Washington and the debt limit
How the Revolutionary War taught Washington the value of strong national credit
During the winter of 1777, George Washington struggled to hold his beleaguered revolutionary army together at Valley Forge. His men didn’t have enough food to stay fed, enough shelter to stay warm, or enough arms to drill and practice. The whole thing could have fallen apart right there, because it was hard to get a loan.
The ability to borrow money and issue debt was one of the British Empire’s secret weapons during the colonial era. Like the Lannisters, the empire paid its debts, and so banks were often happy to lend it whatever it needed.
As a result, British armies wintered in fashion, living off supplies they bought from American civilians while Washington’s army starved and John Adams roamed Europe, hat in hand, begging for loans.
It’s little surprise that when George Washington became the country’s first president, one of his top priorities was strengthening the nation’s financials.
The secret was debt.
We like to think of governments as operating similar to common households - you earn money through labor and spend it as you get it.
But even households aren’t so simple. Shoot, the act of buying a house often requires taking a significant loan - significant debt.
And what happens when you apply for that home loan? The bank looks at your credit history (among other factors) to decide on a mortgage rate. If you look like a safe bet to pay off the loan, your monthly payments on the loan will be smaller.
On a grand scale, national governments work in a similar way. Tax revenue hopefully pays most expenses, but whenever the government needs to spend more than it’s bringing in, it has to take on some debt. And the more confident everyone is that the government will pay off that debt, the cheaper the debt will be for the government to acquire.
From the beginning of presidential history, this was a goal of the utmost importance.
It took a while, but over hundreds of years, the U.S. government proved itself the most reliable government in the world when it came to paying off debt, eclipsing even Great Britain during the World Wars. Because of this reputation, it is cheaper to fund our government through debt than it is for other countries.
Which brings us to today, and the threat of a default.
If Congress fails to raise the debt limit - an act it has routinely done without fuss for 106 years (with the lone exception of a very fussy 2011) - well, that would be like if you stopped paying your mortgage.
In the case of the U.S. government, nobody is going to seize the house. But future borrowing would become more expensive, which would ultimately mean, someday, higher taxes or fewer government services.
But there is another path.
No other developed country has a debt limit. Other nations understands that, when you take a loan, you are committing to paying it off.
The United States could re-establish its financial security by doing away with the debt limit altogether. True, Congress will never do this itself - the debt limit gives Congress leverage over the White House it would be loath to surrender. But there’s an argument that today’s Congress doesn’t need to take action at all, because Congress already gave the president a tool to do away with the debt limit - 157 years ago.
Enter: The 14th amendment
The 14th amendment, passed in 1866 over President Andrew Johnson’s veto, is most famous for granting equal protection under the law and establishing that anyone born in the United States is automatically a citizen, but it also says, “The validity of the public debt of the United States … shall not be questioned”
As in, the debt limit itself may be unconstitutional, for it throws into question the validity of public debt.
The only way to challenge this interpretation of the 14th amendment is for President Joe Biden to ignore the debt limit and order Treasury to continue issuing new debt - borrowing money - beyond the Congressionally mandated limit.
If Biden does that, republicans in Congress may sue, which would likely put the issue before the Supreme Court.
At which point, the Supreme Court would have to weigh the 14th amendment, “The validity of the public debt of the United States … shall not be questioned” against Section 8 of the Constitution, which says “Congress shall have power to … pay the debts … of the United States”
The nine robed justices would then choose between upholding Washington’s legacy by striking down the debt limit (and thus preserving the United States’ place as the world’s premier creditor)...
Or it could throw all that away, rule in Congress’ favor, and forever increase the cost of funding the United States’ government.
I know what Washington would have wanted. The only question is whether Biden is up for the fight.