As early as last December, I was raising the alarm bells about the debt ceiling. In a piece called Will Trump’s OMB Director Blow Up the World?, I noted that Mick Mulvaney is a debt-ceiling truther who doesn’t think anything overly bad will happen if the U.S. Government misses some bondholder payments. I followed that up with more pieces throughout this year. My primary focus has been on the fact that Speaker Paul Ryan will not be able to raise the debt ceiling without relying on Democratic votes. I don’t think the Democrats should be expected to provide these votes.
It’s admittedly a tricky question. The official position of the Democratic Party ought to be that the U.S. Government pays its debts, and it pays them on time without drama so that our creditworthiness remains rock-solid. Even debating whether we’ll pay our debts is bad for our reputation as a borrower, so the party should support eliminating the debt ceiling entirely. Refusing to vote to raise the borrowing limit is inconsistent with these principles, so a strong argument can be made that the Democrats should all vote as a bloc to raise the limit without making a fuss about it.
But I can say the same exact things about what the Republicans ought to do. The problem arises because many Republicans will not vote to raise the limit under any circumstances, and another group will only agree to do it if they can get concessions from the Democrats. The political dilemma for the Democrats arises from the fact that voting to borrow more money isn’t popular even if it is technically a vote to pay for what we’ve already spent. The GOP puts the Democrats in the position of taking damaging votes that allow Republican members to avoid taking damaging votes. This would be bad enough without the Republicans attaching unacceptable measures to the underlying bill. In fact, it’s a sucker’s game. In order to end this repeating cycle, the Democrats have to be willing to be irresponsible for once, otherwise they’ll get punished for being responsible from now until the end of time.
Edward D. Kleinbard, a former chief of staff of the Congressional Joint Committee on Taxation, has an editorial in the New York Times today that predicts that the Republicans will in fact blow up the world and explains how it will be blown apart. Unfortunately, the piece never mentions the Democratic Party.
This is understandable to a point, because the Democrats don’t control the White House, the House or the Senate, and so can’t be expected to pass or sign any legislation on their own. But the assumption in Kleinbard’s piece is that the Democrats won’t provide the needed votes to raise the debt ceiling as they have in the past. It’s actually quite likely that they will provide those votes. The question is only about what they’ll demand for their support. The way the Republicans are behaving at the moment, the Democrats will be expected to make concessions.
Kleinbard assumes that this dynamic won’t change. The administration is too incompetent to lead in a proactive and effective way. The Republicans’ congressional leaders are too weak to get their members to see reason. And the Democrats may cave in the end, but not to the degree they have in the past, and not until after some irreparable damage has been done. In other words, the world will end.
Sometime in October, the United States is likely to default on its obligation to pay its bills as they come due, having failed to raise the federal debt ceiling. This will cost the Treasury tens of billions of dollars every year for decades to come in higher interest charges and probably trigger a severe recession.
The debt ceiling is politically imposed, and the decision not to raise it, and therefore to choose to default, is also political. It’s something America has avoided in the past. This time, though, will be different…
…An increase in Treasury interest rates of just 0.2 percent a year would cost the government about $400 billion over the next 10 years. It also would lead to higher borrowing costs for American businesses, because borrowing rates are set by reference to Treasury rates. Moreover, each month holders of tens of billions of dollars in valid claims against the United States would go unpaid, triggering a major recession.
None of this is particularly speculative; almost all economists and policy makers agree on the enormous fiscal, economic and reputational costs of default. That’s why, in the past, we’ve always managed to avoid it.
When I say that OMB Director Mick Mulvaney is a debt-ceiling truther, what I mean is that he doesn’t believe all these negative consequences will actually happen. Many House Republicans and perhaps a few GOP senators agree with him. Therefore, fear of causing a global recession doesn’t motivate or influence them. John Boehner couldn’t talk sense to them and Paul Ryan can’t talk sense to them. That’s why they’re demanding drastic budget cuts that they know the Democrats will not support in return for their votes on the debt ceiling. And, as I’ve said, many of them wouldn’t vote to raise the limit even if they got everything else they demanded.
The Democrats are expected to grab the steering wheel at the last second and save us all from plunging over the cliff, and then they’ll take all the blame for their life-saving solution that isn’t politically popular. This is a bad deal even with no conditions attached.
The truth is, it’s the Democrats who have the leverage here. They could be demanding all kinds of things in return for their votes but are instead just asking for a clean vote in which they aren’t expected to make concessions. That’s a loser for them, but one they’re willing to abide in the interest of the country and the economy.
I don’t think they should play along like this because they need to break the cycle here and now. They should be the aggressors for once, if only to shift the ground of this debate. While the leadership’s position should remain a clean vote, large blocs of Democrats should make clear that a clean vote isn’t good enough for them anymore. They won’t vote for a raise in the debt ceiling unless certain of their priorities are protected in the budget. They should say that they aren’t just going to line up behind what Pelosi and Schumer tell them to do.
The real reason to do this is because it will actually help McConnell and Ryan talk reason to their own members. If they want to pass their appropriations and not blow up the global economy, they’re going to have to make concessions to the Democrats, not ever-increasing demands. In truth, a clean bill will be satisfactory, provided that the Republicans provide most of the votes. But a clean bill where the Democrats provide most of the votes ought to be unacceptable, and if it takes a global recession to get the Republicans to believe they shouldn’t mess with our credit-rating, that will be most unfortunate but a lesson that needed to be learned one way or another.
The truth is, if the Democrats don’t adopt a stronger position now, I believe they will actually make default more likely. And this game is so rigged against them, that they have to be willing to let the world end in order to put a stop to it.