The Hurricane Harvey costs could change the debt ceiling debate
Q: Why did God invent economists?
A: To make weather forecasters look good.
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Until around the time that Hurricane Harvey made landfall in the Houston area late Friday, economic alarmists – myself included – had been predicting that there was little likelihood that Congress would be raising the federal debt ceiling until sometime in October. By then, our nation might well have defaulted on the debt, possibly setting off a worldwide financial crisis. Now I for one, am ready to eat those words.
First, let’s look at the connection between the hurricane and the debt ceiling. Then, we’ll consider why the odds of Congress raising the debt ceiling in September have greatly improved.
When Hurricane Katrina wreaked devastation upon New Orleans and the surrounding Gulf Coast communities, not only was the response of the Federal Emergency Management Agency’s far too little and too late, but President George W. Bush limited his early involvement to a brief flyover of the area. By comparison, both FEMA and President Donald Trump are deeply involved in providing much more immediate and substantial assistance.
Although it will be weeks before we can make an even preliminary estimate, it is clear that Hurricane Harvey costs will total tens of billions of dollars. FEMA and other federal agencies will be picking up a large part of the Hurricane Harvey costs tab.
That brings us to the federal debt ceiling, which prohibits the U.S. Treasury from borrowing additional funds once the debt reaches just over $19.8 trillion, a sum it had been expected to reach in late September. But once FEMA springs into action, we may hit that ceiling a couple of weeks earlier.
We’ve actually seen earlier versions of this Hurricane Harvey play twice before – in 2005, when Hurricane Katrina hit the coastal areas of Louisiana and Mississippi and in 2012, when the coastal areas of New York and New Jersey were especially hard hit by Hurricane Sandy.
In the aftermath of both disasters, many conservative Republican members of Congress refused to provide more funding to FEMA unless there were matching cuts in other federal spending programs. Among the nay-sayers was a large bloc of Republicans from Texas. Indeed, Senator Ted Cruz played a leading role in trying to deny aid to victims of Hurricane Sandy.
It will be especially interesting in the coming days to see if these folks have had a change of heart, now that their own state has been hit. Will they be willing to make the ultimate sacrifices of raising the federal budget deficit and even voting to immediately raise the debt ceiling without getting spending cuts in return?
When a disaster strikes, the entire nation needs to pull together to get us through it. If Senator Cruz and other Republican members of the Texas Congressional delegation can sacrifice their fiscal policy principles, then we can probably count on President Trump to agree to raise the debt ceiling and to pass a new federal budget without a provision for funding his border wall. After all, won’t the Mexicans be paying for it anyway?
Some may appreciate the irony that the man who has proclaimed that climate change is just “a hoax,” may finally attain his first major legislative triumph by dealing promptly with one of its major effects. As Rahm Emmanuel famously proclaimed, “You never let a serious crisis go to waste…it’s an opportunity to do things you think you could not do before.”
About the Author
Steve Slavin has a PhD in economics from NYU, and taught for over thirty years at Brooklyn College, New York Institute of Technology, and New Jersey’s Union County College. He has written sixteen math and economics books including a widely used introductory economics textbook now in its eleventh edition (McGraw-Hill) and The Great American Economy (Prometheus Books} which came out earlier this month.