Debt Ceiling Poll: To Raise or Not to Raise

According to a new poll from the Pew Research Center and the Washington Post,  more people see raising the debt limit as a bigger risk than not raising it. Though it’s close, and the margin has shrunk over the last two months, 47% say they’re more concerned about the risks that raising the debt limit pose to the U.S. economy than they are over the fallout of failing to do so; 42% see it the other way around.

Sounds like a good time for a Freakonomics Poll:

 

[poll id=”11″]

 


Clifton Griffin

Two problems:
1. I think it just let me vote twice.
2. I also think it counted my vote the opposite of the way I intended. (I tried to vote for the 2nd option, but the 1st option incremented each time...the second time being a 2nd attempt because I thought it didn't register the first)

Michael

Confirmed--guys, the poll is screwy, it lets you vote multiple times. I've put in seven votes (I voted for an opinion not mine 3 times to offset 3 of the re-votes), meaning this is even less meaningful than it was meant to be.

Joshua Northey

I think it is pretty dumb to think preponderance of risk sit with raising the debt ceiling.

In the long run we need to get our government under some sort of fiscal control but:

A) this particular showdown is not going to be that occasion given the politicians currently in office.
B) There are some pretty clear and foreseeable risks to not raising it.

Clifton Griffin

If you peel back the demagoguery, there are fewer risks to not raising it than those in charge are willing to admit.

http://blogs.marketwatch.com/fundmastery/2011/07/12/the-u-s-treasury-will-not-default/

This is a great opportunity to actually do something that matters and will actually benefit future generations. Our debt has been rising for nearly 100 years straight, through every presidential term, and the pace we are accumulating it now is at an all time high.

Even the 4 trillion (over 10 years, 400 billion a year) maximum theoretical cuts they are talking about are laughable in the face of the nearly 1.5 trillion dollar deficit we are running just this year.

We need real action now, not denial.

Fitty Stim

It's a riot that you point out this article from Kurt Brouwer. Pretty much every comment on the page points out how wrong the premise of the article is.

The basic jist of the article is this (according to him, I have no guarantee that his figures are correct): In any given month, the US has 200 billion clams of revenue and only $20B in interest debt payments. He then states that "the liklihood of not paying interest on the debt is zero".

There's so much that's wrong in his article that it's tough to know where to begin. But I'll offer only two counter points:

1. The revenue-payment scheme is not fixed. The US might be required to pay $20B in interest on August 3. But it will have not received enough tax revenue to cover the debt. Result => default.

2. The article assumes that the Treasury will prioritze payment of the interest debt over other expenditures (wars in Iraq, Afghanistan and Libya come to mind). Not to mention SS and welfare payments, soldier's and worker's paychecks. No where does the economic cost of firing all those gov't employees come into the picture either.

In summary, when referencing an article to back up an argument, you should double check to see if the article was written by a respected person, a biased hack or the result of random letters assembled by a chimpanzee.

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Eric M. Jones

We're too fat and lazy anyway. A few decades of dystopian dog-eat-dog massive dehumanization, totalitarian government, rampant disease, post-apocalyptic terrains, cyber-genetic technologies, societal chaos and widespread urban violence...might just be the ticket.

Jonathan Baird

You are a loan officer in charge of lending relationships. Two people come into your office at the same and ask you to analyze their relationship with you. They both have a huge amount of debt, say, I don't know... $14 Million. Their income is high, say $2 Million a year each. One of them has decided to cut his credit cards up and start living within his means and another has no plans to but instead will borrow more money to pay on the interest they have already accrued and continue down the path they are on. Which one would you feel more confident about to loan more money in the future if need be? Which one should have the higher credit rating?

We do not have a revenue problem in the US we have a spending problem!

Michael

Ok, but lets not make up numbers instead. This person spends and receives a total of $100,000 a year. All their credit, including the oldest child owing the parents for her new car, and the parents owing that oldest child for babysitting, as well as the mortgage comes to $62,000. Yes, they plan to have more debt next year, but what bank in their right mind wouldn't loan more money to them?

More importantly, the analogy should be if that family goes to the bank and says given the above, can we have a loan at 0%? (This is akin to the treasury holding an auction and starting the bidding.) If the bank says no, the family reapplies at 1% (the treasury offers a higher rate). Then 2%. If they are a bad credit risk, the banks won't loan them money until they are offering something crazy, like 15% or 50% interest on that loan. So what does treasury have to pay? Almost nothing. In fact, the returns on treasury bills being bought are negative. It isn't because the government is buying its own debt, as QE2 is over. It stopped last month. So why aren't rates high? Because the markets outside of sovereign debt are even worse.

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Joe

There will be short term pain associated with not raising the debt ceiling but it can be dealt with now and contained. Raising the debt limit means there will be pain down the road and it will be worse.

I liken it to changing the brake pads on a car...it's going to cost time and money to have the work done now but could still be driven, choosing the option of delay however will result in having to not only changing the pads but rotors as well.

Alex M

Surely no serious economist thinks it's more dangerous to raise the limit.... right? Am I in some sort of alternate universe where half the world is insane?

Clifton Griffin

Delayed catastrophe is still catastrophe.

DaveyNC

And usually more catastrophic.

pablo

Good idea! Let's poll people on things they don't understand, and then use that to influence policy!

Seriously, guys, shouldn't you at least comment on the actual policy and economics thinking about this, rather than providing a stupid poll with whatever semi-legitimacy this blog confers?

DanSanto

It might be helpful to elucidate the concerns.

I am much more concerned about the long-term effects of raising the debt ceiling in the manner which has become so common in the last decade or two. If we don't raise the ceiling, I don't anticipate a harmful long-term effect. I am worried about the long-term effects if we do raise the debt ceiling now because I believe raising the debt ceiling now without some significant accompanying changes will set a very bad precedent which will result in nasty results in the future.

In the short-term the greater risk is obviously with not raising the debt ceiling. One possible occurrence is that Social Security, Medicare, Medicaid and other things get shut down. That is a financial disruption on the scale of $150 billion dollars per month (extremely conservative estimate).

That will have VERY nasty effects. However, unless it goes on for weeks or months, it will be strictly temporary.

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Joshua Northey

I don't think not raising the debt ceiling now actually gets us any closer to a fiscally responsible government. It is just political theater.

Neither party has shown the slightest interest in governing responsibly in decades, and they both still hold a death grip on the political infrastructure of this country.

Lance

What if we just temporarily raise the debt ceiling until after we balance the budget? Or until a more socially acceptable debt ratio is reached? The problem with polling the general public about this lies in the fact that most have little understanding of the financial implications of default, unless of course you put it in terms of the massive default seen in the residential mortgage market. The public's short term memory has zero context for what a US Treasury default would do to local and global economies. Greece's default is threatening to destroy one of the worlds most significant currencies (euro), a US default would further weaken an already anemic economy. I suspect there was too much tea served in this Wash Post poll.

pawnman

Because our government has shown time and again that temporary fixes like this become permanent.

Clancy

Any conversation about the debt ceiling is meaningless unless we first dispel the myth that the debt ceiling has anything to do with getting spending under control. The debt limit is NOT a limit on how much congress can spend. It is a limit on whether the Treasury is allowed to pay for the spending that congress has already approved. There is a discussion we can have about whether there should be a hard cap on congressional spending, but that is not what we’re talking about. Hitting the debt limit is not analogous to a family budget, it’s more like the government version of a dine-and-dash. And it’s probably just as illegal.

Also of note: We hit the debt ceiling sometime in June, we’ve been doing some creative accounting to avoid breaking any laws, but by August 2, we run out of tricks and our government will have no choice but to do something illegal.

Clifton Griffin

The semantic difference between a spending limit and a debt limit is not sufficient to eliminate the importance of evaluating our nations finances instead of simply granting unlimited borrowing powers to the treasury.

It is absurd to imply raising the debt ceiling will cause something illegal. Both legal structures are in tension, but both are controlled by congress. Congress can elect to spend more than they allow to be borrowed, but this is not an egregious violating of law, it is the nature of checks and balances. They must have not only the political capital and intention to pass spending, but to authorize the debt required to see it through. If they don't have both, something has to give.

If what you say carries weight, the debt ceiling should be eliminated all together...lest we go around breaking laws.

Clancy

Actually, the debt ceiling should be eliminated altogether. Until now the only purpose of the law was for the minority party to do a little political theater and point shaming fingers at the majority for raising it. Now it's being used to hold the economy hostage in a dangerous game of chicken. Instead I think we should have a much stronger version of the Pay-Go Rule (one that must be actually followed) disallowing any bills which increase the deficit except in times of severe crisis. There’s no reason to think that the debt ceiling provides any meaningful limit on congressional spending.

And it does follow that the government will break the law if it can’t make payments without passing the ceiling. If they continue to borrow, they break the debt-ceiling-law. If they delay bond payments they break the law, including the 14th amendment. If they delay payments to contractors, doctors, the military, veterans, and anyone else whom the government has promised to pay will have grounds to sue the government for their money plus interest.

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Geoff

I'm in the minority so far (I viewed "The risks of raising the debt ceiling" as higher). If I've found anything in the last few years, on financial matters the minority is probably correct. For example: Keynes or Austrian School? (Hint: which is both taught in American universities and has been roundly discredited after being applied in the U.S. for 80 years?)

Mark Wolfinger

Poll?

It may not be wonderful to raise the ceiling - but the alternative is unspeakable. Does no one understand that government spending creates jobs?

Only someone who wants to see the markets crash and for the USA to move towards 3rd world status would want to see a default. This is not a close decision.

Boomer Educator

Interesting the the results of this poll on-line are so different from gall-up. It might be because a different audience took this poll-those who are actually educated and informed about the debt ceiling. Anyway, just a thought. The general public seem to just believe what they see on Fox News and look no further. That's a scary thought.

David Clayton

I'm shocked that at this moment 26% of Freakonomics readers are getting this wrong. I thought the readership of this site would be generally better informed than that.

Clifton Griffin

And I'm surprised the numbers aren't reversed, for the same reason.

We're both exhibiting a cognitive bias. We believe that the more educated a person is, the more likely they will agree with our own conclusions.

David Clayton

Yes, we are both exhibiting cognitive bias. However, it also matters that I'm right and you're wrong.

Mike

Here is the real problem. Most people as so ignorant of economics that they follow the guy that screams the loudest. The government spending and personal spending can not be compared.

Government wealth (ie assets) are not counted in the same manner that personal assets are counted. ( good example the value of the US post Office, including real estate is not an "asset" in governmental bookkeeping)

Another myth. People act like currency has some sort of fixed value. (old gold standard thinking). These days currency ( Dollars) are back up by trust and faith in the US Government, not by gold silver or other objects.

The debt "ceiling' was created at the outset of World War 1 so congress could get money quickly, and keep better track of how much they got on loan so Bonds could be issued to cover debt.

I could go on but if needles to say unless you have a basic understanding of macro economics then you wont understand why this is just a stupid political stunt by the GOP and needlessly put our fragile economy at risk without good reason.

The government should be spending money on Job programs, and ignore this non issue.

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Clifton Griffin

"Here is the real problem. Most people as so ignorant of economics that they follow the guy that screams the loudest."

If that were true, the Gallup poll would reflect the above poll. People are clearly seeing past the doomsday prophecies being made by the president.

"The government spending and personal spending can not be compared."

Tell that to Greece.

"Government wealth (ie assets) are not counted in the same manner that personal assets are counted. ( good example the value of the US post Office, including real estate is not an “asset” in governmental bookkeeping)"

You're right, but that doesn't mean this is correct. The accounting standards the US government used are extremely biased towards the interests of the politicians who wrote them. They double count as a matter of national policy because if they used the GAAP, it would be extremely obvious just how big of mess they're creating.

I believe it was Reagan's economic advisor who admitted that if they were required to use the same reporting procedures private companies use, they'd all be put in jail.

"The government should be spending money on Job programs, and ignore this non issue."

So the national debt is a non-issue and it's the government's role to create jobs. Please excuse me if I have little confidence in your own suggestions.

I'd rather listen to the people who at least admit there's a problem.

The good news is, I think you can have Krugman's column if he ever quits.

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David Clayton

Currently, my family's debt is well over 200% of our gross income, and yet our credit scores are pretty good. The comparable number for the U.S. (publicly held debt) is what, 65% or so?

It strikes me that the people who insist on comparing the finances of the U.S. with that of a family do so only when it's convenient.

Sideshow Bill

I find it funny that the percentage of those voting for default are about 27% (at the time I took the poll). That's about the same percentage of those who buy everything the Republicans and Fox are selling.

Patrick Henry

I think the Republicans stance amounts to blackmail and what it shows is that they don't have the polital ability, will or guts to hash out a deal on spending cuts without attaching it to critical issue like the debt ceiling.

Vicki

The deal Obama tried to get with Boehner would have helped by both cutting into aspects of social programs which Republicans would love to do, but cutting back the Bush tax cuts for the rich -- which obviously didn't do a thing to help job creation.

Any Republican who cares about this issue, and isn't just trying to burn Obama, should have loved that deal. It's the first time since Clinton's presidency that we've started thinking seriously about the federal debt problem. And we all know that that wouldn't have happened without the Republicans.

So Republicans WOULD get credit for it if Obama and Boehner's plan were to be enacted, and we started climbing down out of this huge federal debt.

Jberkley

It should be clear to all that the GOP has no interest in reducing the debt or the deficit. This is evident not only by their walking away from a $4T reduction in the debt, but from the fact that every on e of their plans that cuts spending turns right around and cuts revenue by cutting taxes. Their goal is simply to eliminate programs they don't support while funding those that they do.. This under the guise of smaller govt which is a ruse...

David Picard

My concern through all the debt turmoil is how much of the decision making is based on ecomonics and how much is based on politics. The Tea Partiers are using this situation (debt ceiling) and the budget shortfall, to plant their preceived solution. It's pretty obvious to me that the big Federal Government era is about to come to an end. If I'm calculating correctly, the government has been getting bigger and has had a bigger budget with every president from Kennedy on. We have reached a plateau. I think the fact that we are headed for a smaller Federal government has more to do with economics of government than it does with politicians making "important" decisions.

Jberkley

Positively frightening to think that 40% of voters consider defaulting on our debt as a reasonable thing to do. The cost to this country of having our credit rating dropped would make it that much harder to eliminate our debt. The cost to individuals in higher interest rates would further restrain spending, particular on the struggling housing market.

Yes, we have to reduce the deficit and pay down our debt. But the way to do that is with a proper budget which controls spending. Not be reneging on the commitments already made. The idea that we can pay the interest on the debt while stiffing others is ignorant and irresponsible.