Austan Goolsbee, Politics of Fear Frontman

Like alot of his other discharges, Austan Goolsbee's dire warnings on the debt-ceiling issue are all wet and he is, once again, doing the cynically dishonest work of the administration that he has tethered his career to. Goolsbee warns that not increasing the debt ceiling would bring on the certain, immediate default of the United States of America and consequently trigger unfathomly bad things, like a global recession. No such thing would happen, and I think that Goolsbee knows it. If he doesn't know it, he's making the classic mistake that academic economists make (and he ought not to have such an important job, but that is another point altogether) by not factoring in markets. First of all the debt ceiling is precisely what it says it is, a ceiling, so the US Treasury would be free to issue plenty of new bills to roll over existing debt, so long as new issuance doesn't take us above the ceiling, so there would be no default. What's more, if Congress can set and reset the debt ceiling, surely they can specify that new debt can be issued only to rollover existing debt. Furthermore, the markets are smart and bond investors are likely to see through the capping of the debt ceiling. The massive collective entity known as the bond market understands quite well that the USA is not really anywhere close to "defaulting" in the truest sense, so the reaction would not be the cataclysmic event that Goolsbee postulates. In fact, the impending restriction of US debt supply would make the existing obligations more valuable and likely promote a rally in US bonds driving down interest rates. The Democrats for decades have loved low interest rates, so what it not to like now? That's easy. The one place where the debt ceiling would be cataclysmic is on the federal government's "business model" so to speak: deficit-fuelled spending on the great utopian social engineering projects of the last century (ObamaCare inclusive) and thousands of piddly, not-so-great social engineering projects. You would have to make significant cuts to nearly everything that Democrats since Wilson have ever done that requires money. Only the really, truly poor among the elderly will get a Social Security check. Those Native Americans will no longer have our billions in welfare, they'll have to make it in life on their own. The government is just going to have to buy less than 40% of the healthcare services sold in America each year. The ethanol producers are going to have to find another line of work. Aspiring young people are just going to have to save for college. Et cetera, et cetera. Frankly I think it is pure genius - the idea that our government would have to REALLY prioritize and spend only where it is truly needed and critical - but you can see why Goolsbee has to say what he's saying. It's scare tactics really, the kind of fear-mongering that we were told was the sole purview of Republicans and perfected under ChimpyBushHitler, the pure antithesis of the Lightworker Obama. There's a Reynoldsesque "They told me if I voted for McCain..." formulation in there somewhere.

UPDATE: Douglas Holtz-Eakin agrees with me.