Brooke Gladstone: This is On the Media's midweek podcast, and I'm Brooke Gladstone. While the Democrats fight amongst themselves over their legislative agenda, Senate majority leader Chuck Schumer is locked in battle with minority leader Mitch McConnell over raising the country's debt ceiling. Democrats need 10 Senate Republicans to vote with them to raise the debt limit by October 18th, or else the country could, as The Washington Post put it, catapult into an economic recession. The New York Times, too, noted widespread warnings of global economic calamity.
Reporter 1: The government could run out of money by October 18th if Congress doesn't raise the debt limit, the amount the government can borrow to pay its bills.
Reporter 2: 800,000 federal workers and more than a million contractors are waiting to see if they'll be furloughed if Congress can't reach a deal to fund the government past Thursday night.
Joe Biden: Republicans in Congress raised the debt three times when Donald Trump was president, and each time with Democrat support, but now they won't raise it.
Brooke Gladstone: For years, the media have treated the perennial debt ceiling debate like hurricane season. When will calamity strike? What's the projected damage? Why do we have to keep reliving this crisis in the first place? Zachary Karabell is author of the podcast What Could Go Right, and president of River Twice Capital. He's also the author of The Leading Indicators: A Short History of the Numbers That Rule Our World. I spoke to him in 2017 about the debt ceiling.
Zachary Karabell: The debt ceiling was created 100 years ago. We're like at the 100th anniversary of the federal reserve and the 100th anniversary of the debt ceiling. Until 1917, the United States didn't tend to run budget deficits. It was a rare thing, almost only in times of war, that you took on debt. Because it was a rare thing, whenever Congress decided that the federal government needed to borrow money, it would just authorize a bond issuance. There was no budget that was over-budget until 1917, and there weren't a lot of budgets after 1917. The Great Depression and World War II were exceptions.
Brooke Gladstone: Now the government does borrow. There's a saying that the argument over the debt ceiling is basically "legislative terrorism". It's been weaponized, by who?
Zachary Karabell: Well, it was first weaponized by the Republicans, led by Newt Gingrich in 1995. The first real hostage-taking situation, like, "Change the budget or we'll shut down the government," was in 1995.
William Clinton: Speaker Gingrich said he and his new Republican congressional majority would force me, the congressional Democrats, and the American people to accept their budget and their contract by bringing about a crisis in the fall, shutting down the government, and pushing America in default.
Zachary Karabell: There had been rumblings of it before, but it is primarily in modern history if modern means the last 20 years, been a tool used by Republicans to force a discussion of cutting government spending. The debt ceiling as a tactic of a party to disrupt another party can certainly be effective, but when you are the governing party, i.e., the Republicans are now the governing party, the debt ceiling is a really inconvenient weapon for the minority voices within your own party to challenge you.
Paul Ryan's all for debt ceiling, "We are not going to spend another dime, and we're not going to borrow another dime until we cut spending," all for that one, it's Republicans against Democrats. When it's Republicans against Republicans, the leadership isn't so fond of it.
Brooke Gladstone: Now it's being used principally by the Tea Party Caucus, but why are the Democrats in such a rush?
Zachary Karabell: The goal for the Democrats was really, "Keep this issue going," because it will distract from other issues and it will be embarrassing. It is a marker whose only utility is to create political complications. Part of it is because, over the past years, Congress has passed a budget.
Brooke Gladstone: We see budgets being passed where appropriations change.
Zachary Karabell: Right, but most of the budgets, certainly since 2008, have been continuing resolutions of the prior budget, with some tweaking we saw after 2013 with this thing sequestration, right? Meaning we can't agree what parts of the government we want to cut or augment spending on, so we're just going to cut everything across the board by 10%.
You have not really had a unified budget. Little pieces have been passed here and there, continuing resolutions to other pieces, it's a total hodgepodge. Because Congress can't agree on a budget, the debt ceiling authorization becomes the proxy for spending discipline that they can't embed in the budget process.
Brooke Gladstone: If we're news consumers, what we hear, certainly from one side, and sometimes from the other, is that spending is out of control.
Recording: Giving the federal government more money would be like giving a cocaine addict more cocaine.
Zachary Karabell: It's certainly true that our aggregate debt is higher than it's ever been. It just passed $20 trillion, but the actual amount that we're paying to service that debt, which is the money that we spend annually, is lower than it was into the early 1980s, just because interest rates were so low. It's like a mortgage. I mean, it doesn't matter that you have a million-dollar mortgage or a $500,000 mortgage, it matters what your interest payments are on that mortgage.
A 5% mortgage makes that really expensive and a 2% mortgage makes it a lot less so. Same thing with the federal debt. You can argue about what cost would be unbearable. Paying 1.5% of your GDP on interest bearable and paying 3% not. Even if interest rates spiked, it's not as if our costs are going to go up 10X.
Brooke Gladstone: Okay. Give me a sense of perspective here.
Zachary Karabell: Perspective in the media? Are you kidding?
Brooke Gladstone: [chuckles] Right now, what's our interest rate on the debt?
Zachary Karabell: It's between 2% and 3%.
Brooke Gladstone: What was it 10 years ago?
Zachary Karabell: Four, four-and-a-half, five, before 2007. Interest rates peaked in 1982. More or less, with some variability, they've just been coming down over the past 35 years.
Brooke Gladstone: Right now our debt exceeds the gross domestic product, how much value we produce over the course of the year?
Zachary Karabell: Yes.
Brooke Gladstone: Again, some more perspective, how does that compare to say the '80s or the '90s?
Zachary Karabell: It's been creeping up year by year. There was some deficit reduction as you know under Clinton, but overall, our debt levels have been going up, and up, and up. Not all that debt is owed, a lot of it's the government writing IOUs to itself, some of it is kind of an accounting fiction, so we borrow money from ourselves to pay ourselves.
Brooke Gladstone: The size of the debt doesn't matter?
Zachary Karabell: At some point, it matters. I'm simply saying we are way, way away from that point, and the Tea Party is saying, "We're way, way beyond that point."
Brooke Gladstone: It doesn't seem as if the debt is the boogeyman that it was four or five years ago, then the rhetoric around it and what we were doing to our children would just cause spontaneous combustion.
Recording: When we see our nation-destroying our children's future by settling with a debt they can't handle, we've got to do something about that.
Barrack Obama: We can't mortgage our children's future on a mountain of debt.
Zachary Karabell: During the time when S&P downgraded the US debt in 2011, there were other debates, 2011, '12, '13, where debt was on the top of the agenda, when people saw it as their main concerns. That was very high. I wrote pieces, somewhat arguing, "We should look at the interest payments on the debt. We should look at the servicing, not the absolute level. Debt can be a tool if it's used wisely," and the amount of hate mail and anger that that generated in people.
The joke at the time is, I could write an article in favor of child pornography and I would have received less angry responses than I did, suggesting that maybe the levels of absolute debt were not so critical to our future. I mean, I literally was called a hater of America, wanted to destroy the American future.
Brooke Gladstone: Why not that kind of pushback now?
Zachary Karabell: To some degree, it's just cyclical. Healthcare some years is a huge deal, other years it's not. Terrorism rises or falls. Climate change, same thing. Part of it is media cycle of no one story can gain traction for too long. I mean, the narrative does have to change. Even in the primaries with the Republicans, debt levels were not the issue.
Brooke Gladstone: Oh, that's true.
Zachary Karabell: This really waned after 2014. You could say the Republicans gaining control of the House in such a commanding way. I also think the fact that the economy has stabilized. I mean, you can argue about how bad or good it is for many of us, but it's clearly stabilized over the past four or five years, which is an offsetting factor to the level of fear.
American attitudes towards debt have been emotional for a long time. Dealing with the country's finances, deciding what to spend, is one of the central functions of the legislative body. In a weird way, the debt ceiling prevents the hard work.
Brooke Gladstone: Are you suggesting people just skip over the debt ceiling stories?
Zachary Karabell: Yes. There's no there there.
Brooke Gladstone: If you took politics out of it, it doesn't make any sense to have a debt ceiling.
Zachary Karabell: Yes. If you took politics out of it, a lot of this wouldn't make sense. It'd be kind of the, "Other than that, Mrs. Lincoln, how did you like the play?"
Brooke Gladstone: How did you like the play? [laughs] All right, Zachary, thank you very much.
Zachary Karabell: Thank you.
Brooke Gladstone: Zachary Karabell is the author of The Leading Indicators: A Short History of the Numbers That Rule Our World. I spoke to him in 2017. Join us for the big show this week, which is posted usually on Friday. If you haven't done so, you should sign up for our weekly newsletter. It's really good. I'm Brooke Gladstone, and I'm back.
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