Paul Krugman proffers a trademark sneer to the “default deniers” who are “asserting that the government can prioritize, so as to avoid a default on interest payments”. Not so, says Krugman, who insists that
The crucial point here is that even if they’re right about interest payments — which is unclear — the government will (a) still go into default on obligations to vendors, Social Security recipients, and so on (b) be forced into spending cuts so large as to guarantee a recession if the standoff lasts any length of time.
Well, first of all, as I wrote the last time the debt ceiling got raised, it’s easy to cover all of the interest on the national debt via spending cuts. At least to a rough approximation, you could do it by eliminating the Departments of Commerce, Agriculture and Labor, none of which should ever have existed in the first place.
Moreover, although now we’re talking about small change, we do still have a Corporation for Public Broadcasting and National Endowments for the Arts and Humanities. As long as these survive, it’s clear that nobody’s even tried to make rational spending cuts.
Would trimming the government trigger a recession? I don’t know (and neither does Krugman), but in the scheme of things I also don’t particularly care. It can easily be worth a little short term pain to insure a lot of long term prosperity — something Krugman frequently fails to acknowledge, especially when it gets in the way of his scaremongering.
A hard limit on spending is a very good thing, because it forces each legislator who wants to spend a little more on projects A, B and C to make the case against funding some other projects x, Y and Z. (More on this point here). A hard limit on debt is not exactly the same thing as a hard limit on spending, but it’s about the closest thing we’re likely to get. I hope they don’t raise it.