debt ceiling

A Balanced-Budget Amendment and the Constitution

This post is in two parts. Part I rebuts a fatuous attack on proposals for a balanced-budget amendment to the U.S. Constitution. Part II offers an amendment that would result not only in a balanced budget (with appropriate exceptions) but also would limit the federal government’s ability to spend for purposes not contemplated by the Framers of the Constitution.

I. REBUTTING A FATUOUS ATTACK ON PROPOSALS FOR A BALANCED-BUDGET AMENDMENT

The blogger known as Patterico points approvingly to Carson Holloway’s “The Balanced Budget Amendment: What Would Hamilton Say?” at Public Discourse. I am less enthusiastic, to say the least, about Holloway’s arguments against a balanced-budget amendment. Here are key quotations (in italics) from Holloway’s article, followed by my comments (in bold):

[T]he Constitution, as it stands and as the Founders crafted it, empowers the Congress to “borrow money on the credit of the United States.” The Founders, evidently, intended that the government be capable of incurring debt.

Holloway begins by framing the problem incorrectly; it is spending, not borrowing. A balanced-budget amendment need not keep the federal government from borrowing, and could easily be framed to allow borrowing under specified conditions and for specified purposes.

It is possible that circumstances have changed and that a balanced budget amendment is now necessary to realize those basic principles, such as limited government, to which the Founders were committed.

It is obviously true that circumstances have changed. Look at the massive future outlays implied in “entitlement” programs, and consider the effects of those outlays on the productive sectors of the economy. A balanced-budget amendment is as necessary today as Amendment XIII (abolishing slavery) was deemed in 1865.

[F]or those who respect the Founding and seek to be guided by it, the fact that such an amendment would take away or restrict a federal power that the Founders thought necessary should be a cause for hesitation and further reflection. Before deciding to support a balanced budget amendment, we ought to ask: why did the Founders empower the government to borrow?

I respect the Founding and am guided by it. Article V of the original Constitution provides for amendments, and does not restrict the character of amendments. (There was one restriction, which lapsed in 1808.) When the citizens of the United States are confronted with crippling economic policies perpetrated by the government of the United States, amending the Constitution to rectify those policies is among the least drastic of means available to the citizenry.

Here we might turn with particular profit to that Founder most associated with the establishment of America’s public finances, the first Secretary of the Treasury, Alexander Hamilton. Upon taking office, Hamilton was confronted with an infant republic, saddled with considerable debt from the revolution and far behind in its repayment obligations. In late 1789, the House of Representatives charged him with devising a plan to put the nation’s finances back on a sound footing, and he responded with his masterly and much-admired Report on Public Credit; Congress subsequently adopted its recommendations. While the Report’s primary purpose was to provide a financial plan, Hamilton, seeking perhaps to educate public opinion and influence the views of legislators, opened the Report with some general reflections on the importance of public credit. It is here that we might gain some insights to enlighten the contemporary debate on the balanced budget amendment.

It is ironic that Holloway should turn to Hamilton, whose  expansive view of the powers of the federal government.has been openly praised and emulated by legislators, executives, and judges. If any one person can be blamed for the runaway spending that threatens Americans’ prosperity, it is Hamilton.

Why, then, do Hamilton’s principles seem to condemn a balanced budget amendment to the Constitution? Though Hamilton claims that public borrowing should be undertaken in response to unforeseeable “exigencies” or “emergencies,” he nevertheless claims that public borrowing is a “necessity.” This is the case because, while the exact nature of such exigencies cannot be known in advance, we can know, with great confidence, that they will arise, in one shape or another, and that they will overtax the ordinary revenues of the government.

Holloway, again, shifts the focus from spending to borrowing. Borrowing is not the problem, nor is borrowing out of the question under a balanced-budget amendment.

[T]he proponents of the balanced budget amendment might respond that it can be crafted in such a way as to allow for public borrowing in cases of war or crisis…. [I]t would surely be foolhardy to write the amendment in such a way as to allow public borrowing only in cases of war, because it does not take too much imagination to summon to mind many potential crises short of war that might be addressed best through public borrowing….

Holloway assumes that “crises” short of war are any of the federal government’s business, and that — if they are — they could not be addressed simply by re-prioritizing the federal budget. The “crisis” of the Great Depression elicited many unconstitutional schemes. Social Security is the most notable of them and, until the advent of Medicare, perhaps the most disastrous.

[A]n inability to borrow would not only hamstring the government in responding to grave public evils; it might also prevent the government from seizing positive opportunities that could produce public benefits for generations. America might, at some point, have a chance to purchase some valuable new territory, perhaps rich in natural resources, that will enhance the nation’s prosperity. Such a purchase, however, might require an immediate transfer of money that would be impossible without the ability to borrow.

Here, Holloway resorts to fantasy and appeals to mercantilism. If there is “some valuable new territory, … rich in natural resources” to be acquired, let it be “exploited” by the most efficient producer (of whatever nationality). Americans will benefit by being able to purchase more, newer, and better things at better prices from the “exploiter.” There is no particular advantage if the “exploiter” is American, for even in that case its products will not be given away to other Americans. If the “exploiter” chooses — for some insane reason — not to offer products to Americans, that would be the exploiter’s loss. If the “exploiter” is a foreign nation with evil designs, a peaceful acquisition is unlikely and the evil designs are best met through federal government’s constitutional authority to provide for the common defense.

One could, of course, try to avoid all of these problems by framing the necessary exception broadly enough in the language of a balanced budget amendment. The amendment might, for example, allow public borrowing not only in cases of war but also in cases of public crisis. But if a narrowly drawn exception accomplishes too much by preventing borrowing when it is really needed, a broadly drawn exception would accomplish too little and would, in fact, make the amendment useless for all practical purposes.

What about an exception that is drawn in a way that accomplishes what is needed? (I’ll come to that.) Holloway’s generalities are uninformative, and clearly designed to support his prejudice against a balanced-budget amendment.

The proponents of a balanced budget amendment might instead try to discipline borrowing by establishing a serious procedural obstacle to incurring debt. For example, the amendment might require a two-thirds majority of each House to authorize borrowing on behalf of the public. Based on the American experience, it is not clear that such a requirement would seriously deter the government from incurring new debt. In the Senate, the filibuster already creates a supermajority requirement (of three-fifths) for increasing the nation’s debt, yet debt-ceiling increases have routinely passed the Senate. Indeed, debt-ceiling increases have been routinely enacted with overwhelming support in both Houses of Congress. In the most recent, and most hotly contested, debt-ceiling debate ever, 62% of the House of Representatives and 74% of the Senate voted to issue more debt. One might try for an even more stringent requirement—calling for, say, a three-fourths vote in each House of Congress—but this would only exacerbate an already serious failing in any supermajority requirement: namely, any supermajority requirement is anti-majoritarian, and the higher the bar is set, the more anti-majoritarian it is. A balanced budget amendment framed in this way thus strikes at one of the vital principles of American republicanism: majority rule. It would be a step backwards in the direction of the Articles of Confederation, which required supermajorities for important actions of the Federal government.

Holloway once again deploys shifty logic and dubious facts in the service of big government. As for the recent debt-ceiling debate, it resulted not only in a higher debt ceiling but also in the reduction of planned spending — a precedent, as far as I know. As for the use of rules that require approval of certain actions by supermajorities, Holloway’s earlier appeal to the Founders (Framers, really*) should put him on the side of such rules. (That he appeals only to one such Framer, big-spending Alexander Hamilton, gives him away.)  For one thing, the Constitution specifically states that “Each House may determine the Rules of its Proceedings” (Article I, Section 5).

More generally, the Constitution was meant to thwart majorities and, therefore, to ensure that the federal government remained limited in its power and scope. The need for supermajorities in certain matters is merely an entirely constitutional effort to restore checks that have been eroded by unconstitutional actions: leglistative, executive, and judicial. Majority rule is not a vital principle of American republicanism, as Holloway asserts. Indeed, for reasons advanced eloquently by James Madison in Federalist No. 10,  majority rule is to be feared and circumscribed. If supermajorities are required for important actions of the federal government, it is only because the federal government has slipped its constitutional bounds.

Holloway would admit such things were he an honest advocate of the Constitution, and not just of Alexander Hamilton’s successful but unconstitutional scheme to enlarge the federal government. But if Holloway were an honest advocate of the Constitution, he would admit, also, that the Constitution has been “amended” by stealth, to allow the federal government to run up huge bills and huge debts, instead of having been amended properly, as provided in Article V.

In summary, contrary to Holloway’s assertion a balanced-budget amendment would not be a step backward. Such an amendment is badly needed to restore the Framers’ original scheme: a government of limited, enumerated scope, as opposed to a government of unlimited scope, financed by the blank check of unlimited borrowing that Holloway seems so devoutly to wish.

II. AMENDMENT TO BALANCE THE FEDERAL BUDGET AND LIMIT THE SCOPE AND SPENDING OF THE FEDERAL GOVERNMENT

Amendment XXVIII

Section 1.

The entire text of Sections 8 and 9 of Article I of the Constitution is replaced by the following:

Section 8.

Congress may, by a majority of three-fifths of the members of each House present, when there is a quorum consisting of three-fourths of the number of persons then holding office in each House:

a. collect revenues in order to pay the debts and expenses of the United States, so long as

• the debts and expenses are incurred through constitutional actions,

• the revenues are not collected through taxes or levies on income or assets,

• all taxes and levies are uniform throughout the united States, and

• there is published a regular statement and account of the receipts and expenditures of all public money;

b. borrow money on the credit of the United States in order to pay its legitimate debts,

(1) so long as the indebtedness of the United States does not increase over any ten-year period, as determined by comparing the amount of indebtedness at the end of the preceding fiscal year with the amount of indebtedness at the end of the tenth preceding fiscal year;

(2) except that, for the purpose of determining the change in indebtedness over any ten-year period. the amount of indebtedness at the end of the preceding fiscal year shall not include the sums spent during the ten-year period for any purpose contemplated in this Constitution, if said expenditures were made pursuant to appropriations approved by at least three-fourths of the members of each House present when there is a quorum of at least three-fourths of the number of persons then holding office in each House;

(3) if the indebtedness of the United States increases, as determined in accordance with the two preceding clauses, then no person who served as a member of Congress or as president or vice president of the United States during the ten-year period in which the amount of indebtedness increased shall thereafter be eligible for election or appointment to Congress or an executive or judicial office of the United States;

(4) further, if indebtedness shall have increased, as determined in accordance with clauses (1) and (2) above, outlays by the government of the United States for all purposes but national defense shall be reduced pro-rata — and without recourse to legislative, executive, or judicial action — in the amounts required to offset the increase in indebtedness within two fiscal years.

[This is adapted from Article V, Section B (Specific Powers of Congress), of "A New, New Constitution." Go there for a complete listing of Congress's powers and lack thereof.]

Section 2.

The following article is added to the main text of the Constitution:

Article VIII.

Section 1.

Each word, phrase, clause, sentence, section, and article of this Constitution, as amended, shall be construed in accordance with the meanings of the aforesaid at the time of their ratification.

Section 2.

Where there is ambiguity about the meaning of any portion of this Constitution listed in the foregoing section of this Article VIII, its meaning shall be determined by reference to the speeches and writings of the proponents of the language adopted through ratification.

Section 3.

The meaning of any portion of this Constitution may not be altered to include subjects or powers not specifically contemplated in the language of this Constitution, as determined in accordance with the foregoing sections of this Article VIII.

Section 4.

Despite exigencies, real or proclaimed, the subjects of this Constitution and the powers herein granted or denied may be changed only by amendment, in accordance with Article V.

[This is adapted from Article X, Section C (Construction), of "A New, New Constitution."]

_________
* “Founders” encompasses the entire founding generation of political leaders who led the Revolution, signed the Declaration of Independence, and crafted the Constitution. “Framers” refers strictly to the makers of the Constitution. Hamilton was one of them, and the assurances that he gave in his numbers of the Federalist about his belief in limited government proved to be deceptive.

Tax Collector for the Welfare State

That used to be Bob Dole’s informal moniker, because he favored a balanced budget, even if it meant raising taxes to fund the welfare state. It seems that Megan McArdle is stepping into Dole’s shoes. She endorses Standard & Poor’s downgrading of U.S. government debt from AAA to AA+, and S&P’s reasons for the downgrading, including these:

Standard & Poor’s takes no position on the mix of spending and revenue measures that Congress and the Administration might conclude is appropriate for putting the U.S.’s finances on a sustainable footing.

The act calls for as much as $2.4 trillion of reductions in expenditure growth over the 10 years through 2021. These cuts will be implemented in two steps: the $917 billion agreed to initially, followed by an additional $1.5 trillion that the newly formed Congressional Joint Select Committee on Deficit Reduction is supposed to recommend by November 2011. The act contains no measures to raise taxes or otherwise enhance revenues, though the committee could recommend them. (Emphasis added: ED.)

In other words, as far as McArdle is concerned:

  • It doesn’t matter that the federal government’s long-term fiscal path is unsustainable.
  • It doesn’t matter that the path is unsustainable because of present commitments to “entitlement” programs.
  • It doesn’t matter that Republicans have succeeded in pushing the “debate” toward recognition of these facts.

This is not only unprincipled but also stupid.

It’s unprincipled because it means that McArdle — who sometimes calls herself a libertarian, but often talks like a big-government stooge — is willing to sacrifice the financial future of unborn Americans on the altar of a AAA credit rating.

It’s stupid because the debt of the U.S. government will become worthless — AAA rating or not — if it tries to stay the unsustainable course and drives America into the poorhouse by taxing its most productive citizens for the sake of its least productive ones.

Who Won the “Debt Debate”?

The first match in the current showdown over government spending goes to the GOP. Not that all Republicans favor the deal that has now been approved by the House and Senate, but it’s clear that Republicans are generally happier than Democrats about the deal.

The votes of House Republicans split 174-66 (for-against), while House Democrats voted 95-95. Senate Republicans voted 28-19; Senate Democrats 46-7 (counting Lieberman and Sanders as Democrats). Senate Republicans who voted against the deal had the comfort of knowing that (a) it had been approved by the House and (b) it was widely expected to be approved by the Senate.

On the whole, Republicans in Congress gave the deal far more support than Democrats:

  • Republican votes in favor — 72 percent of House Republicans, 60 percent of Senate Republicans, and 69 percent of Republicans in the two chambers.
  • Democrat votes in favor — 50 percent of House Democrats; 87 percent of Senate Democrats, and 58 percent of Democrats in the two chambers.

The overall results, I think, are a good gauge of the attitudes in the parties. Republicans have good reason to be happier than Democrats. Obama had to pay a price for getting the debt ceiling raised, and that price (at least for now) consists entirely of spending cuts (inasmuch as reductions in planned spending increases can be called cuts).

Chalk up a victory for Republicans, especially the Tea Party kind. Yes, Tea Partiers would have preferred real spending cuts, but without the pressure they brought to bear on Republican leaders, the outcome would have been far worse — perhaps even Obama’s preferred “clean” increase in the debt ceiling, without any strings attached.

Another thing Tea Partiers should be proud of is that “liberal” Democrats are enraged by the debt deal. (Jonah Goldberg’s take is here.) Their rage is the clearest indication of a Tea-Party-inspired Republican victory.

There are several matches yet to come in this running “debate” about the size of government and its role in the lives of Americans. The most important match will conclude on November 6, 2012, with the election of a president, 435 U.S. representatives, and one-third of U.S. senators. The replacement of Obama by a Republican, coupled with the GOP’s retention of the House and capture of the Senate, would put an end to the “gridlock” in Washington and put the U.S.

Compromise, Democrat Style

David P. Barash — a professor of psychology at the University of Washington and the co-author of Payback: Why We Retaliate, Redirect Aggression and Seek Revenge — unwittingly reveals his psyche in a NYT op-ed, “Washington’s Rogue Elephants.” In Barash’s unsubtle symbolism, “rogue elephants” refers to Republicans, as he views their role in the present debate (if you can call it that) about the debt ceiling and how to avoid a default by the federal government.

Barash seems, not unsurprisingly given his profession and political leanings, to be plagued by prolonged adolescent rebellion. The rebellion, in this case, is against fiscally responsible authority figures in the Republican Party. The giveaway is Barash’s concluding comments:

[G]iven the Republicans’ continued insistence on an unobtainable wish list of spending cuts and constitutional amendments, it’s fair to conclude that Mr. Obama is facing the political equivalent of an elephant in must — a player who simply won’t play the game.

In the 1983 movie “WarGames,” an errant military supercomputer has a final moment of lucidity in which it notes, “The only winning move is not to play.” The president is best advised to do the same: declare that the other side has foregone all pretense at rational legitimacy, and simply proceed to govern as best he can for the good of the country.

This is leftist fantasizing. Obama can’t simply “govern” without Congress; it’s not up to him to decide how much to spend, nor can he constitutionally ignore the debt ceiling.

More generally, Barash hews to the typical leftist view that it’s up to Republicans to compromise; thus “the Republicans’ continued insistence on an unobtainable wish list of spending cuts and constitutional amendments.” But those things aren’t unobtainable or mere wishes; Democrats simply refuse to agree to them.

The current crisis is a spending problem. Republicans helped to create the problem, but most of them are adult enough to face up to it and offer ways to deal with it. Democrats seem unable to detach themselves from their vision of government as Santa Claus.

Democrats are suffering from a delusional disorder, but it’s evident that Barash doesn’t have the psychological chops to cure them of it.

Related posts:
Conservatism, Libertarianism, and “The Authoritarian Personality”
The F-Scale, Revisited
The Psychologist Who Played God
America’s Financial Crisis Is Now
Questioning the National Debt
Tax Expenditures Are Not Expenditures
My Negotiating Position on the Federal Debt
Miss Brooks’s “Grand Bargain”
A Tax Is a Tax Is a Tax

The Social Security Trust Fund Is Not a “Get Out of Jail Free Card”

UPDATED BELOW

David Friedman, drawing on an op-ed by Thomas Saving, suggests that

Obama may have a $2.7 trillion dollar get out of jail free card, a way of spending that much additional money without exceeding the debt limit.

How does that work? Friedman explains:

Suppose no agreement is reached on raising the debt limit. Obama instructs the relevant people to spend the income from Social Security on the war in Afghanistan, bailouts, whatever he thinks needs money. He then instructs the Social Security system to cash in as many bonds as are required to meet its obligations to Social Security recipients, say $700 billion. He then instructs the treasury, since the national debt is now $700 billion below the debt limit, to borrow $700 billion. The net effect is that he has increased total expenditure, Social Security included, by $700 billion without exceeding the debt limit. The trust fund is currently at about $2.7 trillion, so he can do it for four more years.

Friedman’s scheme would work only if total federal receipts (including Social Security taxes) remain greater than or equal to total federal outlays (including SS benefits), from the point at which federal indebtedness hits the statutory ceiling. But that is not the situation.

Let us say, for the sake of argument, that the ceiling will be reached at the end of FY 2011. The president’s budget for FY 2012 shows total outlays of $3.729 trillion (including SS benefits of $0.761 T) and total revenues of $2.626 T (including SS taxes of $0.660 T). (See tables S-1 and S-3, here.) In other words, if Congress passes the president’s budget exactly as it stands, the debt ceiling must rise by $1.103 T ($3.729 T – $2.626 T) in FY 2012. And the SS trust fund, no matter how large it is, cannot alter the arithmetic.

Here is why. Suppose the feds spend all $0.660 T in SS taxes on things other than SS benefits (as they will, in effect). From an accounting standpoint, that reduces the non-SS deficit for FY 2012 from $1.001 T (non-SS spending less non-SS receipts) to $0.341 T. But the folks at SS are faced with a bill for $0.761 T in SS benefits. To pay the bill without having received a dime in SS taxes, the SS folks must go to the SS trust fund and grab U.S. treasury bonds with a value of $0.761 T, which they must then present to Tim Geithner for payment. Geithner thinks, “Who are these fools? Do they imagine that I’ve got that much unencumbered cash lying around, when I’m over my head in debt and sinking fast?” But being a good Obamanite, Geithner gives the SS folks their $0.761 T, and they go away happy.

If the analysis stops there, Friedman is correct. The treasury has just redeemed $0.761 T in bonds held by the SS trust fund, and the total debt of the federal government has magically dropped by $0.761 T. But the analysis cannot stop there, because the treasury does not have the $0.761 T in unencumbered cash. It must now borrow $0.761 T, to cover the redemption of the SS trust fund bonds, plus another $0.341 T, to cover the amount by which non-SS outlays exceed total receipts (including the SS taxes that it intercepts). With rounding, that comes to $1.103 T, which just happens to be the amount by which total federal outlays exceed total federal receipts.

Under what conditions would Friedman’s fix work? Here is a list (perhaps not an exhaustive one):

  • The debt ceiling will not be reached, given current projections of federal outlays and receipts (including SS benefits and taxes).
  • The debt ceiling has been reached but will not be exceeded, given current projections of federal outlays and receipts (including SS benefits and taxes).
  • The debt ceiling has been reached, but the surplus from non-SS programs will offset the deficit in SS accounts, or vice versa.

What about the SS trust fund? As long as the federal government is in debt by at least the face value of the SS trust fund, the trust fund has no real value. There is one (unlikely) saving condition, which is that the government’s net worth — represented by real assets — is equal to or greater than the face value of the trust fund. Such assets would have to be authorized for sale, by law, and would have to be valued at their quick-sale price on the open market. Given the reluctance with which Congress and federal agencies part with valuable assets (mainly land), it will be a cold day on the Equator before the SS trust fund is more than a valueless collection of accounting entries.

UPDATE (07/25/11)

The crux of my objection to Friedman’s scheme is found in the original post and my reply to his first comment; viz.:

If the analysis stops there, Friedman is correct. The treasury has just redeemed $0.761 T in bonds held by the SS trust fund, and the total debt of the federal government has magically dropped by $0.761 T. But the analysis cannot stop there, because the treasury does not have the $0.761 T in unencumbered cash….

*     *     *

3. This intra-governmental transaction does not affect the revenues that SS and non-SS receive from third parties.

4. Total spending by SS and non-SS must therefore equal their total receipts from third parties.

I ended my reply with this observation:

If you disagree with this analysis, then you and/or I must be making some assumptions (perhaps inadvertently) that remain hidden from view….

As it turns out, Friedman was making a hidden assumption that allows his scheme to work. That hidden assumption is revealed in a note appended to Friedman’s original post. The note was not there when I published this post, and I was unaware of it when I replied to Friedman’s first comment. In fact, I was unaware of it until late yesterday, when I revisited this post and Friedman’s after receiving his second comment. The note reads:

Some readers seem puzzled as to where the Treasury, in my story, is to find the $700 billion that it is to pay to the Social Security Administration, once the debt limit is reached. The answer is straightforward. With or without a debt limit, the federal government is continually collecting money and spending it. In my scenario, the government takes (say) $50 billion that it was supposed to pay as salary to federal employees, pays it to SSA instead. SSA cancels $50 billion in trust fund bonds. The national debt, which includes the debt owed by the federal government to the SSA, is now $50 billion below the limit, so the Treasury borrows $50 billion and pays out salaries to federal employees. Rinse and repeat as many times as necessary.

This is too clever by half. It requires exquisite timing on the part of the Treasury; otherwise, payrolls are not met, vendors are not paid, and existing debt is not serviced. In other words, the federal government would be in constructive default and violation of the debt limit. Moreover, it most certainly would not allow the federal government’s outlays to exceed its revenues over an extended period, which is why Obama seeks a higher debt limit in the first place. I could stop there, but there’s more to say about the scheme.

It resembles check-kiting, and may be just as illegal. But even if it is not illegal, it amounts to a patent evasion of the debt limit, and the evasion soon would be obvious to knowledgeable observers. Among other things, financial markets probably would react as if the federal government were in default — because the scheme could sooner or later result in a default of some kind (especially if outlays are rising as revenues stay flat). It would not take an act of Congress (over Obama’s veto) to put an end to the scheme; financial markets would do the job, as Treasury would be unable to refinance existing debt, except (possibly) at exorbitant interest rates.

In the best case, climbing interest payments would eat up revenues and force the federal government to cut back on the actual operations and programs. The result would be exactly opposite the one desired by Obama and company, which is real expansion of government. In the worst case, the Federal Reserve would pick up the tab, if it could scrape together a voting majority with the stomach for wading into a political firestorm. But that is another deus ex machina — of dubious durability — and not a surefire way of getting around the debt limit.

I am through with this subject. Comments are closed.

Questioning the National Debt

There is a laughable proposition — advanced by Treasury secretary Timothy Geithner, among others — that Congress may not limit the national* debt. This proposition is based on a skewed reading of Section 4 of Amendment XIV to the Constitution. That amendment was approved by Congress in 1866 and ratified in 1868.

Here is Section 4, in full:

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

The first sentence — the “authority” for Geithner’s proposition — simply means that the government of the United States cannot repudiate indebtedness it has already incurred. The obvious purpose of the first sentence was to prevent future Congresses — which might be controlled by Democrats — from reneging on obligations incurred by the winning (mainly Republican**) side in the Civil War.

Putting a legal limit on the issuance of debt is not the same thing as repudiating debt already incurred. A limit on the amount of debt that the government may issue is the equivalent of stop sign; it means that the government must take steps to prevent the net accumulation of additional debt. It is up to Congress to determine the precise steps — some combination of tax increases and spending reductions — or to “repudiate” the debt ceiling by raising or eliminating it.

A responsible Congress would take steps to ensure against the growth of the debt by reducing commitments to the growth of  “entitlement” programs: Social Security, Medicare, and Medicaid. Those reductions are necessary — for the sake of America’s future — whether or not there is a debt ceiling. One could even argue that the existence of a debt ceiling — one that is always somewhat higher than the current level of debt — has encouraged Congress to make irresponsible spending commitments.

__________
* The so-called national debt is, in fact, the indebtedness of the government of the United States. It arises from the actions of that government, not from the private actions of individuals. It is “national” only in the sense that the taxpayers of the nation are ultimately responsible for repayment of the debt and interest thereon.

** The Civil War was partisan as well as sectional. The 36th Congress, which was in session before the outbreak of the war, was divided as follows: 116 Republicans to 83 Democrats in the House; 26 Republicans to 38 Democrats in the Senate. Because of the war, and losses of seats by seceding States, the Republican Party held a firm grip on Congress in 1866: 136 Republicans to 38 Democrats in the House; 39 Republicans to 11 Democrats in the Senate.

Related reading:
Debt-Limit Silliness, at NRO (follow the links)
We Cannot Pretend the Debt Ceiling Is Unconstitutional, at The NYT (straight talk from a leftist, of all things)

Related posts:
The “Forthcoming Financial Collapse”
We’re from the Government and We’re Here to Help You
Estimating the Rahn Curve: Or, How Government Inhibits Economic Growth
The Deficit Commission’s Deficit of Understanding
The Bowles-Simpson Report
The Bowles-Simpson Band-Aid
America’s Financial Crisis Is Now