Defaulting to big government—the unintended consequences of not raising the debt ceiling

MIT Sloan Prof. Simon Johnson

From CNN World

Leading United States congressmen are determined to provoke a showdown with the Obama administration over the federal government’s debt ceiling. Ordinarily, you might expect House Republicans to blink at this stage of the negotiations, but there is a hardline minority that actually appears to think that defaulting on government debt would not be a bad thing.

These representatives – with whom I’ve interacted at three congressional hearings recently – are convinced that the US federal government is too big relative to the economy, and that drastic measures are needed to bring it under control. Depending on your assessment of “Tea Party” strength on Capitol Hill, at least a partial debt default does not seem as implausible as it did in the past – and recent warnings from ratings agencies reflect this heightened risk.

But the consequences of any default would, ironically, actually increase the size of government relative to the US economy – the very outcome that Republican intransigents claim to be trying to avoid.

See the full post at Global Public Square

Simon Johnson, a professor of global economics and management at MIT Sloan, is the former chief economist at the International Monetary Fund and co-author of 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown

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