Opposing Debt Ceiling Hostage-Taking is the Reasonably Moderate Thing to Do

Chris has offered a clarification of what he wrote last week about the “debt ceiling consequences of the [government] shutdown” in which he explains that he was not so much focused on how the shuttering of federal agencies might change the House Republicans’ calculations about how to approach the matter of increasing the debt limit as he was on the fact that a prolonged closure of the government would inevitably see the two disputes fused into one mega-dispute that would be much harder to resolve.

Given that these issues have been impossible for the two sides to dispose of separately, there is little reason to think that it will be any easier to do so if they are combined. Late last week, reports began surfacing that GOP leaders were coming to believe the only way out of the quagmire would be to finally strike a hitherto elusive “Grand Bargain” on taxes and spending with Obama and the Democrats. Business Insider’s Josh Barro posted on Twitter that “[t]he idea that resolving the shutdown becomes easier if you try to reform entitlements at the same time is so insane.” Convincing the Republicans to reopen the government and extend federal borrowing authority in one piece of legislation when they have been completely opposed to doing either separately will not be an easy task. Convincing them to do both of these things while also negotiating a fiscal accord that could not be concluded during any of the many attempts made since the wave election of 2010 – and to do all of that before the end of next week – would be downright Herculean.

Talk of the Grand Bargain may have faded, but the October 17th deadline is approaching fast and time to develop alternative plans is running short. This Week host George Stephanopoulos maintained on his ABC show this past Sunday that “the chances of actually tripping over into default are higher than they’ve ever been.” Ezra Klein’s Wonkblog has debuted a fun (but frightening) feature called the “Daily Default Dashboard” that uses a composite index of financial market indicators and online betting statistics to keep track of just how likely that outcome might be. As of yesterday, the needle had moved from “something’s not quite right” to “getting kind of scary” on account of interest rates on one-month Treasuries nearly doubling overnight.

I agree with Chris that the case for pessimism is strong. Yet I still think we as a nation are in a better position right now than if the Republicans had totally capitulated on the government funding issue and provoked the “whale of a fight” over the debt ceiling that House Speaker John Boehner promised back in August. For one thing, polls are beginning to show that the Republicans are indeed taking more of the blame than either Obama or congressional Democrats for the shutdown, and that even their own co-partisans are doubtful of the ultimate merits of their scorched-earth strategy (if one can call it a strategy). Unity in the Republican ranks is breaking down, even if the process of disintegration has so far proceeded in fits and starts.

By contrast, congressional Democrats – and especially Senate Democrats – have preserved their cohesiveness to a remarkable degree, selling even vulnerable red state members up for reelection next year on the benefits of maintaining a united front against the GOP. As a result, the Republicans have repeatedly downsized their demands and now seem willing to settle for relatively small-bore concessions like a repeal of the Affordable Care Act’s medical device tax or further means-testing of Medicare. Of course, the president’s position is still that any concessions are too many, but it is only because of his having adopted such an uncompromising stance in the first place that the opposition appears ready to end the crisis in exchange for token gestures.

On a related note, I think it’s important to flesh out a meta-point Chris made about his thoughts on the debt ceiling, namely why he felt the need to “come down so hard against the GOP.” He writes:

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.

Liberal commentators and politicians bemoan what they see as a “false equivalence” promoted by journalists, whom they perceive as reluctant to report on any example of bad behavior by members of one party without simultaneously highlighting a commensurate transgression on the other side of the aisle. While that is indeed a real problem, the current crisis has actually seen a range of nonpartisan media outlets displaying a greater willingness to assign blame solely to the Republicans.

To anyone who might charge us with abandoning our commitment to reasonable moderation by not offering up equally forceful criticisms of both parties, we answer that opposing debt ceiling hostage-taking is the reasonably moderate thing to do. As Chris pointed out, there are aspects of healthcare reform that can and should be changed, and we ought to having a vigorous debate about the fixes that need to be made as implementation proceeds. I suspect that he and I differ on what those fixes should be; maybe we can hash that out sometime soon. But for now, we are in agreement about the fact that the Republican Party’s current conception of the rules of American political engagement is a dangerous one. If we are ever again to be a fully functioning democracy, putting an end to these tactics is critically important.

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.

The Government Shutdown is Kind of Like That Movie “The Purge”

Chris had a very thorough post on the debt ceiling crisis earlier this week that looked at both how we got here and at what might happen if Congress fails to increase the Treasury’s borrowing authority in the next couple of weeks. I think his analysis of the situation is correct: Congressional Republicans backed themselves into a corner in the course of their attempt to delay, defund, or repeal Obamacare in exchange for keeping the government open, and had better figure out a way to end the shutdown and raise (or “suspend”) the debt ceiling as expeditiously as possible. Whereas the shutdown “is more of an inconvenience than a minor cataclysm” (although “each passing day makes the situation increasingly worse for more and more people”), failure to raise the debt ceiling would at best result in unthinkable levels of austerity – and at worst an international financial crisis.

I was somewhat disappointed when I finished the piece though, since it was titled “The Debt Ceiling Consequences of the Shutdown” [emphasis added] and yet it never actually discussed the connection between the two events. Chris writes:

More problematic is that the largest potential consequences of the shutdown are still yet to come. It’s possible that the budget battle will have spillover effects for this month’s upcoming debt ceiling vote, a critical legislative process that could have global financial consequences if not handled responsibly.

He then presents us with some quotations about the negative impact of the 2011 debt ceiling debate on the U.S economy and on our reputation in the eyes of at least one of the major ratings agencies, as well as the likely result of letting the current standoff continue to escalate. But what exactly are the “possible spillover effects” of the current crisis on the next one? He never tells us.

I’m curious to hear more detail about how Chris thinks the two fights are linked, because I agree completely that they are. It seems to me, however, that the connection is much less ominous than you might think after reading his screed about how the House Republicans need to put an end to their “spitfire histrionics.”

In fact, I actually think it’s a good thing that we’re experiencing a shutdown right now, given the political climate in which we find ourselves. There were early signs that House Speaker John Boehner, who served under Newt Gingrich during the shutdowns of the 1990’s and knows from firsthand experience that the Republicans were widely perceived as having sustained more political damage from that debacle than Bill Clinton, would attempt to avert a shutdown by convincing his members that the best time for staging an apocalyptic confrontation with Obama would be when the debt limit needed to be increased.

The U.S. never having defaulted, the aftermath of a debt default is largely a collection of hypotheticals and unknowns. This means that, unlike in the case of a shutdown, there is no precedent for a failure to raise the debt ceiling having gone badly for Republicans. Therefore, according to this line of thinking, failure to raise the debt ceiling has more potential upside for the GOP than failure to pass a continuing resolution that keeps the government running. This may or may not seem like a strange argument, depending upon how risk-averse you are and how much you believe the warnings of economists and financial analysts who say that this is a very dangerous game to be playing.

Wonkblog’s Ezra Klein wrote back in August that “trading a government shutdown for a debt-ceiling breach is like trading the flu for septic shock” and that Boehner’s apparent attempts to “talk his party down from this tree [allowing a shutdown]” would only make it that much more difficult to get it down from “that higher, more dangerous, tree [allowing a breach of the debt ceiling]” in a few months’ time.

By the last week of September, Wonkblog was featuring a post entitled “We may have a shutdown after all. And that may be a good thing.” Echoing the logic of his earlier tree metaphor, Klein and his co-blogger Evan Soltas reacted to the view of Politico reporters Jake Sherman and John Bresnahan that if “unified Democratic opposition forces Republicans to swallow a government funding bill they deem less-than-satisfactory, House Republicans will certainly counter by increasing their demands for reform when it comes to the debt-ceiling legislation.” Soltas and Klein reply that

when it comes to the final compromise on the bill, Sherman and Bresnahan are surely right: House Republicans are going to be more resistant to raising the debt ceiling if they feel they didn’t even stand and fight on the CR [continuing resolution]. If avoiding a government shutdown means breaching the debt ceiling — or even just increasing the likelihood of a breach in the debt ceiling — that’s a very bad trade. The corollary, of course, is that accepting a shutdown for a much lower likelihood of a debt-ceiling breach might be a good trade…

It’s a mark of the insane and reckless turn in our politics that shutting down the government so one of our [two] major political parties can get the brinksmanship out of its system is emerging as the sober, responsible thing to do. But here we are, greatest nation the world has ever known.

It might be helpful to think of the shutdown as kind of like that movie The Purge, which I have never seen. My understanding of the premise is as follows: at some point in the near dystopian (utopian?) future, society figures out that the most effective way of keeping crime rates low is to designate a single day every year on which all criminal activity is temporarily legal. A twenty-four hour period in which everyone is free to unleash his darkest impulses functions as a sort of emergency release valve that keeps violent and anarchic tendencies from erupting unexpectedly at other points during the year. (Yes, I realize that this is a strange model of human nature, and that this “cure” is in many ways worse than the disease, and that we’re actually discussing this movie as if it offers meaningful insights about reality. But just suppose for a moment that there’s something to it.)

All politicians talk about “fighting” for their constituents and for their agendas, but the rhetoric of the Tea Party movement is imbued with military imagery to an unusual degree. Insurgent conservative politicians nowadays are loath to express a willingness to work with members of different ideological persuasions. It’s natural to expect that constant assurances by Tea Party-backed congressmen that there will soon be an epic battle with Obama that never actually takes place will only result in an unhealthy cycle of heightened expectations followed by crushing disappointment.

At some point, these congressmen will actually need to deliver on their promises to avoid facing primary challenges and the wrath of their donors. Better for them to force a real-life showdown when failure to reach a deal implies as little actual damage as possible. At least they’ll retain some credibility in the eyes of their supporters when the time comes to cave on something else. As Klein and Soltas put it, maybe it would be best for everyone if the extreme wing of the GOP “got the brinksmanship out of its system now” and gave itself permission to behave more responsibly during the next crisis. Perhaps the shutdown will see to it that the darker thoughts swirling around in the Tea Party id are purged for the foreseeable future.

A related argument says that allowing the more belligerent members of the GOP caucus to experience the political blowback of precipitating a government shutdown will deter them from wanting to endure the presumably greater pain associated with a default. Writing before the shutdown began, The New Republic’s Noam Scheiber concurred with this line of reasoning:

Suppose Boehner surrenders… and avoids a shutdown. The only way he’s likely to keep his job in the face of the inevitable conservative backlash is to promise a for-real-this-time confrontation a few weeks later, in which the House insists on a year-long delay for the individual mandate, the linchpin of Obamacare, in exchange for raising the debt ceiling…. Problem is, Obama has absolutely refused to negotiate over the debt limit in any way…. [E]ither Boehner gets it or the global economy gets it….

If Boehner resigns himself to a shutdown, on the other hand, suddenly the future looks manageable. After a few days of punishing political abuse, Boehner will be able to appear before his caucus, shrug his shoulders in his distinctive Boehnerian way, and bleat that he executed the strategy conservatives demanded… The demoralized conservatives will realize they’re out of moves – at least in this particular battle – allowing Boehner to raise the debt limit a few weeks later with little drama.

The problem, as we have already seen, is that the prospect of a default seems legitimately not to frighten many of the hard-liners in the House (and Senate). It is not necessarily the case that a shutdown-induced PR nightmare will diminish this faction’s appetite for further escalation. In fact, it might even do the opposite.

There is one other point that isn’t entirely related but that I think has been largely overlooked in the commentary on the GOP’s strategic morass and bears mentioning. The assumption seems to be that any debt ceiling increase would last for one year, with even a leaked copy of a Boehner proposal from a couple weeks ago containing a provision to “suspend” the borrowing limit for exactly that long (until December 2014). Scheiber mentions the House’s push for a one-year delay of the individual mandate, which seems to have been designed to give the appearance of a fair trade: conservatives would get a one-year reprieve from the Affordable Care Act in exchange for Obama and the Democrats (or rather, the country and global economy) getting one more year without utter calamity.

Assuming that the Republicans do end up taking more heat than Obama from the public as a result of this brinksmanship, why would they possibly want to replay this entire debacle in the run-up to the 2014 midterm elections? The GOP has a real shot at taking over control of the Senate and would presumably want to do everything in its power to wipe this egregious episode from the electorate’s memory far in advance of next November. It is often said that politicians think too much about politics and not enough about doing the right thing for the country. It’s clear that at least some of them don’t think much about politics either.

In less than two weeks, we’ll find out whether this theory is correct. If it isn’t, then maybe we all need to watch The Purge and learn how to stay safe when the world ends.

The Debt Ceiling Consequences of the Shutdown

The current government shutdown is an embarrassing and deeply unfortunate byproduct of the Republican Party’s calcified rejection of Obamacare.  It’s one thing for Republicans to continue to question the efficacy of the health care law, as Ramesh Ponnuru points out.  But it’s entirely another matter when they refuse to pass a budget bill that does not include funding for Obamacare, even though the Senate and the President have made it clear that these bills will not be passed.  Rod Dreher’s thoughts on this extremely frustrating and irrational position are ringing quite true.

More problematic is that the largest potential consequences of the shutdown are still yet to come.  It’s possible that the budget battle will have spillover effects for this month’s upcoming debt ceiling vote, a critical legislative process that could have global financial consequences if not handled responsibly.  James Surowiecki:

The ceiling is the legal limit on the amount of money that the government is allowed to borrow, and raising it is necessary not just to keep the government running in the future but to allow it to pay for obligations it’s already incurred. As Justin Wolfers and Betsey Stevenson convincingly showed last year, the 2011 imbroglio over the debt ceiling put a significant dent in both business and consumer confidence, held back hiring, and further weakened the recovery. It also sent the stock market tumbling—even though a debt-ceiling deal was eventually reached, the Dow fell almost fourteen per cent in less than a month during the crisis, in part because it made people realize that a U.S. default was no longer unthinkable. (It also led to the first downgrade of the U.S.’s credit rating in history.) So it’s hardly surprising that the standoff in Washington is spooking—if not yet terrifying—investors. Markets dislike uncertainty, and what the Republican hard-liners in the House of Representatives have done, most significantly, is to make the future look uncertain by suggesting that, if they do not get the concessions they want (above all, the repeal of Obamacare) they are willing to let the U.S. default.

Martin Wolf looks at the consequences of a debt ceiling debacle:

At best, a failure to raise the debt ceiling would necessitate a sharp cut in spending. At worst, the US would default. Analysts at Bank of America Merrill Lynch argue that hitting the ceiling would require the US to balance its budget at once, cutting spending by about 20 per cent, or 4 per cent of GDP. That would push the US into another recession – even if there were no default. The consequences of an actual default, particularly one that lasted for some time, are beyond prediction. Unlike a shutdown, there is no precedent, for good reason. The notion is suicidal.

Michael Mackenzie, also of the Financial Times, has more information on the consequences of hitting the ceiling.

Right now, the government shutdown is more of an inconvenience than a minor cataclysm.  But each passing day makes the situation increasingly worse for more and more people.  Brad Plumer recaps the nine most harmful effects of the current closure, including cuts in nutrition and health programs, potentially delayed benefit remittance to veterans, and a hit to fourth-quarter GDP growth.

With the debt showdown looming as an ominous potential climax, it would behoove the Republican Party to resolve this situation as quickly as possible.  The Democrats in the Senate should be open to small negotiations on non-Obamacare policies to facilitate this process, but the onus is on the GOP to face the reality of the situation.  Its best bet was to allow the implementation of Obamacare and then emphasize the most inefficient parts of the plan throughout 2014 while simultaneously offering counterproposals for a new system.  That the public currently opposes the health care law 47% to 45% suggests demonstrated failures in the system would have lent credible evidence to buttress the Republicans’ case against the law.  Now, they’ve gone all in without any road map to extricate themselves from the reality that Obamacare will not be defunded, despite the fact that 72% of Americans oppose their shutdown strategy.  The faster the Tea Party wing of the House acknowledges this mistake, the more smoothly the next two weeks will go.

Enough of the spitfire histrionics that are engulfing the House.  It is unconscionable that veterans stand to lose access to benefits over an unnecessary fight that the Republicans cannot win, and it is obscene that this risk could extend to policy that affects the health of the global economy.