The OECD's Bad Advice on the Debt Ceiling

The OECD's Bad Advice on the Debt Ceiling

On Tuesday, the Organization for Economic Co-operation and Development (OECD), which represents the world’s most advanced economies, advised the U.S. to eliminate the debt ceiling, warning that repeated crises over the debt limit threatened the global economy. Instead, the OECD suggests, the U.S. should adopt “a credible long-term budgetary consolidation plan with solid political support” (my emphasis).

There is no way that removing the debt ceiling would have “solid political support” in the U.S. The majority of Americans support it–and oppose raising it. The OECD’s advice repeats a past pattern of bad advice, by the International Monetary Fund and others, that mistakes a symptom of America’s fiscal crisis for the cause, which is runaway federal spending by both parties, and especially the Democrats in recent years.

The Tea Party was elected to solve that problem. And while President Bill Clinton believed he had a mandate to protect the government programs Americans think they need, President Barack Obama believes he has a mandate to expand government to encompass all that Americans could possibly want. So he has not only tried to protect spending, but to expand it–radically, and permanently. Hence the repeated political confrontations.

International credit agencies have attempted to take a more middle-of-the-road, pox-on-both-your-houses approach, suggesting that both spending cuts and tax increases might be necessary to solve America’s debt problem. Taxes were raised–under duress–at the “fiscal cliff” in late 2012. Spending was cut–again, under duress–due to the sequester two months later. But the 2012 election itself did not settle the debate.

There are now efforts by members of both parties to remove the debt ceiling altogether, or to take it out of Congress’s hands. But taking away one of the most important indicators of America’s fiscal crisis is not the same as solving the underlying problem, and may in fact exacerbate it by postponing necessary reform. The better way to tie the government’s hands is to pass some version of a Balanced Budget Amendment.

The OECD cannot quite bring itself to support such an amendment. Many OECD nations dislike spending cuts, because American stimulus buys European exports. But a Balanced Budget Amendment, of the kind that exists even in many “blue” states, is the only alternative to the debt ceiling that has “solid political support.” The OECD’s fiscal advice will no doubt be brought to bear in the next debt ceiling fight. But it should be ignored.