Financial Historian Kathleen Day on the Origins and History of the Debt Ceiling
SCOTT SIMON, HOST:
You may have heard this before. The federal government hit its legal debt limit in January - $31.4 trillion. This week, House Republicans approved a bill to let the country keep borrowing money, but with strings attached. President Biden says they're unacceptable. Since 1960, Congress has raised, extended or revised the debt limit 78 separate times - 49 times under Republican presidents, 29 times under Democratic administrations. Kathleen Day is a business journalist who teaches financial history at Johns Hopkins University's Carey Business School.
Professor Day, thanks so much for being with us.
KATHLEEN DAY: Thank you for having me.
SIMON: We've had a legal debt ceiling for more than a century. Why?
DAY: Because Congress is the keeper, constitutionally, of expenditures. And so when we were spending less money, Congress needs to approve every time the government had to borrow money. But then with World War I, they had to do it so often, they just said, enough of this. Let's just give you the authority to do - to borrow money up to a certain limit. And so ever after, we've had these debt limits. So Treasury can borrow up to a certain amount. And then when it hits that amount, it has to go back to Congress and get authorization.
SIMON: You've called the debt ceiling a useful reminder.
DAY: I think it is. I know that's not a popular thing to say, but I do think it's important because borrowing is a serious business. It's just too bad that elected officials in politicizing the debt ceiling have started to use it as a wedge to talk about budget cuts, when, really, the time to talk about budget cuts is in the budget process.
SIMON: Do we need to remind ourselves, why is an onerous debt a bad idea?
DAY: So this goes back to Jefferson and Hamilton. Jefferson was always worried. He understood the utility of debt. He just under - he also understood the - for him, the bigger worry was the downside if you get in trouble with it. Whereas Hamilton understood that, yeah, there's that downside, so you got to watch it, but the good that it can do is required for an industrial growing economy, which he envisioned - the United - correctly - he envisioned the United States would become. So there's good debt and bad debt. Debt is just debt. It's the people that either use it wisely or don't.
SIMON: Yeah. But when the debt is $31.4 trillion, that's eye rolling, isn't it?
DAY: Maybe. But we're an eye-rolling country. We're big. Now, that is about 120% of our economic activity, and that's about 2 1/2 times more than it has been traditionally. Historically, there's a reason it has gone up, most of it because of tax cuts. And it's not good to spend more than you anticipate having. So those were unfunded tax cuts, which is really not a smart thing to do. And one of the reasons it's not smart is that you might have an emergency. And in fact, we did. It was called COVID.