Is the debt ceiling necessary? We asked all nine living former treasury secretaries.

Commentary about business and finance.
July 18 2011 6:37 PM

The Guys Who Sign the Checks

We asked all nine living former treasury secretaries what they thought of the debt ceiling. Here's what we found.

Larry Summers. Click image to expand.
Former treasury secretary Larry Summers

In the nine weeks since the United States hit its debt ceiling, there has been no shortage of debate about whether and how to lift the cap, what mix of taxes or cuts to demand or accept, and how the financial markets would react if and when the Treasury Department actually stopped sending out checks. The best guess to that last question is that it would shave 10 percent off of monthly GDP, shock the world markets, and tip the country back into recession.

Less prominent, however, has been the debate about the one question underlying this whole crisis: Should we have a debt ceiling at all? After all, the mechanism is unnecessary for budgeting and has become of late nothing more than a beloved, and dangerous, political football. Bright minds from both sides of the ideological spectrum, including Bruce Bartlett (who gave me the idea for this article) and Alan Greenspan, have come to the same conclusion. And on Monday, the ratings agency Moody's declared the ceiling more trouble than it is worth as well.

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But what do the people who have dealt most directly with the debt ceiling think? There are nine  former secretaries of the treasury still living. Do they think the limit is a useful tool or a periodic annoyance? Do they want it to force Congress to continually reconsider its profligate ways? Or is it too risky a device, given the panic it could set off in the bond markets? Right now, the count is 3-to-1 for eliminating the debt ceiling, with one Republican appointee saying it should be eliminated, one saying it should be kept, and two Democratic appointees for its elimination.

Robert Rubin, Clinton's first treasury secretary, has long made his thoughts on the debt ceiling known. He told the Washington Post in May, for instance, that he did not think the country should have one. "It's an anachronism," he said bluntly. Another Clinton appointee, Larry Summers, concurs. "I think that given that Congress has to approve all spending and all tax changes, there is not much logic to the debt ceiling," he told me in an email. "And [I] suspect that any benefits it provides in terms of encouraging fiscal restraint are outweighed by the diversion of energy and accident risk of processes like the one we are seeing now."

The answers did not fall solely on partisan lines, though. Paul O'Neill, George W. Bush's first treasury secretary, provided a long and detailed response that culminated in his belief that he would give up the debt ceiling readily for more intelligent and responsible members of Congress. (Who wouldn't!) "It is hard to make a rational argument for the debt ceiling as it is now structured," he says. "Basically, the debt ceiling gives the Treasury the authority to borrow money to pay debts we already owe. As you know it doesn't authorize new spending." He also noted that the ceiling itself is somewhat ineffectual, since the treasury has the tricks in current use and possibly more radical ones to get around it as well.

Without the ceiling, he cautioned, there "would probably not be any conversation about the fiscal danger we face." But, he continued, "I would be happy to give up the current version of the debt ceiling in return for a majority of members of both houses who are smart enough to understand the facts, are dedicated to acting on the facts, and see as their first responsibility a duty to educate the people, not to pander to them."

James Baker, a secretary in the Reagan administration, said he believes the ceiling serves a valuable purpose. The current sturm und drang aside, he thinks it is a good idea to have multiple occasions to force Congress to confront and deal with the debt. "It is useful if for no other reason than to help put a brake on profligate spending, which has been the undoing of many nations," he says. "It provides a reality check with respect to how far in debt our country is."

The other secretaries declined to answer the question or have not responded yet. Representatives for Michael Blumenthal (of the Carter administration), George Shultz (Nixon), Henry Paulson (George W. Bush), and Nicholas Brady (Reagan and George H.W. Bush) all declined to comment through representatives: Paulson because he is not answering questions about the matter, Blumenthal because he feels too removed from the topic, Brady because he is traveling, Shultz because he is busy ending the drug war. John Snow, who served in the George W. Bush administration, had not yet responded as of the time of publication. (We'll update if he does, or if any of the others chime in.)

Of course, if the United States actually stops sending out checks to the troops, seniors, federal workers, contractors, or doctors—or its bondholders—all these answers might be quite different. And given that scary prospect, eliminating the ceiling or making it automatic (as it was under the so-called Gephardt rule) may seem a more attractive option.

Annie Lowrey is a contributing editor for New York magazine. She can be reached at annie.lowrey@gmail.com.