According to Treasury Secretary Janet Yellen, government spending was to exceed the current debt limit Jan. 19, absent heroic juggling of accounts. This came as a shock, since most observers assumed that Congress had until late spring to strike some kind of a deal to raise the ceiling.
As Yellen wrote in a letter to congressional leaders last Friday, she plans to start robbing Peter to pay Paul, to buy time until June. Specifically, Treasury will stop making contributions to various government retirement funds, to keep spending authority under the current ceiling, which was last increased in December 2021. The retirement funds will be then made whole once Congress acts to raise the ceiling.
Yellen, reflecting the administration’s larger strategy, also took the opportunity to warn of the calamitous effects of the government defaulting on its debt. She wrote: “Failure to meet the government’s obligations would cause irreparable harm to the US economy, the livelihoods of all Americans, and global financial stability. Indeed, in the past, even threats that the US government might fail to meet its obligations have caused real harms, including the only credit rating downgrade in the history of our nation in 2011.”
The administration’s hope is that financial and corporate leaders, as allies of the Republicans, will increase the pressure on Kevin McCarthy and company to be reasonable.
It won’t work. Today’s House Republicans are substantially more reckless than past Republicans who extracted spending concessions from Democratic presidents by threatening to shut down the government or to refuse to extend the debt ceiling.
But for McCarthy and the Republican ultras, the more damage to the government, the better.
The more dire the consequences of default, they reckon, the more pressure it puts on Democrats to agree to savage cuts in public spending—outlays that have already been agreed to by Congress in the ordinary budget process. Indeed, if the cuts are deep enough, we don’t even need to increase the debt.
For decades, Democrats have fallen into the trap of viewing themselves as the “grown-ups in the room”—the fiscally responsible party. And each time the Republicans play this game (with one exception of which more in a moment), the Democrats get rolled.
In 2011, Republicans in Congress used the debt ceiling as leverage for deficit reduction. The delay in getting the deal done resulted in a credit downgrade of US Treasury debt. According to the Bipartisan Policy Center, the delay raised government borrowing costs by $18.9 billion over 10 years. In 2013, in the “fiscal cliff” affair, Republicans successfully got President Obama to agree to a 10-year program of mandatory deficit reductions, using the threat of refusing to increase the debt ceiling and shutting down the government.
It’s time to call a halt to this whole game.
One way is for the Biden administration to turn the tables on the Republican Supreme Court and invoke constitutional originalism. Until 1917, when the government needed to sell a large sum of war bonds, there was no such thing as requiring a separate vote on increasing the national debt. But during World War I, the Wilson administration came up with the idea of having Congress vote in advance for a statutory debt limit. This allowed the Treasury to issue bonds without specific congressional approval, as long as the total public debt did not exceed the statutory debt ceiling.
But from 1789 to 1917, the government simply sold bonds and borrowed money necessary to carry out spending authorized by Congress. There was no such thing as a debt ceiling.
As a number of legal scholars, led by Garrett Epps, have pointed out, the 14th Amendment explicitly dispenses with the need for a separate vote on increasing the debt. Section 4 provides that “the validity of the public debt of the United States … shall not be questioned.”
And as Epps has explained, the circumstances of its enactment were eerily similar to today’s. In 1868, there was a risk that Republicans who supported Reconstruction would lose their majority in Congress. Democrats, dominated by Southerners, had openly threatened to repudiate the national debt, most of which had been incurred to finance the Civil War. But thanks to the 14th Amendment’s explicit guarantee, the debt was routinely rolled over.
Joe Biden could announce that he is not going to play the Republicans’ game and relitigate spending that has already been approved by Congress. The Republicans would contend that this breaching of the legislated debt ceiling is illegal, and appeal it to the high court.
Over to you, Court originalists. Does the Court want to be responsible for ordering a default on the US Treasury bonds that anchor the world’s financial markets?
The other way for Biden to play the kind of hardball that the situation demands is to emulate Bill Clinton’s successful evisceration of then-House Speaker Newt Gingrich in 1995. Gingrich was the first Republican leader to play games with shutting down the government.
When Clinton refused to agree to budget cuts demanded by Gingrich in November 1995, the Speaker threatened not to authorize an increase in the public debt, and forced a shutdown of the government that lasted five days. A second shutdown, beginning Dec. 16, lasted 21 days.
But polls suggested that the public blamed the Republicans. It was Gingrich who blinked first, and the episode was the beginning of the end of his Speakership.
The lesson for today: By refusing to play, Biden would signal that if Kevin McCarthy wants to tank the world economy by allowing the US to default on Treasury bonds, that’s on him.
McCarthy, given his deal with the far-right Freedom Caucus, would not blink first. But the 20 or so moderate Republicans, who were willing to vote for McCarthy as Speaker and accept his rules package, might well decide that enough is enough. Peeling off a few Republicans to vote for an increase in the debt ceiling without crippling cuts would have the further virtue of moving the House closer to a de facto House governing coalition of Democrats and sane Republicans.
Both versions of this strategy have risks. But allowing McCarthy to call the tune, forcing disabling budget cuts and humiliating Biden’s presidency, has even greater risks.
Robert Kuttner is co-editor of The American Prospect (prospect.org) and professor at Brandeis University’s Heller School. Like him on facebook.com/RobertKuttner and/or follow him at twitter.com/rkuttner.
From The Progressive Populist, February 15, 2023
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