I am sure we have all had it up to here with breathless reporting about the fiscal cliff. But within a month or two after the December 31, 2012 deadline for resolving the cliff, there looms another, more serious economic issue: extending the debt limit. The two matters are linked because Republicans now appear to have seized upon the debt limit vote, and the serious consequences that could result from failure to extend the Treasury’s ability to borrow, asleverage in the fiscal cliff negotiations. Once again, as in the debt negotiations of 2011, the GOP threatens to shoot the hostage — meaning the U.S. economy — if it doesn’t get its way.
Former Republican economist Bruce Bartlett writes about this entanglement of the fiscal cliff and the debt limit, and correctly determines that the latter issue is more serious than the former. He proposes to end the debt impasse permanently: the president should raise the federal debt subject to limit unilaterally. His justification appears to be an appeal to theDoctrine of Necessity. According to that theory, when in dire straits — Bartlett cites Lincoln’s actions in the Civil War — an agent of the government is empowered to take actions, even extra-constitutional ones, to preserve the proper functioning of government, or life and property, if other authorized agencies cannot or will not.
I am tempted to agree with that thesis, but it stands on shaky legal ground. Lincoln was combatting an armed rebellion that resulted in over 600,000 dead. The debt fight hardly compares. And everyone has known for over a year that the debt extension would come due in early 2013 — hardly a dire emergency requiring extra-constitutional executive powers. In fact, Congress and the executive contrived to engineer this very eventuality in their debt ceiling agreement of 2011. The president can hardly be surprised by what his signature on the Budget Control Act has wrought. Necessity may not be a legally sound way out, but fortunately there are other options.
Section 4 of the Fourteenth Amendment states the following:
The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.
Already during the summer 2011 debt crisis, Jeffrey Rosen wrote a generally convincing piece arguing that invoking the Fourteenth Amendment was valid and would likely be upheld by the Supreme Court.
The weakness in the piece was its predominant focus on who might have standing to bring suit, rather than examining the actual wording of the Fourteenth Amendment and its relation to the merits of the president’s case (in the event someone should gain standing). What does the phrase “authorized by law” in the amendment mean, anyway? Does it mean authorized under the current debt limit statute? But that law has only existed since 1917, long after the Fourteenth Amendment was written. And in the last 30 years, 14 debt ceiling extensions have been instituted under the Gephardt Rule, whereby the House never even voted on the measure. It “deemed” the extension to have passed, but within the framework of a Congressional Budget Resolution — a measure that is not a law. Yet somehow, the Supreme Court never saw fit to intervene.
Beyond that, it can be argued that the statutory raising of the debt ceiling is just a pro forma recognition of previous lawful congressional actions on taxes and spending that created the debt in the first place. Can Congress repudiate the debt it created? To use the sort of hackneyed kitchen table analogy so beloved of Republican politicians, it is like a householder setting an arbitrary limit on the debt he will pay. Perhaps he even writes his debt limit figure on a document and gets it solemnly witnessed and notarized. If his credit card bills from Visa and MasterCard exceed that limit, he will simply refuse to pay by waving around his notarized statement. Good luck with that strategy!
But suppose the president, who was notably gun-shy about employing the Constitution to single-handedly raise the debt ceiling last year, similarly declines to do so in the coming months? He still has statutory precedent to fall back on. In 1933, in the midst of the 20th century’s greatest economic crisis, Franklin Roosevelt invoked the Trading with the Enemy Act of 1917 to outlaw private ownership of gold — a rather startling action given that the United States was not then in a state of war. But his act withstood court challenge, something that is relevant given that prior to then, public debts could be demanded in gold and failure to pay in specie might have been considered default.
That is the potential legal justification. But the real-world economic reaction to events that will occur during the upcoming debt debate will be separate from the legal merits. The president and his advisors would do well to begin explaining immediately to foreign central banks, as well as to bond and equities markets, precisely what he will do and what powers he will invoke. By giving maximum information to the world, and the ironclad and legally credible assurance that under no circumstances will the United States default, he will have preemptively disarmed his opponents’ threat to shoot the hostage that is the U.S. sovereign credit rating.