Business School and author of "Broken Bargain: Bankers, Bailouts, And The Struggle To Tame Wall Street."
Thanks so much for being with us.
DAY: Thank you so much. Transcript provided by NPR, Copyright NPR.
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