Thursday, December 06, 2012

John Boehner threatens to repeat the debt ceiling fiasco, and to keep repeating it indefinitely

This is a follow-up to Tuesday's post about Bruce Bartlett's argument, which I find both convincing and important, that "The Debt Ceiling is the Real Fiscal Cliff". Again, it's important to emphasize that Congressional votes to raise the debt ceiling do not authorize new or increased expenditures by the federal government. They simply authorize the federal government to keep selling bonds to help pay for expenditures that have already been mandated by law. In the past, therefore, periodically raising the debt ceiling in order to allow the US government to keep paying its bills was a routine matter, sometimes accompanied by purely symbolic posturing.

As Bartlett correctly points out, "the debt limit is nuts. It serves no useful purpose to allow members of Congress to vote for vast cuts in taxation and increases in spending and then tell the Treasury it is not permitted to sell bonds to cover the deficits Congress created." But that's the procedure that happens to be in place (since the debt ceiling was introduced in 1917), and until last year it didn't do much damage.

In retrospect, though, we can now see that this somewhat odd procedure was a potential bomb that could blow up the US economy, if one of the major parties was sufficiently reckless and irresponsible to weaponize it.  In 2011 the Congressional Republicans decided to take that plunge in a historically unprecedented way, refusing to raise the debt ceiling when US government debt hit the upper limit unless they got sweeping concessions in return.  In effect, they used the threat of a US government default (which would also be historically unprecedented) as a way of taking the US economy hostage for purposes of crude political extortion.  That hostage-taking language, by the way, doesn't come only from critics of this maneuver.  It was used in a straightforward and unembarrassed way by Republicans themselves, including Senate Republican leader Mitch McConnell:
I think some of our members may have thought the default issue was a hostage you might take a chance at shooting. Most of us didn’t think that. What we did learn is this — it’s a hostage that’s worth ransoming.
And incidentally, the bit about "some" Republicans being willing to actually shoot the hostage was not an exaggeration.  A number of Congressional Republicans made it clear they really were willing to force the US government into default if they didn't get their way; and when Obama caved in to Republican extortion and offered the Republicans an extravagantly favorable deal, the House Republican caucus refused to accept it.  So the 2011 debt-ceiling crisis was not really resolved, but only postponed, on the basis of a bizarre package of measures that now have us facing the prospect of the so-called "fiscal cliff" (which should really be called an "austerity bomb").

=> We should also be clear about the fact that this Republican hostage-taking was an innovation that went well beyond normal hardball politics. Back in 2011, Bartlett usefully spelled out the truly astounding (and quite un-conservative) irresponsibility of what the Republicans were doing.
Over the last several weeks, a number of Republican congressmen have said that they will not vote to raise the debt limit unless massive cuts are guaranteed in advance. Some Republican senators have promised a filibuster against a debt limit increase should it pass the House. And Tea Party spokesmen have promised strenuous primary opposition for any Republican voting for a debt limit increase. [....]

Republicans are playing not just with fire, but the financial equivalent of nuclear weapons. Perhaps at one time when the federal debt was owned entirely by Americans we could afford to take a chance on debt default because the consequences would only be internal. But today, more than half of the privately held public debt is owed to foreigners; the Chinese alone own more than $1.1 trillion of Treasury securities.

Moreover, many countries use Treasury securities as backing for their own currencies. Thus the impact of default would be felt internationally, disrupting finances and economic policies throughout Asia, Europe and Latin America.

Therefore, a potential debt default is far more than a domestic consideration; it is a matter of foreign policy. This is why Secretary of State Clinton and Navy Adm. Mike Mullen have warned that the public debt represents an important threat to national security. As attorney Thomas Geoghegan recently put it, “Where the validity of the debt is concerned, our national security is at stake.”
In the end, financial apocalypse was avoided.  But this artificial crisis paralyzed national politics for months, damaged the economic recovery (which, from the Republican perspective, was a political bonus), and triggered a first-ever downgrade of the US government's credit rating.

=> And now, as I noted on Tuesday, there are good reasons to worry that the Congressional Republicans are ready and willing to do the same thing again within the next few months..

What I should have added is that this is not just a matter of anxious speculation.  House Speaker John Boehner has explicitly threatened to replay this extortion racket over and over, every time the federal government hits the debt ceiling.  He made this threat at a press conference on November 29 and then doubled down on on it on Fox News a few days later:
I’ve made it clear to the President that every time we get to the debt limit, we need cuts and reforms that are greater than the increase in the debt limit. It’s the only way to leverage the political process to produce more change than what it would if left alone.
Now, it may be that Boehner is just bluffing when he says this, to increase his negotiating leverage and/or to head off a revolt by the farthest-right Tea Party ultras in the House.  (Many of them already regard Boehner as a week-kneed compromiser and secret moderate, and also believe that the only reason the Republicans lost the 2012 presidential election is that their candidate wasn't extremist enough.)  But it would be foolishly complacent to take that for granted.

=> I want to acknowledge that I can imagine truly exceptional circumstances in which this kind of extreme, all-or-nothing strategy might be appropriate, even justified--for example, if some desperately urgent and genuinely transcendent issues were involved, like ending slavery or preventing a military coup.  But we're not in a situation that remotely resembles anything like that.

Yes, I know that some far-right ideologues among the Congressional Republicans genuinely believe that the policies being pursued by the radical Kenyan-Muslim-Communist in the White House pose such a drastic and urgent danger to the United States and the American Way that any means are justified in order to stop them.  (Earlier this year the recently-defeated Republican Congressman Allan West added, for good measure, that "there’s about 78 to 81 members of the Democratic Party that are members of the Communist Party.") But those people are simply delusional.  The bulk of the Congressional Republicans, including the leadership, are acting on the basis of more cynical hard-headed calculation.  They decided some time ago that a strategy of monolithic intransigence and rule-or-ruin obstructionism would yield them maximum political advantage--and the 2010 midterm elections confirmed those calculations for them, though right now they're still figuring out how to respond to the shock of Obama's re-election.  Over time, unfortunately, the result is that the national Republicans have become a party dominated by routine extremism and intransigence, along with an increasing willingness to tear up the normal rules and restraints of the political game.  And that makes them, frankly, a danger to the republic.

Even sober, centrist, temperamentally moderate, and judiciously balanced analysts of US politics like Thomas Mann and Norman Ornstein have gradually been forced to recognize this unpleasant reality.
We have been studying Washington politics and Congress for more than 40 years, and never have we seen them this dysfunctional. In our past writings, we have criticized both parties when we believed it was warranted. Today, however, we have no choice but to acknowledge that the core of the problem lies with the Republican Party.

The GOP has become an insurgent outlier in American politics. It is ideologically extreme; scornful of compromise; unmoved by conventional understanding of facts, evidence and science; and dismissive of the legitimacy of its political opposition.

When one party moves this far from the mainstream, it makes it nearly impossible for the political system to deal constructively with the country’s challenges.

“Both sides do it” or “There is plenty of blame to go around” are the traditional refuges for an American news media intent on proving its lack of bias, while political scientists prefer generality and neutrality when discussing partisan polarization. Many self-styled bipartisan groups, in their search for common ground, propose solutions that move both sides to the center, a strategy that is simply untenable when one side is so far out of reach. [....]
And one of the most striking pieces of evidence helping to confirm this assessment is the astonishing (but no longer surprising) fact that the Congressional Republicans are willing to use repeated threats of a US government default as a routine tool of political extortion, despite the fact that by doing so they systematically undermine the "full faith and credit" of the United States and run the risk of financial apocalypse.

=> Let's be optimistic and presume that the Republicans' fever will break at some point in the future—though only if they begin to pay a bigger and more unambiguous political price for it than they have so far. But in the meantime, it's crucial to somehow defuse this debt-ceiling bomb with which they may accidentally blow up the US economy.

A necessary first step is to recognize the danger. And in that respect, one encouraging sign is that the Obama administration has begun to issue public warnings that we can't let this kind of economic hostage-taking become a regular habit—and, in the process, has been trying to appeal to the enlightened self-interest of the business and financial lobbies:
President Obama warned Republicans against using a hike in the debt ceiling as leverage to win entitlement cuts, arguing it would play havoc with the economy.

In an address to corporate CEOs at the Business Roundtable, Obama said business leaders “should not accept going thorough” another debt-ceiling crisis like the one in 2011 that caused stocks to fall and led Standard and Poor’s to devalue the U.S. credit rating.

He warned a repeat of that showdown would be a “catastrophe” for the nation that would cause a “self-inflicted series of wounds that will potentially push us back into recession.” [....]

The president told the CEOs that a fight over the debt ceiling would cause more uncertainty for business. “We can't go there again,” Obama said. [....]

He also quoted Business Roundtable President John Engler, the former Republican governor of Michigan, who said the debt ceiling was "not a good weapon for anything except destroying our own credit rating." [....]

Obama said GOP use of the debt ceiling as leverage in the current round of tax and spending talks was a "bad strategy for America, it is a bad strategy for your businesses, and it is a game I will not play.”
(For the key passage from Obama's speech, see here.) He's right. Paying ransom to hostage-takers is not a viable long-term solution, since it only legitimates their hostage-taking and encourages them to keep doing the same thing in the future. And the Obama administration also has a practical proposal for defusing the debt-ceiling bomb—based, ironically, on a suggestion offered (and then withdrawn) by Mitch McConnell in 2011:
Earlier Wednesday, the Treasury Department posted a statement advocating that Congress adopt a so-called "McConnell Provision," named after an idea first floated by the GOP Senate leader. Under the proposal the debt ceiling would automatically increase, and Congress could only stop it with a two-thirds majority vote in both chambers.
Technically, as I recall, McConnell's proposal would have required the president to explicitly propose each increase in the debt ceiling, thus putting the political onus on the White House and allowing the Republicans to engage in demagogic anti-tax posturing. But it would take a two-thirds vote to block such an initiative, so the practical consequences would be similar to those of the current Treasury proposal.
"Extension of the McConnell Provision would lift the periodic threat of default from the U.S. economy and remove politics from future debt limit debates, while preserving Congress’ essential role in spending, revenue and borrowing decisions," argued Treasury spokeswoman Jenni LeCompte.
On the other hand, the immediate response by the Republicans has been intransigent.
But McConnell's office rejected the Treasury Department's characterization of his idea and indicated he would not support such a plan today. [....]

“The president wants to have the ability to raise the debt ceiling whenever he wants, for as much as he wants, with no responsibility or spending cuts attached,” said Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell (R-Ky.). “This is an idea opposed by Democrats and Republicans alike; it's a power grab that has no support here.” [....]
Etc. Having acquired this weapon, they don't want to give it up. And as we've seen, they're threatening to use it repeatedly and without restraint.

So we may well be headed toward another debt-ceiling crisis early in 2013. Josh Marshall suggests, plausibly, that this could result in "the mother of all government shutdowns". Let's hope that forecast turns out to be too pessimistic. But stay tuned ...

—Jeff Weintraub