The Debt Ceiling: An Affectionate History

Source: Mises Institute.

The article depicts the U.S. federal debt ceiling in three different graphs of the time period 1943 through 2020:

  • as nominal dollars
  • as constant (or, inflation-adjusted) dollars
  • as a percentage of GDP

All show the same pattern of steady increase of the debt ceiling beginning circa 1980.

The basic concept of the debt ceiling is that some sort of limit on federal debt should exist. Economists argue over what that limitation should be, but most agree with the intuition that government debt should conform to some type of constraint.

Generically, there are two basic consequences of debt. The first is that debt must be repaid. The second is that debt creates money, adding to the total volume of money and potentially reducing the value of its fractions. These two consequences cannot be reconciled because you cannot, in fact, repay a debt with dollars that have lost value.

These consequences cannot be reconciled, but they are temporal. This means they they are time limited. Even if, say, the quantity of money triples, causing prices to triple across the board, buyers and sellers will eventually get used to the new pricing level. Alternatively, small debts have small effects, possibly even unnoticeable ones.

Also, debt is not the only thing that can change the quantity of money; moreover, the quantity of goods can change on its own, as well.

What is important is that debt is both willfully created and inherently disruptive. To the extent one wishes the monetary system to remain predictable and reliable, debt makes it less so. This is why there is a general intuition that such a thing as too much debt can exist whereas, at the same time, it is almost impossible to define what “too much debt” means.

In practice, you can always be on the side of Truth and Reason by advocating for less debt in the world, especially big government debt. Then, at least, you’ll be advocating for less human suffering.

10 thoughts on “The Debt Ceiling: An Affectionate History

  1. Liberals prove time and again that economics is not their strong suit. Just print more money is a go to phrase and spread the wealth is another. Too much money equals out of control inflation and spread the wealth equals no incentive to produce. Lack of production or service equals supply shock. Put the two together, you get stagflation and Jimmy Carter. The idiotic idea of suspending the debt ceiling only exacerbates that result.

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    1. RE: “The idiotic idea of suspending the debt ceiling only exacerbates that result.”

      I’m afraid the idiotic solution has had bipartisan support as the graphs in the article show.

      I just wish more people could appreciate how pernicious debt can be. One of the reasons small government is desirable is that big government has a tendency to incur big debt. This both obligates future generations for repayment and reduces the value of money. That future goods (or wealth) will be reduced becomes inevitable.

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    2. ” The idiotic idea of suspending the debt ceiling only exacerbates that result.”

      Just one question: Was it idiotic when it was done during the period of 2017-2020? Ya know, the Trump years?

      It has been done repeatedly by BOTH parties and usually WITH both parties. But NOW it is a bad idea because Magic Mitch and his GOP-freakshow says no. His level of hypocrisy is only outdone by YOU and Don’s hated for Democrats.

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      1. It is wrong now because major changes to the country should only be made in a bi-partisan manner, or with a compelling mandate.

        Biden won by a very narrow margin, and the Senae is tied, The House has a majority of 5 votes.

        That is not a mandate to make irreversible changes in the structure of our country, and the GOP minority has an absolute duty to block such excesses in any way they can. There is much less trauma to the country than letting such radical changes take place and then repeal or refuse to fund them. in 2023.

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          1. Obama didn’t “wreck” anything. he cleaned up the mess left him by GWB. And now Biden is cleaning up the mess left behind by DJT.

            The donkey always has to clean up the elephant crap after the parade.

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          2. Your are giving a mandate to a gerrymandered majority. The REAL mandate is We, the People. Unless of course it isn’t in favor of “your” people.

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