Yet these arguments do not consider the enormous benefits to the economy from linking the debt limit to spending reductions. Such a link is good economics in theory and in practice. It is essential to a credible return to sound fiscal policy and an end to the ongoing debt explosion. Such credibility is needed to bolster the weak recovery and reduce unemployment as government spending levels are adjusted. A statement released yesterday that I signed with 150 economists—including former Treasury Secretary George Shultz and Nobel Prize winner Robert Mundell—says "Increasing the debt ceiling without significant spending cuts and budget reforms . . . will bring further harm to private-sector job growth in
If politicians just increase the debt limit now without simultaneously correcting that rapid spending growth, then they will be expected to do so in the future. In contrast, if they tie any increase in the debt limit to a halt in the explosion of spending, then people will give them better odds that they will control spending in the future. Linking the debt limit vote to spending thus establishes a precedent and valuable credibility.