The White House and the Media continue to misrepresent the deficit controversy. They say that we must raise the debt ceiling or very bad things will occur. But they have it backwards. Raising the debt ceiling at a time when we are spending way more than we can afford is irresponsible. It can only lead to even worse consequences down the road.
A family budget analogy is useful here. Imagine a family with a modest income goes on a spending spree using credit cards. The cards have all reached their spending limits. The family is able to pay the monthly interest on the cards and other living expenses. But the family wants to continue its spending spree. So it demands that the credit card companies increase the cards' spending limits. And not to worry, the family promises it will get its spending under control later.
There are two key questions here. The first is whether a family budget is a reasonable analogy to a government budget. The second is whether it is reasonable to trade an immediate increase in the debt limit for a promise of future spending reductions.
Some economists insist that a large federal budget deficit is not necessarily bad. In fact, my Economics 101 professor, the late Robert Eisner, was among the most vocal proponents of large federal budget deficits (though with some caveats). According to his theory, the analogy doesn't work because unlike an individual family the federal government can stimulate the nation's economy through targeted spending.
That certainly hasn't worked lately. (Has it ever?) While a federal government has more potential sources of future income than a family, it has fewer options for obtaining assistance should things go wrong. No family or government can continue to spend more than it can afford without eventually suffering the consequences. (Arguably, we already are suffering the consequences in the form of high unemployment and a complete absence of private sector growth.)
Raising the debt ceiling is like allowing an alcoholic just one more drink. Anyone can promise to change their ways mañana.
If we truly understand the dangers of a massive and growing federal deficit then we can only reach one conclusion. We must resist calls to raise the debt ceiling and start reducing our spending immediately.