Google+
Close

The Corner

The one and only.

On Debt-Ceiling Precedents



Text  



There’s a widespread argument among liberals that Republican stubbornness on the debt ceiling, and attempts to gain something in return for an increase in the ceiling, is unprecedented and therefore illegitimate. Ramesh detailed yesterday the raft of evidence to the contrary: At plenty of points over the past few decades, Congress has used the debt-ceiling vote in order to push through other legislation related to taxes and spending. Doing so now is a legitimate political strategy, not blackmail.

Yesterday, over at the Washington Post’s Wonkblog, Dylan Matthews went through the evidence about what approaching and then breaching the debt ceiling would mean economically and fiscally — implicitly making the point that this controversy is far from unprecedented. He explains the risks of higher interest rates, economic disruption, etc. — which we know might come about if we draw near to the debt ceiling or go over it, because we’ve done so before. For instance:

In 1957, the debt ceiling forced the Air Force to stop paying its bills temporarily. As a result, it spent $8 billion less than was appropriated — which amounted to 1.7 percent of GDP. That, then-Brookings fellow Marshall Robinson argued, led to the recession of 1957-8, which in turn lead to a $12.4 billion deficit (as you can see on the above graph). So this is not just what economists believe would happen, hypothetically. It’s what has actually happened historically when Congress played games with the debt ceiling.

Or take this:

2001 study by economists Srinivas Nippani, Pu Liu and Craig T. Schulman found that the 1995-6 debt ceiling fight raised interest rates temporarily, which, depending on the duration of the debt issued during that period, could affect federal budgets as far as 30 years in the future.

I’m not suggesting that Matthews is contradicting himself, since he’s not also suggesting, as many liberals have, that Republican intransigence on this issue is unprecedented. But the fact that it is not unprecedented is important: Suggesting that the House GOP’s actions here really are unhinged and unprecedented is a useful way to delegitimize them, and suggest that acquiescence to the president is the only option. But this situation is not unfathomable — we have some sense of the costs; the argument we should be having, therefore, is whether Republicans’ demands are important enough to justify the costs of this fight, and then whether the demands should be met.

Matthews’s post goes through the various risks of even fighting over the debt ceiling, not just going over it, which I agree are real and significant — some might suggest the costs of even drawing near to be great enough that they should dissuade Republicans from opening this fight in the first place, even if the reforms they’re working for are really worthwhile. For instance, Matthews explains, “The Bipartisan Policy Center found . . . the 2011 fight . . . cost us $18 billion in increased interest payments going forward.” Moreover, conservatives often talk about government-created uncertainty acting as a drag on economic growth — which it is — and according to various indices, the recent uncertainty peak came during the debt-ceiling debate in the summer of 2011. The House GOP is now proposing to essentially repeat that event (albeit at a time when the economy seems to be slightly stronger and fiscal policy is otherwise a bit more certain).

I happen to regard the costs of negotiating up to the debt ceiling acceptable if it’s going to win us useful conservative reforms (which is not a certainty), since they only reflect a small risk of going over the debt ceiling, they are acceptable while the risks and costs incurred by actually going past it are not (the costs of continuing the fight after the debt ceiling is exceeded, I think, would be unacceptable even if, as NR’s editors suggest today, Congress ensures that interest can definitely be paid). Obviously the president and Democrats don’t think the costs of either situation are acceptable — that is the case they need to make to the American people’s satisfaction, rather than suggesting that either situation is an illegitimate political maneuver.



Text