Friday, December 21, 2012

Obama's Tough Talk About the Debt Ceiling: Fair Warning or Blowing Smoke?

-- Posted by Neil H. Buchanan

In my new Verdict column this week, I take aim at the astonishing gift basket that President Obama offered to the Republicans earlier this week.  I then point out that, once again, the Republicans came to the country's rescue -- in their weird way -- by refusing to take "yes" for an answer.  Actually, Obama did not merely say "yes."  What he basically said was: "I know I'm in a great negotiating position right now.  But will you please let me give you almost everything that the majority of the country just rejected in the election, anyway?"  Bruce Bartlett quotes me in his new column for The Fiscal Times today, where he extends the case for Obama as center-right Republican-in-everything-but-name.  (OK, that is a bit of an exaggeration, but not much -- at least on economic issues.)

Even so, Speaker Boehner did say no, because he is in thrall to the crazies who have taken over his party.  (Which is not to say that Boehner is anything like a centrist.  He is just not the craziest guy in the room.)  Or, as Gail Collins so memorably put it yesterday, Boehner is playing "a game in which [he] needs to go into a back room before he makes his bet and get the approval of a herd of rabid ferrets." And people thought I was being harsh when I called the Republican leaders sociopaths!  (To be clear, Collins simply found a memorably colorful way to describe the chaos among the House Republicans.  My conclusions, by contrast, are anything but playful.  They are, instead, drawn from clinical definitions of sociopathy, as applied to many Republican leaders' actual statements and behavior.)

So where do we stand now?  The apparent Republican strategy is literally to pack up and go home.  There is no deal on taxes, spending, or anything else, but Boehner could not even get his own members to vote on an entirely symbolic measure designed to try to shift the blame for the coming tax increases onto the White House.  What does the herd of rabid ferrets plan to do next?  Evidently, they are going to put all of their chips on a stand over the debt ceiling.  They continue to believe that their negotiating position in February will be so strong that they can bring Obama even further to the right, by threatening not to increase the debt ceiling sufficiently to accommodate the continuing budget resolution that they passed earlier this Fall.

The new column that Professor Dorf and I wrote for Columbia Law Review's Sidebar is now available on their website.  There, we extend our arguments from our longer article in CLR's October 2012 issue.  We try to imagine what the White House is thinking in not only rejecting the argument based on Section 4 of the 14th Amendment, but in not even acknowledging that there is a constitutional issue involved with the "trilemma" that we have identified.  We find ourselves concluding, in part based on two key Supreme Court cases (Train and Clinton), that the case for issuing debt in excess of the ceiling is even stronger than we thought it was when we wrote our original article.

Which leaves us with the big question: Did Obama learn nothing from the debt ceiling fiasco in July-August 2011?  In one way, he certainly does seem to have learned a big lesson.  Even though he has loudly ruled out the 14th Amendment argument, he has said on multiple occasions that he is simply not going to play the debt ceiling game with Republicans again, no matter what.  Jared Bernstein, the former chief economist for Vice President Biden, recently noted in a blog post that the President is saying pretty definitive-sounding things about refusing to be blackmailed by the ceiling-wielding herd of rabid ferrets.  For example, earlier this week Obama said:

"So I’ve put forward a very clear principle. I will not negotiate around the debt ceiling. You know, we’re not going to play the same game that we saw happen — saw happen in 2011, which was hugely destructive. ...  So we’re not going to do that. ...  But I will not negotiate around the debt ceiling. We’re not going to do that again."

Sounds good, but what (if anything) is behind the tough talk?  Bernstein thinks Obama is simply going to ignore the debt ceiling, when push comes to shove.  "When it comes to the debt ceiling you either a) negotiate with terrorists or b) you don’t.  If it’s ‘a’ then I don’t understand either, but I take the President at his word that it’s ‘b.’"  Bernstein then describes the "horrible scrum" that would happen after Obama issues debt in excess of the ceiling.

I had a brief email exchange with Bruce Bartlett, who forwarded the Bernstein post to me.  The question is: Why does Bernstein think that the President is going for "option b)" (don't negotiate with terrorists), when Obama is already giving away the store -- even from a position of strength -- and when he has not even shown an awareness of the constitutional principles on which he might rely, during a debt ceiling standoff?

Neither Bartlett nor I could come up with a good answer.  On the other hand, Bernstein is both smart and very well connected to Democratic circles.  Is it possible that the President is planning to do what we and others have been advocating?  Although I would obviously be delighted if I thought that the White House was actually planning to follow what we view as his constitutional imperatives, it strikes me that it is a very bad strategy to pretend now that he has no such plans.

If the Republicans really do refuse to raise the debt ceiling -- and some of them have simply said that they will not do so EVER, no matter what they can extract, while others have simply set a price too high to contemplate (essentially, turning back the clock by about 80 years on American governance) -- the central issue in issuing additional debt is whether the financial markets will buy it.  That is, will lenders continue to offer their funds to the government at anything remotely resembling affordable rates?

To make the markets as comfortable as possible, it will be necessary to educate them in advance.  Explaining that it will be impossible to track and separate "unconstitutional debt" from "real debt" (which would continue to be issued, because on some days room will open under the ceiling, as my tax professor colleague Ted Seto pointed out in private correspondence recently) will take some time.  Talking through the process by which -- post-crisis -- all debt would be validated with the full faith and credit of the United States is not obvious.  It would require, if possible, weeks or months of explaining to the financial markets that there is a way to minimize the harm from the Republicans' obstinacy.  The big names on Wall Street would have to start a conversation in which they said, yes, as bad as this is, it is the only way forward.

In the meantime, of course, markets will become volatile, in anticipation of this bad possibility.  It could lead to a full-on panic, but the still-hypothetical nature of the "unconstitutional debt" would most likely allow people to believe that the worst need not happen.

And it is least likely to happen if the Republicans come to believe that there is nothing to be gained, and everything to be lost, from pushing the country into that crisis.  Once they have gone through a few weeks of screaming about impeaching the President, only to be told that they would be impeaching him for committing one of the three impeachable offenses to which they limited him -- to say nothing of the realization that there is no way the President would be convicted and removed by the Senate -- the ferret herd would know that they cannot force spending cuts by refusing to increase the debt ceiling.  (They will just have to go back to shutting down the government during the regular budgeting process.)

They might still refuse to do the right thing, but announcing his strategy in advance would give the President the ability to maximize the chance that they will see the pointlessness of their current plans.  The process will certainly be ugly, but much less ugly than having the President suddenly announce that the Constitution requires him to issue more debt.

In short, I do not see what Bernstein sees.  Whereas he predicts that the President will, when push comes to shove, back up his tough talk with the necessary decision to issue debt, I see the White House blowing smoke.  And even if Bernstein is right, it would mean that the Obama team will have followed the most destabilizing path to choosing the least unconstitutional option.

2 comments:

Libby lydia said...

Heya just wanted to give you a brief heads up and let you know a few of the pictures aren’t loading correctly. I’m not sure why but I think its a linking issue. I’ve tried it in two different web browsers and both show the same outcome.

good dissertation topics

Linda Lolly said...

Unfortunately the Debt Ceiling has been increased, and while the present power will benefit from it, several further generations of our children will have to cover it. I try not to involve my children in any kind of debt, though I should admit, it's not often that I can use lending service online for immediate help, but I cover my obligations in the nearest payday. How can I protect my children from being responsible for today's political decisions, I wonder.