Members Only | October 19, 2022 | Reading Time: 4 minutes
On the debt-ceiling, the Republicans are willing to wreck the economy but the Democrats are unwilling to stop them
It doesn’t have to be this way.
In what has become an almost annual ritual, the Republican Party is once again threatening not to raise the debt ceiling. If they follow through, they would destroy the US economy, immiserating millions of their own voters.
The fact that they don’t care shows the extent to which the GOP has abandoned small-d democratic incentives in favor of the reckless politics of authoritarianism and extremism.
The debt ceiling is a legislative limit on the amount of money the federal government can borrow to meet its payment obligations.
The limit was established in 1917, and was routinely raised until the mid-1950s, when conservative lawmakers threatened to refuse President Dwight Eisenhower’s request for an increase.
Since then, struggles over the debt-ceiling have escalated. In 1979, lawmakers tried, unsuccessfully, to add a balanced-budget amendment to the debt-ceiling increase.
It wasn’t until the 1990s though, when a radical rightwing Congress actually shut down the government rather than raise the debt-limit, requiring the Treasury secretary to shuffle funds to prevent a default.
Republicans closed down the government again in 2011 and then again in 2013, when they demanded that any debt ceiling increase include the repeal of major portions of the Affordable Care Act.
These negotiations can look to casual observers like the usual partisan give and take negotiations around any legislation.
But they aren’t.
Republicans who refuse to raise the debt ceiling are blackmailing Democrats. And the blackmail is only credible to the extent that Republicans and Democrats alike know that Republicans are happy to ruin the lives of voters and destroy the country.
If Congress refused to raise the debt ceiling, the US would be unable to fulfill its obligations. That means it couldn’t pay Social Security checks. It couldn’t pay US troops. It couldn’t pay federal employees. Veteran pensions would stop. There wouldn’t be money for federal disaster relief.
But that would just be the beginning.
A US default – or even serious concerns about US default – could lead to a sell-off of US treasury bonds. That would raise interest rates in a potentially catastrophic manner.
In 2011, during the worst debt-ceiling stand-off, Moody Analytics predicted the unemployment rate would spike to 9 percent, with a loss of 6 million jobs. At that time, Standard & Poor’s did actually downgrade the US credit rating for the first time ever, leading to a market plunge.
Moody’s also predicted that in a default, stocks would drop by a third, erasing $15 trillion in household wealth. There could be a market crash as bad as or worse than the 2008 recession.
Refusing to raise the debt ceiling would create a massive financial collapse while simultaneously preventing the US from providing aid to those most in need.
The cost in human suffering would be nightmarish and long-lasting, permanently weakening global faith in the US economy. The consequences have been clear and much-discussed for decades.
That’s why Senate Republican leadership compromised with Democrats in December to avoid a debt-ceiling shut-down.
But if Republicans win the House in November (as seems likely), radical members of the caucus with McCarthy’s ear are already threatening to refuse to raise the debt limit.
Representative Jason Smith of Missouri, who has a good chance of being the head of the House Budget Committee, told Axios that he wanted to refuse to raise the debt limit until Biden agreed to “reverse” his “radical” policies.
“If we were trying to bring down inflation … trying to secure our border, surely [Biden] wouldn’t default,” Smith said, testing out the usual garbled GOP talking points.
Republicans don’t like to vote to raise the debt ceiling because the party is supposed to be committed to small government.
But they see it as an opportunity for blackmail, because they’re increasingly disconnected from democracy and its incentives.
In theory, political parties try to avoid devastating economic collapse because immiserating voters leads to those voters tossing you out of office.
But Republicans are increasingly insulated from such democratic checks. Political partisanship is growing, and combined with the rightwing media bubble, that means more voters will vote Republican no matter what.
And because they are the party of rural white voters, Republicans have a huge advantage in the Senate, the Electoral College and even in the House.
Republicans can adopt very unpopular policies and still win elections. They no longer have to worry about democratic incentives, and so those democratic incentives seem increasingly irrelevant and frustrating to the party.
One sign of that is the widespread Republican support for Trump’s coup. The debt ceiling is another. Rather than attain their goals through winning elections and then doing the hard work of legislating, the GOP prefers to win through violence and threats.
If the GOP can’t win through democracy, they’ll end democracy — either through violent coup or by wrecking the economy out of spite.
There are a couple of things Democrats could do to end the constant debt-limit showdowns. First, they could simply vote to eliminate the debt ceiling all together while they still control Congress.
This would be the best option.
The debt ceiling was always a bad idea. It doesn’t actually limit spending; it just limits paying for what’s already been spent. It’s essentially a law that says Congress can’t pay its past due bills.
Democrats don’t want to be seen as unilaterally authorizing more government spending, though. And to raise the debt ceiling, they’d have to either include it in a reconciliation bill, which is complicated, or overrule the filibuster, which conservative Democrats won’t do.
Alternatively, Joe Biden could effectively eliminate the debt ceiling unilaterally by using his statutory authority to order the minting of a $1 trillion commemorative coin. He could then use the coin to purchase Treasury debt, bringing outstanding debt well below the debt ceiling. (Eric Levitz explains this process in full at New York.)
The trillion dollar coin gambit would be an unusual exercise of executive power, though, and op-ed writers would squawk. So Biden doesn’t want to do that either.
The situation is familiar. Republicans are willing to wreck democratic institutions and inflict terrible suffering on the American people. The Democrats would rather they didn’t, but also don’t want to have to take even moderately controversial steps to stop them.
So far, Democrats and slightly more responsible Republican leaders (pushed by business interests) have managed to avoid the worst. The GOP is growing ever more rabid though, and there’s no guarantee that we can avoid a debt-ceiling crisis forever.
An unforced default would be a ridiculous way for US democracy to end. But an absurd apocalypse can still be very dangerous.
Democrats need to abandon their timidity and fix this permanently while they still can.
Noah Berlatsky writes about the political economy for the Editorial Board. He lives in Chicago. Find him @nberlat.
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