Tuesday, July 26, 2011

Was a debt ceiling hostage scenario unavoidable?

Jonathan Bernstein thinks I dreamed up an impossible counterfactual in suggesting that Obama might have refused to negotiate over the debt ceiling:

The ability of the president to force Republicans to separate deficit limitation from the debt limit, in Sprung's (or any other) scenario, is limited to the threat of invoking the 14th Amendment and running through the limit. Whatever the Constitutional status of that threat, I would have argued that it contained grave, serious threats to the president. Invoking the 14th now, or next week, after well-demonstrated GOP stubbornness and immanent danger, is one thing; declaring the debt limit unconstitutional by executive fiat right after a GOP landslide would have been seen by everyone except core partisans as an illegitimate overreach. Instead of constant reminders about presidents of both parties supporting increases in the debt limit, we would have been subject to constant reminders about how presidents of both parties accepted the limit, even when Congress delayed or attached stuff to it. At least that's my best guess. In my view, it would have handed the Tea Party House a huge gift: they, and not the president, would have been the reasonable ones.
I'd like to think that  Jon is right, and he may well be -- he certainly knows far more about the dynamics of the legislative process and public opinion than I do. But still...no President has ever engaged in substantive negotiations over the debt ceiling; why should Obama have submitted to being the first?  The Constitutional option need not have been brandished early; it could have surfaced much as it did in our noncounterfactual world, floated by law professors a few weeks in advance, and only embraced by the President in the endgame.   The mantra would simply have been that raising the ceiling pays for spending already approved, doing so is an obligation to maintain the full faith and credit of the United States government, and it is an inappropriate occasion for negotiating future spending.

As I believe Jon himself has noted, comprehensive bipartisan deficit reduction and tax reform bills generally require a long negotiation/gestation period.  I've noted myself that Clinton struck his multi-year budget deal with the GOP in August 1997, almost two years after they first ran aground on his veto of the ominibus spending bill they put forward in October 1995.  For Obama to embrace the debt ceiling as "a unique opportunity to do something big" was to make himself complicit in the hostage scenario -- to bind himself over as a hostage. 

Bernstein adds that "even if the debt limit wasn't an issue, Obama and the Republicans in Congress would still be headed for the exact same showdown at the beginning of the next fiscal year this fall." He acknowledges, though, that "a government shutdown without the threat of a default would hold somewhat fewer long-term dangers." That's understating the case. A reprise of the 1995-96 shutdowns would have been an acceptable risk. Failing to raise the debt ceiling isn't.


  1. Has anyone ever considered that this is a matter of national security? The fact that the threat is caused by a group of insane GOP elected officials does not make this OK anymore than if a foreign government attacked the computers of the Federal Reserve or the Pentagon.

  2. You wrote, "For Obama to embrace the debt ceiling as "a unique opportunity to do something big" was to make himself complicit in the hostage scenario."

    This is absolutely true, and to me it points to the endgame. Obama made himself a hostage ON PURPOSE, as you say. He submitted himself to this, because he wants to do something big. Basically Boehner said let's play high stakes poker and Obama said I'm all in. But now Obama has Boehner in a corner, basically checkmated. Because Boehner can't even hold his coalition in the House together to pass one measly $1 trillion cut. And if he can't pass his own pathetic bill in the House he controls, then he has to make a deal with the President. Because the President is offering $4 trillion in deficit reduction, and Boehner is now offering only $800 billion! That's more than a third less than Harry Reid's plan!!!!

    Look, anyone with two eyes can see that Boehner is now advocating for LESS defecit reduction than the President by 4 times, and less than Harry Reid by a third. That is not a good position to be in for a Republican.

    Basically, Boehner is the perfect guy for Obama to play, because Boehner cannot control his right flank, then the only other choice is to make the big deal with Obama, the deal better than Boehner could have ever imagined, and pass it with Democratic votes. This is what Boehner has to do now, because Boehner is an honorable guy who knows he cannot let the country down the toilet. Plus he knows he's already lost to Eric Cantor. Because Boehner will not retain the Spearkship, no matter what. Either he loses it to Cantor, or more likely he loses it to Nancy Pelosi, who will ride back to the speakership on the back of Obama crusing to reelection on the back of the Grand Bargain that Boehner let him have, and did so because it was the right thing to do and for the good of the country.

    Basically Boehner is toast, and either goes down like a chump, or goes down with a historic deal as his legacy.

  3. Obama can always use Seigniorage option, assuming of course he has advisors who know what this is. I'm praying he's holding out to drop this bomb on the Republicans.

    Why Obama did not use this as leverage and use the press conferences to educate the public that this debt debate is meaningless is beyond me. The US faces no crisis. Saying it's bankrupt or has to live within its means is utter nonsense.

    The crisis that will occur is not in US not meeting it's obligations to pay creditors. It's how the financial system will collapse if the US cannot issue anymore Treasuries to willing buyers(see 3.5 bid to cover ratio on yesterday's auctions).



    Ignore the alarmist inflation calls at the end and focus on how the US can always meet it's needs without issuing debt which is ALWAYS voluntary for a currency sovereign.

  4. Anon, see Wash Post, "Fed Can't Rescue Debt Debacle" http://goo.gl/iisVy

  5. Andrew writes: "But still...no President has ever engaged in substantive negotiations over the debt ceiling; why should Obama have submitted to being the first?" Isn't the reason that no President has ever engaged in substantive negotiations over the debt ceiling because there was never a credible threat to refuse to raise the limit, even it meant economic catastrophe? From the look of things, Boehner is working feverishly to prevent the tea partyers from blowing up the economy, but isn't having much luck. Those guys don't seem to be bluffing - they either sincerely believe that the debt ceiling doesn't need to be raised, or they figure a massive crash will do us good.

    Speaking generally, Obama had two choices for dealing with the debt showdown, either TELL the American people that the Republicans were making ridiculous arguments, that they are more concerned with reducing taxes on the rich and shredding the safety net than in reducing the deficit, or SHOW them. He chose the "show them" option (maybe he's taken creative writing). Rather than asking voters to choose between two intransigent parties on the basis of whose intransigence was more reasonable, he presented the choice between a party willing to take the debt and the economy seriously, and willing to accept the compromises that come with divided government, and a party unwilling to compromise even an inch.

    The show them approach seems to have worked - the polls show that voters overwhelmingly reject the Repubs' position, except on raising the debt ceiling, which is more popular now than it was when this mess began, but still a close run thing. Of course, winning the PR battle is important, but it provides limited comfort to Obama because merely winning it doesn't mean he won't be severely damaged if the ceiling isn't raised and the economy goes to hell. And winning the PR battle as had no effect on the tea partyers - they may be heading headlong into disaster but they don't care (somewhat similar to the Dems' decision to plow ahead with health reform despite some bad polling).

    Maybe if Obama had taken a different approach, we'd be in a better place right now, but considering the Repubs' inability to take yes for an answer, it doesn't seem particularly likely that they would have had an easier time getting there if Obama had stuck to his guns and refused to negotiate at all.

  6. Let's not forget that the President initially favored a "clean vote" on the debt ceiling, no strings attached, and that the House took one with all of the Republicans voting against it. At that point the Republicans had linked the issues of deficit reduction and debt ceiling vote, so the President one upped them, in wanting more encompassing measures. By apparently throwing into the mix some aspects of Social Security and Medicare, anathama to his base, and having the Republicans reject that, he called their bluff and showed the insincerity of their call for reducing the deficit while showing his own willingness to compromise. It may be that Boehner's proposals fail in the House, and that Reid gets the upper hand. But extreme Republicans may vote against ANY plan, thus forcing the U.S. to go past the debt ceiling deadline. In that case, and if the economy shakes, the President will have a stronger hand in invoking executive powers or the fourteent amendment if that is the only way to right the ship, and/or if the Congress still cannot or will not act. To have done so sooner would be premature and appear high handed. In either case, if the the debt ceiling is not raised in time, it will be clear who the obstructionists were and are.

  7. True, the House voted down a "clean" debt ceiling hike, but the admin had already started to negotiate at that point http://goo.gl/zX0XP