An imperfect analogy

So I'm seeing folks (and friends) online mocking the current battle over raising the federal debt limit. The general gist of the complaints fall along the lines of "Good! Don't raise it. It's time the government starts living within its means." Which is all fine and dandy (I've been a deficit hawk since I first earned the right to vote when I turned 18, have supported a balanced budget amendment, opposed Medicare Part D and came *this close* to voting for H. Ross Perot in '92) but is a naive, simplistic and even reckless view in this situation. Dismissing for a moment how an otherwise routine congressional action has been inexplicably politicized by this congress (the debt limit was raised dozens of times during the Reagan and both Bush administrations as a matter of course) let me try and illustrate, in very basic and grossly generalized terms, what a failure to raise the debt ceiling limit would mean.

Sam, our friendly uncle, lives in a nice house with a mortgage. He's making car payments and, unfortunately, has maxed out his credit cards through some irresponsible impulse buying over the years. Because he's kept up with his payments for the past 235 years, he's benefiting from some sweet interest rates--Sam pays only 5 percent, whereas a bunch of his neighbors are paying 10 percent. Some folks, like Zorba a few blocks over, have really botched their finances, bouncing checks all over the place, and now have to pay 40 percent interest if they can even find a bank willing to talk with them. Ouch!

Sam's got a pretty good income, but he was crunching the numbers one day and realized that he owes more than he's bringing in. In fact, by the 20th of every month, he's tapped out with most of those bills due on the 30th. He's known about the problem for years, but generally tried to ignore it with the vague idea that he'd win the lottery or discover a cache of pirate gold buried in the back yard. But those haven't happened, and the problem's too big to deal with anymore. Fortunately, Sam's on really good terms with his banker, who's already offered him a revolving line of credit at 5 percent interest that'll last the next two years. A good deal, right? Sam can use that time to prioritize his finances, cut up his credit cards and start living within his budget. His debt won't be gone in two years, but he's due a raise once the economy picks up and he can cash in some stocks options--the important thing is, his payments will be manageable and he'll be living within his means.

Except... Sam's got relatives telling him his plan is the coward's way out. Sam will never, ever live within his means if he accepts the Devil's deal offered by his banker for that line of credit. The only way Sam can break the nasty budget cycle is to live on his income. No more credit. If there's not enough money to pay his debts, tell his creditors "tough shit." Sam's been their best customer for 235 years, right? There is no way they'd risk offending Sam. They want to keep his business.

So Sam turns down the loan, vowing to only pay what he has on hand. The 20th arrives and he fills up his 15 mpg SUV because he's got his daily commute and fuel efficient cars are for wimps (as is taking the train to work, or biking). He's adopted a diet of baloney sandwiches and Top Ramen, dropped HBO and canceled his gym membership ($200 penalty!) and lawn service, so his budget is stretching out a little farther than before. He's nervous about all the foreclosures he keeps hearing about, so he pays the mortgage first. He's got enough left to pay 60 percent of the remaining bills. Damn! He forgot about the utilities! Okay, he decides to pay his highest-balance credit cards in full, while putting off the car payment and utilities until the first of the month. There's a penalty for that, but he can catch up at the first of the month when his paycheck comes in.

Next month, there's not as much money left on the 20th because of those penalties. He can't afford more penalties, so Sam pays the car and utility payments in full, and half on his other bills (he still pays his mortgage first--Sam ain't no fool).

The first of the month, Sam gets a bunch of notices in the mail that his interest rates on all his credit cards have gone up to 10 percent since he is now a credit risk. His minimum payments have doubled. Sam spends all day on the phone arguing with his various lenders. Because of Sam's sterling credit history and being a loyal customer, one card generously lowers his interest rate to 9.5 percent. Then he gets a notice that his mortgage interest rate has increased to 10 percent as well! WTF? Sam's furious! He calls his mortgage banker arguing that he's paid on time, every time, but it doesn't matter. Their records show that he's not met his other credit obligations, which means he's a greater risk, reflecting the higher rate he now has to pay.

Sam's frantic. His paycheck is gone by the 12th of the month. Ramen is now a luxury. And he's got 50 kids to look out for! Idiot Texas fell out of a tree and knocked a tooth out--the dental bill's astronomical, but there's no way to pay it. Sam tries to find a car pool to work, but everyone claims to be full up. The first of the month, there's not enough money to pay the utilities. Sam looks into public assistance, but he earns too much to qualify. Sam finds the irony grating. The lights go off on the 15th. Water is shut off on the 25th. Sam's relatives are now calling him an idiot and moron for not paying his bills and ruining his sterling credit rating.

Grudgingly, embarrassed and humiliated, Sam goes back to his banker (who mysteriously hasn't been returning Sam's calls). When Sam finally gets in to see him, Sam's upset to learn that his promised two-year line of credit at 5 percent is now down to one year at 25 percent! The banker's apologetic, but points out this is essentially an unsecured loan and Sam's not exactly shown the best fiscal discipline in recent months. Feeling he has no choice, Sam accepts the loan and heads home, hoping to win the lottery or discover a cache of pirate gold on the way. He passes Zorba's house on the way home. Zorba, kind, understanding soul that he is, points and laughs.

I'm sure some armchair economist out there will poke all sorts of holes in my analogy (I already said it was imperfect, okay) and others will invoke the politics involved. Fine. Go ahead. But the long and short of the whole mess is that refusing to pay our debts will have negative consequences. Just how big these negative consequences will be can be debated until the cows come home, but the inescapable fact is that they will be negative. Our country can't afford that.

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