After the global financial crisis hit in 2008, federal spending spiraled out of control. The government made controversial interventions to prevent the economy from descending into depression. The federal debt rose relentlessly.
The federal government is only allowed to borrow up to a specified limit set by law, the “debt ceiling.” Even if spending bills have been approved and passed into law, the government cannot borrow the money to fulfill those obligations once it hits the debt ceiling.
Since federal tax receipts vary from year to year, the interest paid on the federal debt changes according to market rates, and federal spending can increase unexpectedly when (for example) people lose their jobs and claim unemployment benefits, the government can never know for sure when it might run up against the debt ceiling.
The result is a series of repeated emergencies in which the debt ceiling must be raised or the government will have to shut down. Ultimately the government could even default on its obligations, wreaking havoc on bond markets. And since borrowing always seems to go up, not down, the problem never goes away.
The debt ceiling has been reached multiple times since the beginning of the global financial crisis, and another debt ceiling crisis is right around the corner.
Except that there will be no crisis, because the country is Australia.
Just like the United States, Australia has a debt ceiling. Australian borrowing bumps up against this ceiling on a regular basis. And just as in the United States, the debt ceiling is an absolute limit on government spending that cannot be transgressed even if the Australian parliament has passed a bill authorizing additional expenditures.
But there the similarity ends. Australia has no debates over default, no dramatic government shutdowns, no sequestration and no fiscal cliffs. When the government reaches the debt ceiling, the ceiling is raised in an orderly manner. No one panics. Everyone gets paid.
It used to work that way in the United States, too. The debt ceiling has only come to be politicized in recent years. This situation is ludicrous – and dangerous. Once the government has incurred a legal obligation, we should all expect the government to meet it.
America’s debt ceiling brinksmanship has made us a global laughingstock. In no other developed country do political parties threaten to push the government into default if they don’t get their way. This kind of take-no-prisoners politics is more characteristic of third-world dictatorships than first-world democracies.
The United States doesn’t have to have a debt ceiling. At the next reauthorization (which by most accounts will be the 90th or so) Congress could simply abolish the ceiling. But Australia’s experience shows this is unnecessary. If America’s politicians could be as sober and mature as Australia’s, we wouldn’t have to worry about it.
The Australians I know will be rolling in the aisles to hear their politicians described as “sober and mature.” Australian politics is highly partisan, often very personal and nothing if not robust. But it is not self-destructive. America – and America’s politicians – could learn some important lessons in democracy from looking overseas. America’s own democracy is, perhaps, not the example it once was.