Wednesday, October 20, 2021

The Political Psychology of Fiscal Numerology - Debt Ceiling Edition

 by Michael C. Dorf

Last week I joined Congressman John Yarmuth as a panelist in a program moderated by former Congressman Steve Israel as well as my Government Department colleague Professor Doug Kriner and Erin King Sweeney, who serves as senior associate director of Cornell's Institute of Politics and Global Affairs, which sponsored the event. The panel discussion had been set up a week earlier, when it appeared that it might be occurring just as the global economy was melting down under imminent threat of a U.S. default on its debt obligations.

The short-term increase in the debt ceiling somewhat alleviated the sense of immediately pending doom, but the timing was nonetheless noteworthy because earlier that day Congressman Yarmuth--who chairs the powerful House Budget Committee--announced that he would not seek re-election in 2022. Although Yarmuth is the sole Democrat in Kentucky's delegation, his seat is unlikely to turn red even after redistricting, because his district already reflects the Republican state legislature's efforts to "pack" Democrats from Louisville and environs into a single district, thus rendering the rest of the state's delegation safely Republican.

Nonetheless, Congressman Yarmuth's retirement will be a major loss for the Democratic Party and the country, as he is a dedicated and highly effective public servant. During our discussion, he made some statements endorsing so-called modern monetary theory with which I disagree, but we were in complete agreement on everything directly related to our subject: the debt ceiling. Interested readers can watch the video of the hour-long program here.

In the balance of today's essay, I want to explore a couple of puzzling claims that Congressman Yarmuth made about political psychology--claims I have no reason to doubt, as I trust his own political sense more than my own. My goal, then, is not to question the claims but to explore them.

Before coming to the psychological claims, I need to set the stage with some background points.

Separately and in joint projects, Professor Buchanan and I have written numerous law review articles, Verdict columns, blog posts, and (in Professor Buchanan's case) a book on the debt ceiling, I won't recap any of our arguments here, except to say that we think the public policy case is overwhelming for, in order of preference: (1) permanently repealing the debt ceiling; or if that's not politically possible (2) reinstating the Gephardt rule, under which it increases automatically as needed; or if that's not politically possible (3) suspending the debt ceiling for as long a period as possible; or if that's not politically possible (4) increasing the debt ceiling by as much as politically possible.

Unfortunately, only option (4) can be accomplished via the reconciliation process, which is not subject to a Republican filibuster. Why only option (4)? Because the federal statute that sets out the rules for reconciliation authorizes Congress to use the process to "specify the amounts by which the statutory limit on the public debt is to be changed." A particular increase in the debt ceiling is thus permitted via reconciliation, but outright repeal, the Gephardt rule, and suspension would all require the ordinary legislative process, which could only get started if ten or more Republican Senators once again blink and permit Congress to act on the debt ceiling via the ordinary legislative process or if fifty (but really two) Democratic Senators nuke the filibuster either generally or specifically for the debt ceiling. Neither event seems likely, meaning that the next change to the debt ceiling will probably need to occur via reconciliation, and therefore it will need to take the form of a dollar-amount increase--i.e., via my least-favored option, (4) above.

To be sure, option (4) could be made to serve as a de facto version of option (1). Congress could increase the debt ceiling to a number that is so high that it could never be breached. For example, Congress could raise the debt ceiling to $10100--which is twenty orders of magnitude more dollars than there are particles in the observable universe. Even if the U.S. were to experience hyperinflation to the point at which wheelbarrows of cash are needed to purchase a loaf of bread, a debt ceiling number that high would be effectively infinite.

Yet the political forces that prevent outright repeal of the debt ceiling also prevent its increase to a very high number. Those forces are ignorance of what the debt ceiling is among the general public and an appetite for demagogic exploitation of that ignorance by Republican members of Congress during Democratic presidencies. Democrats who vote to repeal the debt ceiling risk becoming the target of political attack ads saying that that they "voted for the government to borrow money from our children and grandchildren with no end in sight." Attack ads that focus on a very large number would seem at least at effective in exploiting public ignorance about the debt ceiling.

But that brings me to the puzzle. During our discussion, Congressman Yarmuth said that gun-shy Democrats would ultimately be able to vote to increase the debt ceiling via reconciliation because, as stated in the statute I linked above, they would not be required to specify a new total debt ceiling, but instead would specify by how much they were increasing the debt ceiling. That was the first puzzling claim. The second puzzling claim was that, given the amounts in question, it should be possible to specify a number a little bit under a trillion dollars.

Again and to be clear, when I say these claims are puzzling, I don't mean that Congressman Yarmuth's political sense is off. What's puzzling to me is why the politics would work out the way he suggests.

Consider the first claim. As a result of the most recent increase, the debt ceiling currently stands at $28.88 trillion. I suppose that a bill that expressly adds $900 billion to that number sounds to the average mostly-uninformed voter like it's adding less debt than one that expressly raises the debt ceiling to $29.78 trillion. "Trillions" sounds like and is a lot more than "hundreds of billions." But of course our mostly-uninformed voter is easily led. That's why they mistakenly think that increasing the debt ceiling "adds to the debt" in the first place. Meanwhile, it wouldn't even be inaccurate for the attack ad to say that a Representative or Senator who voted for the $900 billion increase "voted to raise the debt ceiling to $30 trillion" (using standard rounding conventions). So it's a puzzle to me why specifying the increase rather than the new total would be politically advantageous.

I'm also puzzled by the second claim. I get that raising the debt ceiling by $900 billion might sound like substantially less than raising it by $1trillion. Indeed, raising it by $999.999 billion might sound like substantially less than raising it by $1trillion. Merchants commonly price items at just below some round number because consumers see $99.99 as more than a penny less than $100, even though it isn't and if they thought about it they'd know it isn't. Still, because the risk here is political, the same dynamic explored in the previous paragraph applies. If an attack ad tarring a member of Congress with "raising the debt ceiling by hundreds of billions of dollars" would be less effective than one tarring them with "raising the debt ceiling by a trillion dollars," the political opponents can simply substitute the resulting number and accurately accuse the member of Congress of raiding the debt ceiling to however many trillions of dollars it now adds up to.

Indeed, this second point is more than a puzzle; it's a concern. If Congressman Yarmuth is right, then the plan in December is to raise the debt ceiling by something less than a trillion dollars--which would require that it be raised again pretty soon, perhaps before the midterm elections. Surely the political cost of going back to this issue again, closer to the next election, is greater than the cost of raising it by enough to put off any needed future increase for at least a couple of years. But I say "surely" there without any confidence in my view, because--unless I misunderstood him--Congressman Yarmuth was saying that those of his colleagues who worry about the political consequences of raising the debt ceiling will push for a minimal increase.

I hope that I misunderstood Congressman Yarmuth or that if I understood him correctly, he's overstating the reluctance of his colleagues to go big on a debt ceiling increase in the coming bill. Congress should substantially increase the debt ceiling. Instead, it seems intent on a substantial increase in the frequency of debt ceiling crises.

21 comments:

former student said...

Another possibility is that politicians (and marketers generally) assume that people are stupider than they actually are, and that they assume this especially when the commoners disagree with them. It is possible that the majority of voters actually like having this check on congressional spending, and that the compromise he is describing reflects their desire for small, incremental changes and frequent debates. And that voters know that once you give in to discussing the debt as a total number in the tens of trillions then they have to track the current debt rather than the incremental changes being made in today’s dollars.

Michael C. Dorf said...

Hey former student: You seem to be laboring under the same mistaken premise as the people that you think politicians think are stupid -- namely that the debt ceiling is a "check on congressional spending." It isn't. It's a check on paying bills that are already due, a means of downgrading the credit rating of the U.S. and thus increasing the cost of borrowing, and an all-purpose vehicle for hostage-taking. True, the hostage takers can sometimes demand that spending be cut in exchange for releasing the hostages. But then literal hostage takers could demand that Yo-Yo Ma and the BSO perform a cello concerto as a free outdoor concert in exchange for freeing their hostages; that wouldn't make the threat of murder a means of supporting the arts.

Joe said...

Toss in Billy Joel, for Prof. Segall.

former student said...

A better analogy would be a parent refusing to pay an adult child’s debt as a means of trying to encourage the child to get off drugs or to live within his or her means. They clearly are related. The debts the parent refuses to pay may have been incurred already. So what? So stupid.

former student said...

And the only immediate and natural consequences of the parent’s refusal to pay off the child’s debt is that the child’s credit score is crushed and he has to pay more to borrow next time. Still, obviously related. In drug rehab culture the parent who makes clear that he will always pay his child’s debt is considered an enabler.

former student said...

You don’t like checks on spending and you think this particular way of checking spending is not a good one. But your analogy is completely off base and insulting to the intelligence of me and everyone else.

former student said...

Just for the sake of clarity: I have no particular position on fiscal deficits, and am much more concerned about how money is spent and where revenues come from than the overall balance of the two. I note that fiscal (and monetary) austerity is the only neoliberal project that has been clearly rejected by the bipartisan (Bush-Obama) American elite, and that makes me naturally suspicious, as I am more suspicious of the bipartisan US elite than I am of ideological labels. The knock-on effect that we were told to expect (by GWB initially) as a result of fiscal deficits -- gentle currency devaluation and increased competitiveness in manufacturing -- never materialized.

Michael C. Dorf said...

former student: You can repeat it as many times as you like, but you're still mistaken. Had you read any of the scholarship by Prof Buchanan and me, you would know that we say, repeatedly and accurately, that Congress has the ability to control its spending by . . . wait for it . . . not spending. Meanwhile, the fact that Republicans only use the debt ceiling as a political bludgeon when a Democrat is President (and why, previously, some Democrats had voted no on debt ceiling increases during Republican administrations) shows that this has nothing to do with spending. No other country in the world has a debt ceiling that operates like ours. (Denmark has one but it's so high as to do nothing.) Some of those countries spend a lot. Some pursue austerity. It's not about spending. Except that it appears that way to people you think that I think are stupid.

Michael C. Dorf said...

Oh look. Here's a story from 2017, when Chuck Schumer was proposing using the debt ceiling as leverage to try to block the Republican Congress's efforts to lower taxes. https://morningconsult.com/2017/06/22/majority-americans-say-congress-shouldnt-raise-debt-ceiling/ . So I guess debt ceiling threats can be used for things other than spending. As Prof Buchanan and I have noted and as I make clear above, it can be used as leverage for anything. But it's true that people like former student and other people he thinks that members of Congress and I think are stupid BELIEVE that tying the debt ceiling to fiscal matters is somehow logical and thus sensible. After all, many people (possibly including former student) think that failing to raise the debt ceiling means taking on less debt. That story from 2017 I linked revealed that a majority of Americans -- including a majority of federal workers who would stand to get stiffed -- said that the debt ceiling actually should not be raised, not that it merely should be used as leverage for something else they thought made policy sense. Yeah, that definitely shows that the public totally understands what the debt ceiling is and have a full grasp of what failure to pay the government's bills would entail.

And now I'm done with former student on this thread. I don't like anonymous/pseudonymous commenters generally. Perhaps if former student reveals his/her/their/its actual identity, we can have a more productive discussion of something else in the future.

former student said...

Sure but adult children have the ability to control their spending and drug use by not spending and not doing drugs. So what? It doesn’t mean that refusing to pay off debts incurred is unrelated to spending. I get your partisan point — that it is only used in a partisan way — but apart from making Democrats angry I’m not sure how that matters. It is used by Republicans as an effective partisan point because it resonates with people in certain ways, which was the whole premise of your article. Your conclusion is that this partisan play only resonates with voters because voters are stupid. My point is that it resonates for other reasons, and that dismissing your opponents as stupid is not a good tactic for governing in a non-authoritarian way. Then you dismissed me as stupid by using a clearly insulting and incorrect analogy.

former student said...

My identity is revealed to you (in my email address). Why do you want me to reveal it publicly? Why does my identity matter? Is it because my opinions are out of step with those held by most members of my profession, and you think there might be chilling effects if members of my profession know my opinions on these things?

Michael C. Dorf said...

Just when I thought I was out, they pull me back in. Sigh. What I really hope will by last reply to the pseudonymous "former student":

1) I called people uninformed. You said that the political elite think people are stupid but they're not. Sure. The people may simply be uninformed, just as I said. I have been using the "people you think I think are stupid" formulation to emphasize that you are engaged in a kind of politics of cultural resentment, which may also explain your baseless allegation that I simply like government spending.

2) I am not puzzled by the fact that people think there is a link between things that sound like they're linked but aren't. The explanation for that--ignorance--is completely clear. What the original post (remember that!) said was puzzling to me is why one strategy rather than another seemingly equivalent strategy is thought to be less subject to bad actors exploiting the public ignorance. So my conclusion is not that people are stupid. That appears to be simply more of your projection of your cultural resentment.

3) Although Blogger asks for your email, it doesn't display to me. Perhaps there's some behind-the-scenes way that I, as an administrator, can figure out who you are, but I don't know it, so I don't know who you are. If you think it would make your decision to hide behind a pseudonym look less cowardly, you can email me privately to reveal your identity and to explain why your public expression of fiscal conservatism and your belief that there is some necessary link between the debt ceiling and spending would subject you to some penalty--perhaps you work for a defense contractor or a non-profit that lobbies for more government spending. But even if your reason for cowering is simply the fear of politically correct bullies, I shan't reveal your identity publicly.

former student said...

Re the Shumer thing from 2017: Actual trying to block a tax decrease is not some random “other” thing. Plainly tax decreases and spending increases are the two things that the debt ceiling can be used as leverage against, and spending decreases and tax increases the two things it can be used as leverage for. Or, you know, maybe I’m stupid and hallucinating and the debt ceiling has no more connection to taxes and spending than to Yo Yo Ma concerts. Awesome.

former student said...

And, as I said, I get that refusing to increase the debt ceiling does not directly curtail government spending, just as a parent’s refusal to pay off a child’s credit card bill does not curtail the child’s spending directly. But it’s so obviously related that your analogy is insulting. One way to discourage future spending is to threaten to make it more costly. Even you admit that not paying current debt would cause the credit rating to go down and interest rates to rise, right? That means that future spending would be more costly, certainly future deficit spending. While I understand that this is a more destructive way to discourage spending than simply not spending, it doesn’t change the relationship. Parents would prefer their children get off drugs without having their credit ruined in the event they wish to buy a house later, and parents almost universally fear having their kids’ resumes marred by an arrest or jail time. Still, crushed credit and jail can be effective tools. And in other countries, countries that do not control the world’s reserve currency (or any currency, as in the case of EU countries) there are other external pressure (often crushing, like EU bailouts) that are used in the same way, so why on earth would an EU country mess with a debt ceiling?

egarber said...

<<A better analogy would be a parent refusing to pay an adult child’s debt as a means of trying to encourage the child to get off drugs or to live within his or her means. They clearly are related.

Oddball comparison. The whole thing is strained, but an accurate analogy* would be more like a person with a gambling problem deciding not to pay any of his own debt, as opposed to actually dealing with his problem. And then that person's credit is destroyed and his life is in ruins. Nice outcome.

*I'm not saying congressional spending is like gambling, but I'm granting your assumptions to prove that even under your terms, the comparison is wrong.

former student said...

I don’t think this is a good comparison because most people believe that they and their favored policies are not the cause of the debt. Certainly traditional Republicans believe that Democrat spending is the cause, and many Democrats believe Republican tax cuts are the cause. So McConnell might believe he is the parent when Biden is in office. Shumer might believe he is the parent when Trump is in office. And so on. My analogy is obviously better than the one offer by Prof. Dorf because the payment of existing debt is obviously related to the problem of ongoing deficits. I mean, I’ve never heard or thought of anyone denying it before. The most basic parental move when a kid does one too many bad things is to tell the kid they’ll have to suffer the consequences this time in hopes that the experience (or even just the threat) will encourage the child to modify his or her behavior.

former student said...

Perhaps the best analogy would be a wife telling her husband that he can’t dip into her retirement savings to pay his gambling debts, even though doing so will make it more difficult or costly for them to buy a car or house next time.

former student said...

That above example clearly isn’t “hostage-taking” at all.

Michael C. Dorf said...

I think I finally understand that former student's main objection is to my Yo-Yo Ma example. I had been assuming that no sensible well-informed person would actually want the U.S. to fail to raise the debt ceiling because of the financial catastrophe that would quickly affect the real economy. That is, I was assuming the threat was only being used as leverage. And if it's only being used as leverage, it can be used as leverage for anything. Thus my Yo-Yo Ma example. But if one thinks that actually failing to raise the debt ceiling is a good idea--or even simply not a terrible idea--then, yes, ties to spending or taxing are more germane. But of course failing to raise the debt ceiling is a terrible idea. So there we are. Given that we're no longer talking about a threat not intended to be carried out but an actual course of action, I agree that in former student's new examples, there wouldn't be hostage taking. Instead, that would be more like a murder-suicide.

former student said...

What you are missing is the possibility that some people believe the short-term pain of a voluntary default on some debt would be less catastrophic than the eventual involuntary reckoning or unraveling of the entire system that makes it appear as though ever-increasing debt is sustainable. I do not claim to be able to speak to this issue with any authority, and, as I said, I am agnostic about the whole deficit debate, preferring to focus on what we spend on and how we raise revenue. But I do not think there is any reason that regular voters should assume that certain economists know better than they do. With respect to arguments about the economic impacts of free trade and immigration, regular voters and labor unions have been right despite being maligned as ignorant rubes by economists like Krugman.

former student said...

So, with my above comment in mind, your "murder-suicide" metaphor is almost equally flawed. Reasonable people can reasonably believe that a one-time voluntary default on some debt would not spell the end (death, as in "murder-suicide" is final) of the US, its economy, or its way of life. In fact, reasonable people might reasonably believe that a one time violuntary default might be painful but offer a corrective to, for instance, the imbalance of asset prices vs. the real economy or the financialization of the US economy. I do not endorse or reject such views, but only claim that reasonable people can hold those views. Reasonable people might also believe that the eventual *involuntary* reckoning that might come if the US continues to assume that there is no downside to deficits and that it will forever hold the world's reserve currency (unless, I guess per your murder-suicide metaphor, the US voluntarily defaults) would be far worse, much more like the end of our current way of life. And regular people have noticed that the claims of economists to special insight and authority are undeserved. Krugman famously claimed ion the 1990s that Ricardo's "difficult" idea was too complicated for regular voters to understand. It turned out to be premised on an assumption -- that trade deficits are self-correcting other than in the short term -- that was just wrong, and the simplistic view of regular voters (best captured by Ross Perot in his "giant sucking sound" argument) was correct. So I think it best to start with a generous understanding of why regular voters act and vote the way they do, and then a bit of humility about your unproven hypotheses. You do not actually know what would happen in the event of a a one time voluntary default on debt, and you do not know what would happen in the event of continuing, unchecked, ever-increasing deficits and loose monetary policy. Many people view it as more like calling the police on a lvoed one for the theft of money and pressing for jail time. A terrible event, to be sure, but perhaps necessary to save the life of the loved one.