The Coming Debt Ceiling Debacle

There’s a storm brewing in Washington these days. Funding for the government expires on Monday, and two weeks after that the nation’s debt ceiling needs to be raised. Republicans are willing to fund the government if the Affordable Care Act is defunded and/or repealed. Democrats aren’t about to eliminate the signature achievement of President Obama’s first term. The House passed a short-term continuing resolution that defunded the ACA, the Senate stripped out the defunding and punted the bill back to the House (after twenty-one hours of grandstanding from Ted Cruz, the junior Senator from Texas), and the ball is now back in John Boehner’s court.

There could easily be a government shutdown next week — a contingent of House Republicans are unwilling to vote for a CR that funds the ACA, Boehner is unwilling to pass a “clean” CR with Democratic votes because that would weaken his Speakership. Good times.

In the middle of last week, the Wall Street Journal asked the question, “Why do House Republicans do the things they do?” White House advisor Dan Pfeiffer called the House Republicans “people with a bomb strapped to their chest.” Michael Tomasky called them “arsonists.” I think of the phrase from The Dark Knight: “Some people just want to watch the world burn.”

The House GOP is well aware of their reputation. Some seem to revel in it. And some are worried. From that WSJ article, we have this quote from Representative Tom Cole of Oklahoma: “It just takes one mistake. We could turn ourselves into a minority for generations.” They know they’re flirting with disaster.

Well, they’re on the cusp of that. If there’s a government shutdown next week, because no one is sure at this point what Boehner is going to do, that won’t be too terrible. It will be bad, but it’s something that can be recovered from. A clean bill gets passed quickly. The markets have only a momentarily freak-out. The frightening event comes two weeks later — the debt ceiling.

Obama’s position is simple: raise the debt ceiling.

The House GOP’s position is more complex: Implement the Mitt Romney/Paul Ryan agenda, and we’ll raise the debt ceiling.

In a frightening way, what the House GOP wants makes sense — they want an apocalyptic showdown with a president they view as dangerous and illegitimate. John Boehner, who I will give some credit, has managed to keep them from burning the world down by passing necessary bills and postponing the inevitable confrontation. However, that confrontation is at hand. and a shutdown over the continuing resolution won’t placate them. Since the ACA won’t be defunded with the continuing resolution, the next battleground (or, in the GOP’s parlance, “leverage point”) is the debt ceiling. Because they have to pass a bill to raise the debt ceiling, they want something in exchange. They want what they didn’t win at the ballot box last year, the Romney/Ryan platform. The Atlantic calls their debt ceiling demands “insane.” They’re trying to extort from the president what the American people resoundingly rejected.

It’s almost like the 2012 election didn’t happen. (Hell, Jim DeMint of the Heritage Foundation made that argument the other day. He said 2012 didn’t count because Mitt Romney was the wrong candidate to challenge the PPACA because of his experience in Massachusetts.)

Sam Tanenhaus argued in The New Republic six months ago that today’s Republican Party has the party of John C. Calhoun. Yesterday, The Atlantic‘s James Fallows also cited Calhoun: “there is no post-Civil War precedent for what the House GOP is doing now. It is radical, and dangerous for the economy and our process of government, and its departure from past political disagreements can’t be buffed away or ignored.” (Italics in original.) The Republicans are, Fallows states plainly, “demanding the reversal of major legislation as a condition for routine government operations.” Calhoun, not Abraham Lincoln, is the spiritual godfather of today’s Republican Party.

Jonathan Chait of New York Magazine has argued persuasively that the fate of the American Constitutional system is the balance. Obama can’t negotiate over the debt ceiling and agree to give the House GOP what they want, otherwise it fatally wounds the presidency (his and future presidents):

If Obama agrees to trade policy concessions for a debt-ceiling hike, he will permanently enshrine debt-ceiling hostage dramas in the practical functioning of American government. That means not only will unscrupulous opposition parties be able to wring concessions from himself and future presidents, but eventually a negotiating snag will trigger a real default.

It would fundamentally change the country’s governing norms, permanently placing new and destructive power in the hands of Congress.

Not only are the Republicans’ absurdly grandiose debt-ceiling demands unacceptable — they’re currently calling for Obama to essentially accede to the entire Republican fiscal and regulatory agenda in addition to destroying his health-care law — but any demands are unacceptable.

The incentive structure for Obama is therefore such that a debt-ceiling breach, while terrible, is better than trading something to prevent one. But it’s not clear if Republicans actually don’t understand Obama’s incentive structure or are merely pretending not to understand it. Terrible though it may be, a default may actually be necessary to preserve the constitutional structure of American government and the rest of Obama’s presidency.

Chait followed up yesterday on this, arguing essentially that the GOP simply doesn’t understand that Obama will let them shoot the hostage. Obama doesn’t want them to, obviously, because of the financial damage that will ensue, but he doesn’t have a choice.

Obama’s incentive structure is simple, then: Allowing Republicans to default on the debt now is better than trading something that allows them to threaten it later. His best option is to refuse to negotiate the debt ceiling and have the House raise it before October 17. His next best option is to refuse to negotiate the debt ceiling, allow default, and never have to go through it again. Bargaining merely postpones, and worsens, the next default crisis. No negotiated debt-ceiling price is small enough to be acceptable. There is therefore no circumstance under which bargaining for a debt-ceiling hike makes sense, even if the alternative is certain default.

That is a frightening reality, made all the more frightening by two additional factors. The first is that Republicans don’t believe Obama’s insistence that he won’t negotiate. Obama can claim he won’t negotiate, but he would have an incentive to lie about this, and nobody other than Obama can really know for sure. (I believe him, but I wouldn’t bet my life on it.) And one of the things Republicans truly believe about Obama — they say it constantly in private — is that they can make him fold.

As the debt-ceiling deadline ticks toward midnight, Obama ought to be able to make his determination clear enough that House Republican leaders understand their only choices are to raise the debt ceiling or breach it. Default would risk not only economic calamity but the potential of an electoral one for the otherwise unassailable Republican majority. But history is replete with disastrous miscalculations. They’re often made by weak, short-sighted leaders facing pressure to demonstrate toughness from internal opponents. That is to say, Boehner is exactly the kind of leader who would blunder into a calamity like a debt default.

That’s where we are. It’s not a pretty place to be.

I’m not sure who can talk the GOP down off the ledge. Two years ago I thought the financial markets and the GOP’s financial masters on Wall Street would be able to, but even they couldn’t get through to the GOP. (Hell, the GOP blames Obama for the credit downgrade, ignoring how their brinksmanship brought it about in the first place.)

I’d write my representative and beg him to pass a clean debt ceiling bill, but he’s useless. He went on Hardball on Thursday and embarrassed himself.

The Republican Party isn’t just risking becoming a minority party with these shenanigans. They are flirting with an economic armageddon with very bad and ultimately unpredictable results.

Scary days ahead. Scary days indeed.