Clock Ticks on Federal Debt Ceiling Limit
Faculty Highlight Economic Lessons for Business Students in the Classroom
The summer humidity hangs over Washington – along with another hot and sticky
issue: What to do about the federal budget and the looming legally limited ceiling
on how much money our nation can borrow. With a fast-approaching Aug. 2 deadline,
lawmakers have spent months squabbling about the problem, which could have big impacts
on the global economy.
“The answer is clear – we have to raise the ceiling. And we need to get serious
about reducing the long-term deficit,” says Curt Grimm, dean’s professor of supply
chain and strategy. “There are plenty of ways to do this.”
The U.S. has been racking up debt at an alarming rate. In the past several years,
the country has been embroiled in military operations in Iraq and Afghanistan, pumped
money into a federal stimulus program to recharge the economy, continued expensive
benefits programs (Medicare, Medicaid, Social Security), and extended tax cuts,
all throughout an economic decline.
But solving the problems depends on the political parties coming together – which
neither side has been willing to do thus far.
Even still, Grimm doesn’t think the U.S. government will actually default. If
it did, the crisis would potentially be much more serious than the economic
aftermath of the subprime mortgage crisis, he said. [See Washington Post:
Debt ceiling doomsday scenario: What happens if Congress fails to raise the debt
limit and the U.S. can no longer make payments on its obligations?]
It is especially critical that business students understand the economic implications
of the debt crisis and the factors leading up to it, as well as the global forces
“Students need to have a sense of where the economy is going,” said Charles Olson,
Professor of the Practice in Logistics, Business and Public Policy. “When it’s a
lousy economy, goods and services aren’t going to sell. This is very closely linked
to the debt crisis because a lot spending in the economy is government spending.
If the ceiling isn’t raised, government spending will slow down and therefore the
economy is going to slow down.”
Olson and Grimm both teach the MBA core course on the global economic environment.
Olson is teaching this in the part-time MBA program this summer (Grimm will teach
the course in the executive MBA program this fall), where a lot of the discussion
revolves around current events and cases. He wants students to understand the business
implications beyond the political fight of the debt crisis.
“Many of our students work for large government contractors and other big corporations
in the Washington metro region that do a lot of work closely tied to the federal
government’s budget,” Olson said. “A cut in government spending will really hit
the Washington economy hard and have big impacts on the firms where our students
Olson is surprised that there hasn’t been a big reaction in the bond market to
the debt talks. But then again, he points out that many large companies seem increasingly
immune to fluctuations in the U.S. economy. Students, too, have a much more global
view of business.
“All business schools preach globalization and we certainly want students to
have a global view, but we also want them to understand the economy in their own
country, too,” Olson said. He makes sure his weekly class discussions cover the
debt crisis options and outcomes.
“You need a large area to cut from – I don’t see how it could be anything other
than Social Security. There’s not much room in the budget to cut anywhere else,”
“I think in the end – whatever happens -- this is going to slow the economy down
further,” he said.
As for the standoff in Washington, “it’s going to get very ugly,” Olson says,
expecting the squabbling to continue up until an eleventh-hour deal. Many would
agree it already has.