Ford School experts share insights as the clock ticks down toward a U.S. government default—and whether a deal can keep a financial concern from devolving into a full-blown crisis.
They discuss where things stand with the debt-limit debate between the White House and House Republicans, where it all might be headed, and what it all means for political, financial and economic standing both here and abroad.
Betsey Stevensonis a professor of public policy and economics. She served as the chief economist of the U.S. Labor Department from 2010-11 and a member of President Barack Obama's Council of Economic Advisers from 2013-15.
"Congress is threatening to undo the strong economic recovery and cause economic mayhem by risking the stability of the financial sector and the incomes of American households and businesses. As we get closer to the date at which the U.S. Treasury does not have enough cash on hand to cover all of the payments, no one can say definitively what will happen.
"Much depends on how markets react as we approach this date and what they expect ultimately will happen. When Congress came close to default in 2011, the Federal Reserve and the Treasury made a plan to service the debt and allow the government to fall behind in paying the everyday bills the Treasury must pay.
"Assuming they choose again to pay debt holders on time, there may not be a catastrophe on the first day that the Treasury is unable to pay all of its bills. However, ultimately the Treasury must be able to issue new debt in order to avoid an economic catastrophe. The sooner this happens, the lower the ultimate costs to American households and businesses."
______________________________________________________________________
Justin Wolfersis a professor of public policy and economics. He wasa member of the Congressional Budget Office Panel of Economic Advisers and an economist with the Reserve Bank of Australia.
"All eyes are focused on the X-date, and the 'will we or won’t we' dynamic of whether the U.S. will default. But in fact, the current impasse is already imposing great costs: The inability of Congress—particularly Congressional Republicans—to commit to paying its debts in a timely fashion is already raising interest rates.
"Even a small rise in interest rates—when applied to a very large ($25 trillion!) public debt—imposes very large costs. The result: Regular Americans are on the hook for billions of dollars in extra interest rates.
"It's a cost that necessarily imposes higher taxes, fewer roads, less funding for education, and less help for the needy. And the longer the current standoff continues, the more investors will re-evaluate our creditworthiness, leading to even higher rates that will impose even greater costs in the future."
______________________________________________________________________
Jenna Bednaris a professor of political science and public policy. Herresearch is on the analysis of institutions, focusing on the theoretical underpinnings of the stability of federal states.
"With the 2024 election season getting underway, it's not surprising that Republicans would use the debt ceiling as an opportunity to peel back some of the spending commitments that the Democrats made in the prior Congress. What is surprising is that the Democratic side seems to be flat-footed, caught without a clear counter to what should've been an expected Republican strategy.
"Both the president and the speaker are striving to project themselves as calm and rational negotiators, but with one hand tied behind their backs by their own party. Essentially, they're behaving as if they're in a game of chicken, unable to swerve, as their party's more extreme members make it impossible for them to compromise.
"Republicans are seeking significant rollbacks in programs and commitments, as well as demanding changes to immigration policy along our southern border. For Democrats, the progressive caucus is urging the president to craft a new interpretation of a clause within the 14th Amendment to bypass the debt ceiling. This constitutional strategy would risk making the Democrats look like they are willing to use the Constitution as a political pawn, and so it's not surprising the White House press secretary has suggested the 14th Amendment is not a viable solution."
"Americans have grown used to the political theater of stalemate, but the effect of this impasse extends well beyond symbolic position-taking: Downgrades will raise the cost of carrying all debt. The debt crisis shows how political polarization has led to very real costs to the American taxpayer."
This advisory was prepared by Jeff Karoub of Michigan News.
Faculty Expert
Jenna Bednar
Associate Dean for Academic Affairs, Professor of Public Policy and Political Science
Bednar's research combines positive political theory and systems theory to analyze how institutions remain effective in complex environments. She has contributed to the scholarly inquiry of the design of federalism; theoretical and experimental work on cultural evolution and institutional performance; and applied realms such as campaign contributions, transboundary water systems, and environmental sustainability.
Faculty Expert
Betsey Stevenson
Professor of Public Policy and Economics
Stevenson is a labor economist who publishes widely about the labor market and the impact of public policies on outcomes both in the labor market and for families. Her research explores women's labor market experiences, the economic forces shaping the modern family, and how these experiences and forces influence each other. She served as the chief economist of the U.S. Department of Labor from 2010 to 2011, participating as the secretary's deputy to the White House economic team.
Faculty Expert
Justin Wolfers
Professor of Public Policy and Economics (on sabbatical leave)
Wolfers is an economist with broad policy-related interests and experience. He is also affiliated with the NBER, Brookings and the Peterson Institute for International Economics. He is a contributing columnist for the New York Times and host of the “Think Like An Economist” podcast. He is a popular teacher and author of a leading economics textbook.
- Jenna Bednar
- Betsey Stevenson
- Justin Wolfers
- Economics and finance
- debt ceiling
- Biden Administration
