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OA532: OK I'll Bite What is the Debt Ceiling (Patreon)

Published:
2021-10-08 04:43:38
Imported:
2022-10

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Content

If that's something you've been too afraid to say lately, this is the episode for you! Andrew breaks down the history of the debt ceiling, and why it is as pointless as it is potentially catastrophic! And a wildcard segment on Texas SB 8 being enjoined.

Come see Thomas and others (like Ross and Carrie!) for California Freethought Day! It's online this year! Info here.

Links: 31 US Code § 3101 - Public debt limit, DOJ motion for injunction

Appearances

CA Freethought Day This Weekend!

-Support us on Patreon at: patreon.com/law

-Subscribe to the YouTube Channel and share our videos!

-Follow us on Twitter:  @Openargs

-Facebook:  https://www.facebook.com/openargs/, and don’t forget the OA Facebook Community!

-For show-related questions, check out the Opening Arguments Wiki, which now has its own Twitter feed!  @oawiki

-And finally, remember that you can email us at openarguments@gmail.com!

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Comments

JustAGuy

I'm not a smart person, Thomas's explanation of the benefit of debt went right over my head... Can't get over the idea of being indebted being a good thing.

Anonymous
>>69491412

He didn't really explain it as he's assuming prior knowledge. Imagine that your running a pizzeria. Assuming that it cost $9.30 to make a pizza that you can sell for $10, then you make 70 cents per pizza. Let's say currently you only have one pizza machine, and you can only sell 100 pizzas a day, meaning you make $70 a day. However, you think that you are limited by your lack of equipment and believe that there is actually demand for 400 pizzas a day, if you could make that many. You decide you want to buy 3 more pizza machines, each worth $3000 dollars. If you don't borrow any money i.e. no debt, then it would take 42 days to save up the $3000 needed to buy the first machine, 21 days to buy the second, and 14 days to buy the third, meaning it takes 77 days to buy all 3 machines. Over the next 33 days, you now make $280/day and make $9240 by day 100. That's scenario 1. Now let's rewind and say instead that you take out a loan of $9000 to pay for the three machines immediately, which gives you an extra $210/day. That's a income/debt ratio of 2.3%/day. So as long as your loan's interest rate it lower than you should make more money. Let's assume you got a loan at a rate of 1%/day and you pay back that interest daily until you can pay off the whole loan. This means you pay $90 a day in interest until you save up $9000. $280/day from profit minus $90/day in interest means you make $190/day. It therefore takes you 48 days to pay off your loan. So as of day 48 you now have the three now machines and no debt to your name. Over the next 52 days at $280/day you can make $14560 by day 100. So comparing the two scenarios, in scenario 1, with no debt, after 100 days, you make $9240. In scenario 2, with some debt, you make $14560. Because you were able to gain the benefit of having the extra machines now instead of waiting, it didn't matter that you put yourself in debt because you also gained assets that were in the long term worth more. I'll note that technically you could've made even more money if you paid back the whole $280/day and kept reducing your debt each day but the math get's complicated for that. By rough estimate in scenario 3 if you pay back $280/day you'll be debt free by at least day 33, giving you 77 days of profit. In scenario 3 by day 100 you make at least $21560. So in this case, you made even more money by getting out of debt sooner. So, in conclusion, if you are in debt, then it's generally better to pay it off sooner rather than later. However, that doesn't mean that you shouldn't go into debt if you have the opportunity to invest in yourself. It's kind of like taking the covid vaccine. It's easy to assume, if you are worried about side effects, that it's safer to do nothing than it is to take the vaccine. But in actuality there is a much greater chance of eventually catching the virus and suffering an injury form covid than from suffering an injury from a side effect of the vaccine. In other words, there is an opportunity cost or cost of inaction from not taking the opportunity to get vaccinated. It's similar with debt. Many people assume doing nothing, i.e not getting into debt, is the safest course of action. But there is an opportunity cost or cost of inaction from not taking the opportunity to invest in your future. In this case, taking the difference between scenario's 1 and 3, that's an opportunity cost of $12320.

Anonymous

Listener question for Andrew--is the issue with Democrats not wanting to use reconciliation solely about the politics of it, or is it also because there is a limit to the number of things that can be done via reconciliation each year? My understanding is that Congress can only pass up to three reconciliation bills each year, and so I'm wondering if Democrats are more worried about wasting one of those three on reconciliation then they are about the negative political ads for raising the debt ceiling. (Surely it's just as easy to hit Democrats in ads for raising it through a regular vote as opposed to reconciliation?)