Federal debt default? So what? It happened before — in 1979

If you’ve been listening to any news lately, you know that Financial Armageddon looms if the politicians in D.C. don’t suddenly agree to a plan to raise the debt ceiling. Pretty much everybody agrees that such a thing is unthinkable. The only problem is that it happened 32 years ago — and it wasn’t a big deal.

If you own U.S. government debt, it’s a big deal whether you get paid of not. The security of knowing that the government is going to pay you is the reason so many people (and governments) lend so much to the feds. But in 1979, the government faced a somewhat similar crisis that led to lack of money to pay bondholders for awhile. And what happened? Not much.

Politicians and media like to scare you. Politicians like to scare you because scared people are motivated to support them on whatever crusade they’re on this week. Media like to scare you because it keeps you watching.

(If you really want to learn how the budget process is supposed to work — though I can’t imagine why you would — this week’s episode of the excellent EconTalk podcast covers it in more detail than normal people will care.)

The truth is that politicians need a deal far more than actual taxpayers need them to make a deal. They need to reach a deal in order to keep spending money on things that keep politicians in office — foreign wars and political spending around this country to pacify voters. For taxpayers, killing their ability to do that is a good thing in the long run. If they can’t borrow more money, they can’t obligate future tax revenues to pay for it.

It would be a very good thing if the politicians would default and then stop borrowing and spending like drunken sailors. They won’t do it, though. They’ll make a deal. They can’t help themselves. In the meantime, turn off the TV news and calm down. As the Hitchhiker’s Guide to the Galaxy says — right on the cover in big letters — “Don’t panic.”