Capital Commentary is the weekly current-affairs publication of CPJ, written to encourage the pursuit of public justice.

Public Justice and the Debt Ceiling

George N. Monsma, Jr.


July 15, 2011
by George N. Monsma, Jr.

A discussion of the public justice implications of the negotiations regarding the debt ceiling should begin with a statement of some fundamental economic aspects of public justice which God calls governments to uphold.  Governments are called, where possible, to establish conditions in which other institutions in society can fulfill their God-given callings, and in which this can continue in the future.  Families should be enabled to support themselves through their work and have access by other means to what is necessary to fulfill their callings in society when they cannot support themselves by work.  Government should provide this now, as well as enable this to continue in the future, e.g., by giving families access to education needed for earning in the future, by preserving the environment and natural resources so that society can flourish in the future, and by not burdening those living in the future with debts in excess of what is passed down to them in assets such a productive infrastructure.

The current negotiations are taking place in a time in which we are far from meeting these conditions as a society, with an unemployment rate of 9.2%, over 6 million workers who have been unemployed for over 6 months, and a poverty rate of 14.3% in 2009 (the last available figure).  Both the unemployment and poverty rates understate the extent of the problems.  We have also been experiencing a growing inequality in income and wealth as well as rising levels of greenhouse gases which create a significant risk of severe environmental damage.

How is this relevant to the negotiations regarding the debt ceiling?

First, it is important that the debt ceiling be raised.  While it is impossible to say exactly what would happen it if were not raised, there is a significant risk that it would cause enough disruption in the economy that unemployment and poverty rates would rise substantially, possibly in other countries as well as in the U.S.  At the least, the interest rates the U.S. would have to pay on its debt would probably be higher for years, raising the deficit even further.  And it would cause the government to fail to pay obligations it has assumed, which in itself is not just.

Second, it is important that the current deficit not be reduced substantially.  Some steps could be taken to reduce the debt slightly without causing a significant reduction in demand in the economy and thus more unemployment and poverty.  However, we actually now need more government spending, and perhaps some temporary, targeted tax cuts, to reduce unemployment.  The stimulus program of 2009 raised employment (the Congressional Budget Office estimates by between 1.4 million and 3.3 million persons), but that stimulus is coming to an end. This will slow the recovery substantially.  Major cuts in government spending could put us into another recession, which would, ironically, raise the deficit.  If we spend more on education and infrastructure, as well as providing support for those in need now, more families will be able to fulfill their callings now and in the future, and provide more revenue in the future.

Finally, it is important to reduce deficits, and thus the growth in the debt/GDP ratio, in the future.  But to uphold public justice this should be done in ways that do not harm the poor and vulnerable among us.  Policies that could contribute to this include allowing the Bush-era tax cuts on both middle and upper classes to expire in 2012, making modest changes in Social Security taxes and benefits which preserve benefit levels for lower-income recipients, and preserving Medicare benefits for the lower-income recipients in any changes made in that program.  Policies that raise revenue while preserving the environment could promote public justice in dual way.  One such policy is a gradually-phased-in carbon tax, with off-setting tax reductions for lower-income households.

In these ways, public justice can be served while we tackle the difficult work of putting our fiscal house in order.

—George N. Monsma, Jr. is Professor of Economics, Emeritus at Calvin College.

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Capital Commentary is a weekly current-affairs publication of the Center for Public Justice. Published since 1996, it is written to encourage the pursuit of justice. Commentaries do not necessarily represent an official position of the Center for Public Justice but are intended to help advance discussion. Articles, with attribution, may be republished according to our publishing guidelines.”