SYLVIE DOUGLIS, BYLINE: NPR.
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SALLY HERSHIPS, HOST:
It is debt ceiling season. That is when the U.S. Treasury says it has about maxed out its line of credit, and unless it's raised, Congress will no longer be able to pay its bills.
ADRIAN MA, HOST:
Right. And after weeks of arguing, Congress has decided to kick the can down the road. As of Tuesday evening, it passed legislation to raise the debt ceiling temporarily to just under $29 trillion, which should buy the country a little less than two months.
HERSHIPS: That does not feel like a lot of time for a country, and December feels super close. Of course, this is not the first time we have seen this debt ceiling drama. It has played out again and again in recent years.
MA: Ooh, yeah. I mean, at this point, it is kind of easy to grow numb inside to this. But, you know, a couple of weeks ago, I saw Treasury Secretary Janet Yellen on TV, and she was answering this question from a congressman. And her answer just kind of shook me to the core.
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SEAN CASTEN: Would you support simply eliminating the debt ceiling so that we don't have to deal with this in the future and can focus on real crises?
JANET YELLEN: Yes, I would.
MA: Boom, eliminate the debt ceiling. Like, isn't debt ceiling drama just a fact of American life, the way it's always been and the way it's always got to be? Well, it turns out it's not the way it's always been, and it's not the way it's always got to be.
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MA: This is THE INDICATOR FROM PLANET MONEY. I'm Adrian Ma.
HERSHIPS: And I'm Sally Herships in for Stacey Vanek Smith. Today on the show, the U.S. seems to be the only country in the world that handles its debt like this. So we take a trip back in history to figure out why and to take a look at how other countries handle their debt.
MA: Yeah. Like, did you know New Zealand has a debt anchor?
So, like, how much of your psychic space these past few weeks is taken up by debt ceiling coverage?
SIMON RABINOVITCH: Well, regrettably, a little bit too much.
MA: Simon Rabinovitch writes for The Economist, where he is a U.S. economics editor.
RABINOVITCH: Editor is, in fact, a glorified title. Really, I'm just a correspondent. I write lots of articles. I don't edit anybody's articles.
MA: But it sounds good.
RABINOVITCH: It does sound all right. Yeah (laughter).
HERSHIPS: Simon is being humble. We called Simon up because he has been covering and thinking about the debt ceiling drama in D.C. more than most people. And he says there was a time in American history when all of this drama around the debt ceiling just didn't happen.
RABINOVITCH: You can go back a little over a century. Before 1917, you know, there was no debt ceiling in America. Congress would just issue authorization to the Treasury for every bit of borrowing that it would do, kind of bond by bond, loan by loan.
MA: For instance, around the turn of the century, Congress wanted to build the Panama Canal. Problem was, the Treasury didn't have that much cash lying around. So the Treasury said, hey, Congress, let us sell some government bonds. We take on a little debt. We pay for the canal.
HERSHIPS: But that was sort of inefficient, and it really became a problem when the United States got into World War I, because who knows how much a gigantic war is going to cost? I feel like a lot.
MA: Like, you couldn't even imagine it, right? So Congress decided to basically give the Treasury an allowance, and it did that by passing the Liberty Bond Acts of 1917.
RABINOVITCH: So the initial idea was to actually give the Treasury more leeway. You know, you could do whatever borrowing you need to do. We're not going to authorize you on a bond by bond basis. But there's this overall ceiling that you got to stay under.
HERSHIPS: Back then, the limit was around $9.5 billion. That is around 200 billion in today's money.
MA: And since then, this thing that has morphed into the debt ceiling has been raised or suspended dozens of times to keep up with national spending.
HERSHIPS: And today, well, after this recent two-month extension, the current debt ceiling is just under $29 trillion.
MA: On the one hand, Simon says, it makes sense that the government wants to try and constrain its own ability to issue debt, and that's because of something economists call the common pool problem.
RABINOVITCH: Whatever government is in power today has a big incentive to spend a lot of money because they want to get reelected and people like, you know, governments that deliver things to them.
HERSHIPS: Things like new roads and bridges, spending on social safety net programs or free prescriptions for seniors.
RABINOVITCH: And, you know, people who are benefiting from whatever the programs are today, they don't think about the cost they're imposing on taxpayers more generally. And they certainly don't think about cost they're imposing on taxpayers down the road.
MA: So in a way, the debt ceiling could be rationalized as a way to protect this common pool resource of government spending for future generations. But Simon says the persistence of the debt ceiling today has less to do with this kind of loose economic justification and a lot more to do with the fact that it has become a very effective political football.
HERSHIPS: Yeah. It's like football is this quintessential American game, and so is the debt ceiling showdown.
RABINOVITCH: So whereas other countries do think about trying to rein in their debt and they do impose certain constraints, you know, they don't want to have a situation where every couple of years they're threatening default for political reasons.
MA: So what you're saying is, we're special.
RABINOVITCH: America is exceptional. There is no question about that.
HERSHIPS: OK, maybe he's being a little sarcastic, but also kind of not. One of the only other examples of another country with a debt ceiling is Denmark. But their ceiling is so high that the government's debt is nowhere near it, so it's not the same kind of reoccurring controversy that it is here.
MA: Most other countries don't have, you know, hard numerical caps on overall debt. If you want to be jargony (ph) about it, their fiscal rules are more flexible.
HERSHIPS: Other countries use what's called a debt brake. There's a rule that says the debt has to stay under a certain percent of the country's gross domestic product. For example, in Poland, that means staying under 60% of GDP.
MA: And in Germany, they have a target of keeping new borrowing within a third of a percent of GDP. Although, worth saying that rule has been suspended during the pandemic.
MA: So by contrast, New Zealand doesn't even have a specific number it has to stay under by law. Instead, they have what they call a debt anchor. So the way that works is each newly elected government sets its own target for what they consider a prudent amount of debt.
HERSHIPS: Simon says most economists he talks to agree that these more flexible rules make more sense than what the U.S. is doing.
RABINOVITCH: But I think even smarter are the economists who say that, you know, ultimately all of these debt limits, debt ceilings, debt brakes, debt rules, whatever you call them, you know, are ultimately very arbitrary.
MA: Like, why not come up with ways to make debt accumulation more manageable? Like, look at what the government spends on regularly and find ways to cut back. So instead of trying to rein in debt after the fact...
RABINOVITCH: This is a fiscal rule that comes before the fact and tries to ensure that the debt accumulation, you know, is more reasonable, is more targeted and is ultimately more sustainable.
MA: Do you think that's doable for us?
RABINOVITCH: No. No, I don't. I think it's - sadly, no. I think it's a great idea, and I think it's a great fodder for discussion and maybe for other countries to implement. I think, sadly, the political reality in America is that, you know, although the debt ceiling, you know, as it exists in America, nevertheless, politically, it's clearly a very powerful tool.
HERSHIPS: A tool that for a lot of politicians seems a little too powerful to put down for now.
MA: And it's kind of ironic when you think about it. The debt ceiling began as this way to allow one branch of government, the executive branch, to support another branch - Congress - so they could more easily spend the money they said they wanted to spend.
HERSHIPS: Yeah, but nothing about this feels easy right now.
MA: Yeah. Think about that when you see lawmakers debating this in the coming weeks.
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MA: This episode of THE INDICATOR was produced by Brittany Cronin and Emma Peaslee, with help from Josh Newell. It was fact-checked by Brittany Cronin and Taylor Washington. Our senior producer is Viet Le. The show is edited by Kate Concannon and is a production of NPR.
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