Minor Trims on Major Issues: The Triviality of Current U.S. Debt Ceiling Negotiations.

Sunset, Yosemite Valley.

© 2013 Dliff.

CC BY-SA 3.0.

via Wikimedia Commons.

In an article today in the New York Times, Jim Tankersley discusses the ongoing negotiations between President Biden and House Republicans concerning the U.S. debt ceiling. The primary focus of these talks has been to curtail nondefense discretionary spending, which encompasses areas such as education, environmental protection, and national parks. However, this sector represents less than 15% of the government's anticipated spending of $6.3 trillion for the year. Meanwhile, the negotiations have precluded any substantial changes to Social Security and Medicare, which account for the majority of future projected spending growth, and military spending, which rivals nondefense discretionary expenditure in size.

The proposed budget cuts chiefly target areas that are not primary sources of spending growth in the upcoming years, such as education and environmental protection. The reductions could lead to a 30% decrease in many popular government programs, according to White House officials and independent analysts. Additionally, the negotiations are unfolding in the wake of a substantial spike in federal spending during the Covid-19 pandemic under both President Trump and President Biden's administrations. Despite this increase, the Congressional Budget Office expects a modest drop in total government spending for this fiscal year, followed by a rise later in the decade.

The projected increase in federal spending over the coming decades is attributed primarily to major federal health programs and Social Security. These trends were apparent even before President Biden took office. The current negotiations, with their focus on trimming relatively small parts of the budget, have been criticized from both ends of the political spectrum. The stalemate over addressing mandatory spending programs and the nation's tax system continues with no immediate solution in sight. The trajectory suggests that an agreement capable of significantly altering federal spending in the future is unlikely under the current approach.

The New Geography of US Clean Energy Manufacturing.

"Solar Panels at Topaz Solar 1."
2014 Sarah Swenty/USFWS.
Public Domain.
via Wikimedia Commons.

In today's New York Times, Jim Tankersley and Brad Plumer review the impact of President Biden's climate law, finding it is driving more investment in American clean energy manufacturing than initially expected. This surge in investments in battery factories, wind and solar farms, and electric vehicle plants could lead to a significant reduction in fossil fuel emissions. However, the increased economic activity centered around green technology is also driving up costs for taxpayers who are subsidizing these investments.

The article prompted me to think about Paul Krugman's theory of New Economic Geography, and how the investments driven by Biden's climate law are reshaping the spatial distribution of economic activities in the United States. Companies are flocking to areas with abundant land, lower costs, and non-unionized labor, potentially turning these regions into new hubs of clean energy manufacturing. These emerging hubs could experience agglomeration effects, with firms and workers in the same industry clustering together, benefiting from localized knowledge spillovers, specialized suppliers, and a larger labor pool. Interestingly, the growth of clean energy projects in red states also highlights the potential for the law to bridge the gap between traditionally fossil fuel-dependent regions and the emerging green economy, fostering more balanced and sustainable regional development.

Moreover, the article brought to mind Brad DeLong's theory of communities of engineering expertise, and the importance of government investment in creating such communities that drive technological progress and economic growth. By providing substantial tax breaks and incentives for clean energy projects, the Biden administration is fostering an environment that attracts both domestic and international companies to invest in the United States. These investments can lead to the development of localized clusters of expertise in clean energy technologies, which, according to DeLong, are essential for driving innovation and maintaining a competitive edge in the global market.

As more companies, such as South Korean solar company Hanwha Qcells, establish factories and research centers in the United States, the spillover effects can create a virtuous cycle of innovation, job creation, and economic growth. This cycle ultimately reinforces the country's position as a leader in the clean energy sector. While the rising cost estimates have caused some controversy among lawmakers, the long-term benefits of fostering a clean energy economy should not be overlooked.

The increased investments in clean energy manufacturing as a result of Biden's climate law have significant implications for the United States' economic landscape and its fight against climate change. Krugman and DeLong emphasize the role of government intervention in shaping regional development and fostering communities of expertise that drive innovation and growth in the clean energy sector. The economic and geographical implications of these investments may thus be essential to continuing the United States' transition toward a greener economy, as the community of stakeholders continues to expand.

Presidential Limits in the Debt Ceiling Showdown.

14th Amendment of the United States Constitution, page 2.

(Section 4, shown above, concerns public debts.)

Work of NARA, Public Domain. 

via Wikimedia Commons.

As the standoff between House Republicans and President Biden over raising the nation's borrowing limit continues, the administration is reported by the New York Times today to be considering a constitutional challenge to the debt limit based on the 14th Amendment. The 14th Amendment states that the validity of the public debt of the United States shall not be questioned, which presents an apparent conflict with the current $31.4 trillion statutory borrowing limit. Jim Tankersley, the author of the article, writes that this has led to an intense debate among top economic and legal officials.

President Biden is set to meet with Speaker Kevin McCarthy on May 9 to discuss fiscal policy, but it remains unlikely a compromise can be reached in time to avoid a default. The president has consistently maintained that it is the job of Congress to raise the limit in order to avoid economically catastrophic consequences. Once again, gimmicks meant to circumvent Congress on the debt limit, such as minting a $1 trillion coin to deposit with the Federal Reserve, have surfaced.

It is clear that the federal government is barred from defaulting on the debt, while at same time, only Congress has the power to borrow. Tankersley reports that inside the administration there is an open question about what the Treasury would do if Congress does not raise the limit in time. Officials who support invoking the 14th Amendment and continuing to issue new debt apparently argue that the government would be exposed to lawsuits either way, which I think is correct. However, the right answer here is that the statutory borrowing limit is binding and that an attempt to ignore it would result in an immediate legal challenge that would likely traverse the Supreme Court's shadow docket and result in an affirmation that Congress has the exclusive power to borrow. There are no shortcuts out of this situation; the political branches, the Congress and the Executive, will have to resolve this issue between them.