The Debt Ceiling Crunch
It’s just about crunch time. The time for making a grand bargain is running out. There is some wavering by senior Republican Senators but there is no movement with most of them or their fellow republicans on the House side. If they are faking their insistence on no revenue enhancement measures, they are doing it awfully well. Conservative pundits say that the Republicans are just playing hardball, getting as much as they can for consenting to a debt ceiling increase, but I agree with Mark Shields that their policy is just irrational. There should be no bargaining value in threatening to push the United States into bankruptcy, any more than there is bargaining value in holding nuclear weapons that can’t be used, which is the situation with Pakistan and India. The United States allows Pakistan in particular to act as if it is holding a bargaining chip but in fact goes ahead and does whatever it pleases in the way of drone strikes and lightening raids by Seal units.
The equivalent of a nuclear weapon is in the credit rating agencies. They determine whether a country, a state or an international entity is credit worthy. The extent to which it is credit worthy determines what interest it pays on its loans. The United States is triple A rated by Standard & Poor’s, which is the highest rating that can be awarded, but credit agencies made some noise a few months ago by saying that a default on the debt would change the credit rating of the United States. What gave the credit agencies such power? They are the ones who are now saying whether rolling over Greece’s debt constitutes a default or not. I would have thought that a matter to be decided at law or, failing that, by a governmental body. If the EU declares, in its wisdom, that what they are doing is not a default, so be it. It is the full faith and credit of the EU that is then on the line, not the judgment of S & P, and who are they accountable to? Not very much, though the Dodd-Frank Bill would place them under the supervision of the SEC and make them more vulnerable in law suits. Credit agencies, it would be hoped, would become a bit more transparent as to their methods. Whether that will work or not, I don’t know, but let’s return to the main point.
I still think there will be a grand bargain between the Republicans and the Democrats but even David Brooks is running scared. He said in his column today that the Republicans have done very well in negotiating a deal in which there will be just a few tax loopholes closed in exchange for major changes in entitlement programs that will save an awful lot of money and so if the Republicans don't compromise, now that they have won their bluff not to vote for a raise in the debt ceiling, they are no longer to be considered a party that has the right to govern. Those are pretty harsh words from someone who tries to be the intelligent and reasonable voice of a Tory like conservatism. He has been hard pressed ever since the party was taken over by Tea Party types. I still think he is bending over backwards to regard the Republicans as minimally sane. Why is making an issue of the debt ceiling, which has always been a pro forma matter, not sufficient sign that the Republicans have lost their moorings? I think many Republicans know they have painted themselves into a corner and that Obama is the one who will profit politically from any deal that is struck. Let us hope that they realize that Obama will also profit if no deal is struck, and so they can approve a raise in the debt ceiling as a patriotic measure, never mind the politics. But that is also to give them too much credit. They want to take the ship down with them.
I am not even sure that Brooks is correct in thinking that a very good deal, from his point of view, is on the table. Reports have it that Obama would save money by reimbursing hospitals less for medical education costs and for uncollected bills and for “special care” for “difficult” cases. Those are the kind of cost saving measures liberal health economists have long favored as part of a program to make Medicare efficient as well as effective. When Obama proposes things like this as part of Obamacare, they are dismissed by Republicans as the intrusion of death squads, but when Obama offers them as concessions, Republicans do not reject them. They only refuse to take them even if their own side wants them because they are tied in a package with revenue enhancement. I am not sure that most of the Republicans actually understand what is going on rather than just taking whatever are the marching orders for the day. I dare say I am not sure they are capable of analyzing the difference between what serves their ideological goals and what serves the ideological goals of their opponents. Listening to them talk to the media does not impress a viewer as showing them to be full of guile; rather, a viewer is impressed with the stubbornness that is born of clinging to phrases rather than ideas. But maybe I judge too harshly. Maybe there is a brain in Eric Cantor’s head.
I am pretty sure there isn’t a brain in John Kyl’s head. He was furious when he said on the floor of the Senate that Obama should come down and meet with Republicans who would explain to him why they could not vote for what Obama wanted. I thought this gave away much too much about the Republican position, even if Obama’s press secretary chose to read it as a call to hear once more the maximalist Republican position. But it is not the maximalist Republican ideological position that Kyl invoked. It was the very fact that their own constituents would disown them if they voted for any revenue enhancement. So it is not a matter of ideology at all. It is saying that the Republicans have indeed painted themselves into a corner and that only the President can bail them out by giving in, not that the President will get any thanks for having done so.
If Obama meant it about not pushing to the August 2nd deadline, he has to do something now. I propose the following course of action, something similar to which has no doubt been considered in the White House and which has probably, with sufficient reason, been rejected as a practical course of action. But here is what the situation looks like from the outside.
The Republicans have been claiming that they won’t give in to a debt ceiling increase unless they get something in exchange and the President has argued back that they have to give something up too, even though the Republicans think that raising the debt ceiling is concession enough. Call the Republicans on the difficulties they have raised in reaching a trade-off of revenue enhancement and spending reductions. Take the initiative rather than going back to the Republicans for one more try at compromise. Say both revenue enhancement and entitlement cuts are off the table until further notice. It is too late for that. Say that if an agreement is not reached within a week or so, Congressional Democrats will introduce on the floor of the House by July 15th a bill that would only raise the debt ceiling. If they are not allowed to proceed with the bill by the House leadership, that will be telling enough. The bill would be introduced in the Senate and the Republicans would be informed that there will be all out financial support for opponents of just those Republicans who vote against it, as there would be all out financial support for opponents of the House Republicans who vote against a raised debt ceiling should that bill get to the floor. And then let the chips fall where they may. If the markets fall after August 2nd, the 2012 campaign can begin in earnest, each of the Republican presidential candidates to be queried on whether they supported Republican refusal to pass a raised debt ceiling. Let the President play chicken with the American economy just as the Republicans have been doing for twenty years now. As Richard Nixon used to say about dealing with the Soviets, it is good if your adversaries think you are a little crazy.
The reason Obama is not overtly adopting this don’t retreat an inch (more) policy may be that he is already practicing it. Some leading Republican Senators are already willing to sign on to a grand bargain that includes some revenue enhancement measures. Others are saying that perhaps all they can give in to is raise in the debt ceiling that will get the country through several more months before we hit another crunch. They do not say whether Obama has to give in on entitlements to get those months. Tell you what. How about raising the debt ceiling for eighteen months? That will get us through to a new Congress elected, one way or another, on the basis of this issue. Let us see how the Republicans fare with the people who have seen how loony the fresh faces in Washington acted once they got there. A package with minimal revenue enhancement and minimal cuts (which, as I say, are no real concession) could get us there, and Republicans would have time to update their clichés to deal with the new circumstances and so fight the next election on better terms than if the election were in the next month or two. That is the way it is supposed to be in a democracy. So maybe the solution to the present impasse is a not so great bargain. So be it.