More on the Budget Battle and Debt Ceiling Consequences

Matt’s post yesterday elucidated why the current budget battle might provide calmer waters for the upcoming debt ceiling debate. I hope he’s correct. The consequences of the government shutdown are harmful, to be sure, but they pale in comparison to the effects of breaching the debt ceiling. If the former precludes the latter, the argument can be made that our current squabbling was, in some unsatisfying ways, justified.

Unfortunately, it’s not guaranteed that the budget fight will assuage the Tea Party’s insistence on getting something out of the debt ceiling debate. Matt provides testimony from Evan Soltas, Ezra Klein, and Noam Scheiber about how the budget fight should temper the Republicans’ drive for extraction, but it’s still very much uncertain whether the House will roll over and lie down. Matt acknowledged this: “It is not necessarily the case that a shutdown-induced PR nightmare will diminish [the hard Right’s] appetite for further escalation. In fact, it might even do the opposite.”

More worrisome is the fact that the budget situation and the debt ceiling debate are increasingly joined at hip. Matt correctly points out that I didn’t clearly discuss the connection between the two in my previous post, and I apologize for that. By “possible spillover effects,” I meant that the entrenched disagreement between the House and the Senate / President Obama would carry on from the budget battle into the debt ceiling debate. Based on the risk of this entrenched opposition, the debt ceiling debate becomes a potential consequence of the budget battle when:

1) It’s decided that they should be addressed together, either by necessity or by agreement.

2) A limited timeframe for solving both mandates a sweeping policy proposal for immediate resolution.

Point number 2 becomes increasingly unavoidable as each day passes, and point number 1 is already happening. On September 28, House Budget Committee Chairman Paul Ryan (W.I.) told National Review Online that “I think (the government shutdown) will fold into the debt ceiling fight. I think that’s inevitable. And preferable in my opinion. I like combining all of our leverage, which is sequester and the debt limit.” Perhaps more disconcertingly, even Democrats acknowledge this is a desirable outcome. “We’d like to move them both together,” says Sen. Charles Schumer (N.Y.), the third-ranking Democratic leader. “I think having them together is a good thing because who wants to go through this again. The hope is maybe once the Tea Party has realized it’s not getting its way on shutting down the government that they won’t try the same stunt on debt ceiling.”

(Another scenario not suggested by Ryan or Schumer: the GOP gives up on the budget battle and focuses solely on negotiating a non-Obamacare deal, such as additional sequester, with the leverage of the debt ceiling. This idea was adamantly supported by a host I briefly heard on the radio earlier this week. You know, because bargaining with the full faith and credit of the United States in the balance should always be the go-to strategy.)

Ryan and Schumer’s quotes are equally disturbing. Ryan speaks to the main reason why the Tea Party will continue to advocate for a government shutdown: it forces Congress to deal with both issues at once, supposedly giving the GOP a stronger hand against the Senate and President. This is the opposite outcome of Matt’s scenario and risks creating even further deadlock. Schumer, on the other hand, assumes Matt’s outcomes but uses Ryan’s rationale to come to them. It’s problematic if Democrats believe that combining the debates and giving Republicans a power play will somehow lessen the danger of toying with the debt ceiling.

Of course, one Senator and one Congressman do not a collective decision make. More importantly, John Boehner’s staff indicates that he will not allow House Republicans to wage a debt ceiling coup and will instead rely on a combination of Democratic and Republican votes to push a raise through regardless of the Tea Party faction’s objections. Most financial organizations are assuming this will be the outcome of the current squabbling; I read a quote (can’t recall the source) from one analyst saying that people are delusional if they think the U.S. would actually default on its debt obligations.

Although it’s highly unlikely we’d cross that line, it’s still a little unnerving to see some banks and organizations prepare for worst-case scenarios just in case. And even if a solution is reached before the October 18 deadline, consequences will still be felt if a lengthy negotiations process occurs. A drop in consumer confidence, declines in the stock market, and a credit downgrade all occurred in advance of the last-minute 2011 debt ceiling deal and economists are already warning about similar effects this time resulting from protracted negotiations.

Beyond the economic effects of continued squabbling over the debt ceiling, it would be supremely frustrating to have endured multiple weeks of government shutdown only to see the House force-pass a clean continuing resolution and an uncontested debt ceiling increase. The exact same outcome could have been achieved without any collateral costs had the same decisions been made in early September. Economists indicate that 0.1 to 0.2 percentage points of 4th quarter GDP growth could be lost with the government shutdown when all is said and done, notwithstanding any effects from a loss of consumer confidence linked to debt ceiling uncertainty. That’s in addition to the personal, social, and cultural effects of the shutdown, a number of which I listed in my previous post.

Matt correctly argues that this entire process could be an attempt by Tea Partiers to gain credibility with their caucuses via a major battle with President Obama. While it might be a cunning political decision for select Tea Party Congressmen to spend two weeks’ demonstrating their hearty opposition to Obamacare, the intent reeks of opportunism and selfishness. I wrote in my earlier post that the GOP can’t win this fight and I still don’t think they’ll be able to extract any meaningful concessions from the Democrats, which is ultimately why this whole process was a waste of time and resources. This might be how the political game is played but it doesn’t make it less sickening to watch.

Matt raises an excellent point about the potential risk of another debt ceiling fight in the run-up to the 2014 elections. Perhaps this is the ultimate goal of the Tea Partiers: go to the limits now to demonstrate their opposition to Obamacare, and agree to a new debt ceiling increase without any blowback next year. They’ll argue how they fought to the end without any success in 2013 and don’t want to risk another series of ill effects this year when, clearly, this President just won’t budge. Again, politically cunning but a disheartening use of force that causes more harm than good.

A brief word on why this writer is coming down so hard against the GOP. First, there’s the rationale that Ezra Klein gives on behalf of the White House:

Top administration officials say that President Obama feels as strongly about this fight as he has about anything in his presidency. He believes that he will be handing his successor a fatally weakened office, and handing the American people an unacceptable risk of future financial crises, if he breaks, or even bends, in the face of Republican demands. And so the White House says that their position is simple, and it will not change: They will not negotiate over substantive policy issues until Republicans end the shutdown and raise the debt ceiling.

Negotiating over the specifics of a budget deal is one thing. A minority party’s use of its standing to block spending bills and dictate the legislative process is something else entirely. There will be a Republican President and Senate in the future; what happens if they encounter a Democratic House? Would we really want to go through this mess again? Establishing strong principle is imperative here, not for the benefit of the Democratic Party but for the integrity of the governing process.

I also maintain that the GOP would have been better served fighting for smaller concessions right up to the October 1 deadline. Had they avoided a budget shutdown, they could have seized the difficulty-registering-for-Obamacare narrative immediately and added evidence to their case of why Obamacare, as currently constructed, is not necessarily the best path forward. This would afford them two avenues in advance of 2014: a better rationale for why the law should be repealed, or specific policy fixes that could be used to make the law more efficient. (I’d prefer to see the latter but I imagine Republicans would take the former.) Either way, it seems like they would have been better served, and would have better served the American people, by avoiding obstructionism. Their political gambit went the other way. Perhaps Matt’s forecast is correct and it will reap rewards for them down the road. Perhaps it won’t.

To extend Matt’s comparison, it might well be the case the shutdown is comparable to The Purge. Given the uncertainty we still seem to be facing, though, it’s possible that we’ll wind up with two separate purges or one big combined purge, either of which defeat the whole point of a purge in the first place.

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3 thoughts on “More on the Budget Battle and Debt Ceiling Consequences

  1. Pingback: With US Shutdown in Fourth Day, Wall Street Signals Concern on Debt Ceiling

  2. Pingback: Post # 100 ( :-) ), the Debt Ceiling | Our Personal Journey

  3. Pingback: Behind the long shutdown | Rebecca Yang

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